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Market Insight

With $52 billion in spend projected by year-end, OTT subscription video rules video media

July 26, 2019


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At its peak in 2007, the physical DVD market amassed $47 billion in global consumer spending, a record that has remained intact, never equaled or surpassed. That is about to change, however, as over-the-top (OTT) subscription video rises to the pinnacle to rule the video landscape.

This year, the OTT subscription video market is set to take in $52 billion in global consumer spending, up more than 25% from 2018, breaking the 12-year record held by physical DVD.

These are some of the findings that can be found in our new report, Home Entertainment Market Outlook Report - 2019, which is offered in the Media & Advertising research service of IHS Markit | Technology, now a part of Informa Tech.

More than ever, the traditional video media market is being disrupted by new and entrenched players alike, with value and convenient online platforms distorting and rearranging the landscape.

At the same time, the traditional physical video format continues to decline, its share eroded further by the growth of online distribution markets and the closure of physical retailers across the world. Worldwide consumer spending on physical video fell to approximately $13 billion last year, down 14% from 2017. The physical video market is forecast to contract further in 2019, based on projections being made in IHS Markit research.

Yet no single media format or business model is about to become obsolete, as consumers prove willing to spend on all forms of media. Content is abundant as an increasingly globalized media consumption of video takes place, in conjunction with music, games, cinema, and pay TV, as shown in the chart below.

OTT subscription video and the Netflix factor

The success of Netflix has inspired a new wave of video services, ranging from the new band of US studio services including Disney+ and HBO Max, to the global subscription video platforms of major tech operators including Apple TV+ and Google’s YouTube Premium. The result is a booming OTT subscription market that has provided consumers with a wealth of new video content including both traditional linear and on-demand material.

Whether the growth of current OTT video subscription providers will continue unchecked, however, remains to be seen. Although consumers have proven willing to take on several OTT services, not every offering in the market will succeed, as the numerous closures and consolidation of media entities or their services around the world have shown.

Those looking to sustain or reinforce their position in the current market may find success in the form of partnerships, exemplified by the numerous European broadcaster joint ventures launching in 2019 and beyond. Other more niche services may find success as part of a channel program offered by the likes of Amazon and Apple, giving their content greater visibility than if those services had launched on their own.

Still playing: transactional video

Transactional video continues to play a significant role in the media and entertainment landscape , living on through price discounts across a diversity of formats, including physical, online, and pay TV video on demand (VOD).

The United States remains the largest physical video market in the world, accounting for nearly half of worldwide physical video spending in 2018. Meanwhile, the world’s most resilient physical video market is Japan, where spending on physical video is more than twice the global average of 19%.

Despite the rise of subscription video and the inevitable shift in the strategies of major studios to this delivery format, transactional content continues to be promoted significantly to consumers.

A key contender in the transactional video space is Amazon, whose online store is available in four of the world’s largest entertainment markets—the United States, Japan, Germany, and the United Kingdom.  Amazon’s rising share of the transactional online video market has largely been at the expense of other international services, including Apple’s iTunes, which has seen its share shrink in recent years. The shift in these markets toward Amazon is intrinsically tied to Amazon’s ecosystem strategy, providing media of all varieties including music, reading, and games, much of them available through Amazon’s Prime bundle combining media with e-commerce benefits and more.
 

Video in context

In the overall media and entertainment landscape, how does video fare compared to other forms, such as music, cinema, gaming, and pay TV?

Video is the fastest-growing part of the global media and entertainment space, with combined spending across all platforms set to grow at a compound annual growth rate (CAGR) of 9% in the next five years. Despite the decline of physical video, the growth of OTT video—spurred mainly by expanding OTT subscriptions—compensates for the loss.

The next fastest-growing format in spending is music, at 4.2% CAGR from 2018–2023, led primarily by online subscriptions as well, just like in video.

For cinema, far from fading away in the face of home video formats, global admissions continue to rise thanks to growing markets. Consumer spending worldwide in cinema is also growing because of rising ticket prices, in turn driven by vast improvements to the cinematic experience. An array of new technologies—including immersive sound, 4D, premium large-format (PLF), and laser projectors—helped propel a 5.3% increase last year in consumer spending on cinema over 2017 levels.

In gaming, the present generation of dedicated hardware from the major players is reaching the end of its current cycle. However, the typical lull in consumer spending as buyers await new hardware is being offset by growth in services spending, including platform subscriptions.

While video may be the fastest-growing sector, pay TV is the largest contributor to global entertainment spending, projected to account for more than 45% by the end of this year.  But like its counterpart in OTT video, pay TV is suffering from a global decline in average revenue per user, forecast to fall this year to $18 per month, the lowest ARPU level in 18 years.

The report, Home Entertainment Market Outlook Report – 2019, is offered in the two research categories of Digital Media and Video, both under the Media & Advertising research service of IHS Markit | Technology, now a part of Informa Tech.

Contact us for more details or if you wish to become a subscriber.

Geography
Global
Research by Market
Media & Advertising
Category
Digital Media Video
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