David Farnor | On 27, Jan 2014

The number of people subscribing to video on-demand services is on the up in the US, while the number of cable customers is falling, according to a study. Is this a sign that SVOD is the downfall of premium TV?

New research from NPD shows that the number of households in the US subscribing to cable channels fell 6 per cent from March 2012 to August 2013. The number of households subscribing to Netflix and other subscription video-on-demand platforms, meanwhile, grew 4 per cent over the same period.

The figures arrive as Netflix plans to launch Season 2 of House of Cards, the first original show that was released on the streaming site almost exactly one year ago. The move to produce its own content prompted many to label Netflix as the new HBO – something HBO has always been keen to dismiss.

Time Warner CEO Jeffrey Bewkes said at the end of last year that the services were “complimentary” and that “the viewing of HBO in Netflix homes is higher than your average home,” while the use of Netflix is also higher in homes subscribing to HBO.

The message was clear: Netflix is not a competitor. But the two companies were exactly that when House of Cards came along, with Netflix outbidding the cable channel to pay a reported $100 million for Media Rights Capital’s 26-episode production. 12 months later and Netflix is sitting on one Golden Globe and three Emmy Awards.

The suggestion from NPD Group’s new data is that the pair are rivals for subscribers too: as subscription video on-demand services, such as Hulu and Amazon Instant, grow, cable channels’ pool of members is shrinking.

The data, though, is only correlational: there is no clear cause between the two statistics.

One thing that is not in doubt, though, is that Netflix is driving the SVOD viewership. According to NPD’s report, in the first quarter of 2013, Netflix had a 90 per cent share of video-streaming units, although that was 4 percentage points lower than the same period in 2012.

In terms of TV shows alone, which account for 80 per cent of video streaming, Netflix made up 89 per cent of units, while Amazon Prime was responsible for only 2 per cent. HuluPlus grew to account for 10 per cent.

Only last week, Netflix announced that it now has more than 44 million subscribers worldwide, with more than 33 million members in the US – outnumbering HBO.

“There’s no doubt that Netflix is driving the growth in SVOD, particularly with increased attention to television programming,” comments Russ Crupnick, senior vice president of industry analysis at NPD. “We are also seeing good gains in the streaming numbers from Hulu Plus and Amazon Prime, and while neither pose an immediate threat to Netflix it is interesting to see which services later adopters will try.”

Indeed, viewers are not against using more than one service. In the first three months of last year, 10 per cent of SVOD customers streamed from both Netflix and Amazon, while 8 per cent streamed from both Netflix and Hulu.

“The company still has a quite comfortable market-share lead,” adds Crupnick. “While Hulu Plus and Amazon both still have a long way to go before they come close to catching Netflix, we are beginning to see increasing trial of these services, even among some Netflix users.”

With no clear question from NPD to determine why people are cancelling cable TV subscriptions, though, there is no certainty that the growth in on-demand viewing is stealing people away from premium TV. The fact that Netflix teamed up with Virgin Media in the UK last year to become an app on its set-top box, alongside TiVo, indicates that the Internet TV company considers themselves as an additive to cable TV rather than a replacement. (Update: Hastings has also recently said that he would be interested in a similar deal in the US to have Netflix as an app on a set-top box.)

Cable companies, meanwhile, have disputed the report altogether.

The study, which surveyed 7,500 consumers, “does not accurately reflect actual subscriber counts”, read a statement from Showtime, noting that the study was based on a representative sample rather than official industry figures from SNL Kagen. Showtime reported a rise in members from 22 million to 23 million at the start of 2014. Starz also added just over 1 million subscribers across the 12 months to September 2013, while Time Warner told Variety that subscription numbers had increased in 2013, although did not provide any specific number.

NPD apologised for claiming declines in subscribers specifically for HBO and Showtime, adding that their survey supports the notion that “faithful premium channel subscribers are becoming more so”. But the report still concludes that viewers “might consider [SVOD] to be an adequate substitution for other premium channels”.

Alternatively, it may be that people are switching to on-demand services to save money. The recent launch of Sky’s NOW Entertainment Membership in the UK, which allows people to watch premium TV content without the 12-month commitment, perhaps indicates that the industry has already reached a similar conclusion themselves.

For now, though, however you choose to interpret the figures, it seems clear that HBO and Netflix are very much competitors – whether either of them admit it or not.

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