As Expected, Streaming and SVOD up During COVID-19 Pandemic—Networks Mostly up to the Task

As households around the world continue practicing social distancing and sheltering in place, Subscription Video on Demand (SVOD) and streaming video services have seen significant growth during the ongoing pandemic. Netflix reported over 15 million new subscribers in 1Q 2020, for an increase of 23% Year-over-Year (YoY) and growth of 9% Quarter on Quarter (QoQ). Putting this growth into context, in 1Q 2019 net new subscriptions only totaled 9.6 million and accounted for 34.5% of the total annual new subscriptions. In 2018, 1Q new subscriptions were just over 8.2 million and represented 28.9% of the annual net new subscriptions. While it is unlikely this growth rate will sustain itself throughout the calendar year, the 1Q numbers (using the past two years as a measuring stick) would put Netflix on pace to add over 50 million net new subscriptions through 2020 and approach 220 million total subscriptions.

Disney+ has experienced tremendous growth, attributable in part to its international expansion (mostly Western Europe and select Asia-Pacific countries, including India under the Hotstar name), aggressive pricing, and bundling, but also to increased demand stemming from the pandemic. Disney+ is already well surpassing the growth rate the company had projected in 2019 before launch, when management targeted between 60 and 90 million paid users by September 2024.   

Google and Facebook also reported relatively solid numbers in 1Q 2020 as well, owing in part to the increased traffic due to the COVID-19 pandemic, although there were also points of caution.

The pandemic has resulted in many unprecedented trends and, while some worried the significant demands placed on the networks could cause problems, most indications to date are relatively positive. Companies like Comcast and Akamai Networks have provided updates and, while traffic increased quite significantly, their networks as well as the core and peering relationships were handling the load largely with aplomb—in part this was due to building networks for traffic 12 to 18+ months in advance. In some regions, like Western Europe and Latin America, operators have reported some potential challenges, but quickly addressed these pressures by downgrading video quality. There have certainly been some issues with video conferencing services, which saw spectacular growth as the world’s workforce moved to working from home. Overall though, the Media and Entertainment (M&E) and communications sectors have done a remarkable job addressing these demands.

Not all of the news and expectations are positive in the streaming media market, however, as potential challenges could arise if the pandemic continues to stretch on. For example, despite strong user growth, Facebook reported “a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.” Google offered more reassurances, with YouTube growing 33% YoY (revenue at US$4.04 billion), and despite slowing brand advertising later in the quarter its direct response advertising continued to grow throughout the quarter. Google also expects its search revenue to recover quickly once the pandemic abates.

For the SVOD services, the growth in subscriptions is certainly positive, but there are questions regarding how consumers will react once the world economies return to a semblance of normalcy. In addition, if world economies go into a recession this could further diminish households’ disposable income and SVOD services might be cut (e.g., paring down their list of SVOD subscriptions). Revenue is also not exactly equitable across all subscriptions; Average Revenue Per User (ARPU) in India, for example (which accounted for nearly 8 million of the 50 million subscriptions), is comparatively low—Hotstar offers two tiers, VIP (priced at US$5.30/year) and Premium (US$19.92/year), which is well under the annual rate in other markets like the US ($69.99/year). Disney+ also had packaged deals with Verizon, which accounted for around 6 million of the initial subscription totals.

There could be forward looking challenges, however, if content production continues to remain on hold—these services need fresh content to keep subscribers engaged, particularly if households continue to shelter in place or countries are forced to reapply these restrictions following a second wave of cases (or a return later in the year).

The networks and operators have addressed the growth and are continuing to expand to support other unexpected demand increases, but the companies must also remain cognizant that some of these changes are not permanent. Video conferencing and communications and collaboration services will likely continue to see heightened use post-pandemic, but streaming media and even gaming will almost assuredly see some declines (at least in terms of viewing/playing hours) as households go back to work and school (in office and at school, respectively). It may also take time for brands to recover their ad spend as they work to recover from the pandemic—ABI Research has also focused on streaming media and digital services, but the M&E industry as a whole has taken a massive hit with theatrical closures and limited to no live events like sports, so there are other potential ripple effects as these segments of the M&E industry work to ramp up.

As mentioned previously, there is also the threat of depressed economies following the pandemic, with some early predictions suggesting difficult economic environments could persist for months to beyond a year in length. It could take years to fully recover the jobs lost, not to mention businesses that were forced to close permanently during the pandemic. Some aspects of the market, like Google stated, will bounce back relatively quickly, but others will take time and potentially see a slowdown as consumer and viewer behavior return to something closer to a pre-pandemic state and companies need to factor this into their planning.