Netflix Ad’d value?

It was recently announced that Netflix has been in the process of both developing and testing the ability to insert targeted promotions within its programming and its got people quite excited. The reason being, is this the start of Netflix moving to an ad-funded model?

It is easy to see the potential attraction, its base of subscribers continues to grow, viewing levels are now on par with one of the larger (UK) TV channels, and with viewer data and profiles, the ability of the platform (sic) to insert the right ad to the right person is a potential game changer, what’s not to like?

However, as a content provider, Netflix is already successful and the trend is in a right place, it’s USP has always been an ad-free positioning, so why change that?  Well, of course, the reality might be a two or even three price point plan, potentially offering a subs free access for access with ads perhaps, whilst still providing an ad-free service to those that are happy to pay. A winner.

But let’s look at the numbers?

Latest BARB data suggests that Netflix continued its impressive growth in Q2 of this year, increasing subscriber households by over half a million, to now account for 9.7m households. That means Netflix is in 34% of all UK households, and they are paying (kerching).

SVOD Numbers

So, on the one hand there is plenty of scope for additional household penetration who may be happy to accept ads without having to pay, indeed, 66% of UK households dont have Netflix.

However, when we break this down by demographics, then the scope starts to look less attractive.  At the end of 2017 BARB estimated that just under 60% of 16-24s had access to Netflix in a subscribing household. Since then, Netflix has added an additional 1.5m subscribers, so some simple profile factoring and we can estimate that 60-65% of 16-24s already have access to Netflix.  As we know, this is a prime, attractive, advertising sub-demographic and they already have an ad-free Netflix access.  So, is the intention to just try and attract the remaining 35%? Maybe.   If so, then the proposition to planners becomes less attractive.  One of the biggest draws, and indeed drivers of effectiveness for TV is its mass reach brand building impact. So, if only 35% of your target audience is potentially available, then it’s less of a one stop shop, and now just one of many avenues in my marketing mix in which to place my campaign.  That’s not to say it will still not be a valuable channel for marketers, it is just not the ‘game changer’ some have made it out to be. The TV sales houses can sleep easy for now.

The other alternative of course is that Netflix takes a hit on actual subscribers in order to offer ads to clients. This is a dangerous game for any brand that has positioned itself not to accept advertising, and also one that is still doing relatively well to increase market share.  It would of course also be a big gamble, hoping the TV ad revenue would more than compensate for the lost subs. With decreasing linear TV viewing time, then there is scope, but its a risky business for sure.

Elsewhere, although Netflix continued its strong growth in Q2, Amazon Video was relatively unchanged, adding less than 100k subs in the quarter.  Now TV fared only marginally better with just over 100k additional subscribers in the quarter.

SVOD Penetration

This means that across the three main services, Netflix, Amazon Video and Now TV, Netflix is now growing the strongest. Overall, UK households subscribing to an SVOD service increased by 22% in the year to June with 41% of UK households now having at least one of the three services.

SVOD Annual Growth

As for Netflix and their plans to introduce advertising, the next 12 months should prove very interesting and the devil will very much be in the detail.

One Player to rule them all

If the stories are true, the UK PSBs are poised to abandon a decade of competition in the delivery of television online, and join forces to offer a single online VOD player.  This new service, in effect a return to the ditched Project Kangeroo, will act to counter the ever growing threat of subscription services as a route away from linear broadcast.

As behaviours change, the ability to access a wider variety of programming from a single point of entry can only be a good thing for the viewer. Obvious questions remain about how it would work, especially in terms of BBC and commercial content working side by side, and of course, it is unclear as to whether this service will be a subscription or free at the point of access service, which if it is begs the question as to how competing sales houses integrate with each other. A lot of details to sort out for sure, but if it is the latter then there are significant potential benefits for the commercial TV industry. VOD is an ever important market, but the ability to buy consistent demographics and in a transparent way, continues to elude us.  This tie up in effect would see all PSBs collecting the same information on viewers, to the same standard, in the same manner, for the first time.  Given the recent collaboration by ITV and Channel 4 in this field, I wouldn’t be surprised if this manifests.

Whether this has any real impact on the rise of Netflix and Amazon however remains to be seen. On the face of it, we’re initially talking about a reduction in button pressing, which is of course great, but if it continues to be external to the main EPG, then there are still barriers at play, and the success of online players can be down to multiple factors.

We can see this in the performance of the native players themselves as there are some divergences by broadcaster in recent times. BARB TV Player Report data collects viewing data from all streams in the UK and what can be seen is that some are performing better than others.

Onlineplayers

Now it should be noted, that BARB data within this report only includes viewing to devices (PCs, Laptops, tablets and Smartphones), so it misses out the big growth area of TV applications, but results are interesting nonetheless.

Across the last year, there have been notable declines in viewership to both the iPlayer and Sky Go, but alternatively increases in viewership for All4 and ITV Hub.

Even just looking at quarter 1 this year (and therefore removing the impact of Love Island etc), then we see year on year growth of 14.4% for ITV Hub and 24.1% for All4.

Q1yoy

These are impressive statistics considering these players have been available on all devices (operating systems) for some time and therefore just go to show how successful both Channel 4 and ITV have been in curating content for their online players that suit the screen size and the demographic most likely to use it.  I myself have been a long time critic of the future growth in viewing on devices, in part noting the growth on TV Set platforms (which it should be clear more than off sets any declines on devices), but these results from ITV and Channel 4 show just how it is still possible to create and target content that works across all devices, even if I do still believe the big screen is the screen of choice.

Whereas the Sky Go results (declining 9% in Q1 2018) can in part be attributed to the growth in the SkyQ app which is not measured by BARB, it is the decline in BBC iPlayer usage that most highlights the changing behaviours of many.

onlineplayersYoY

These numbers if anything also highlight the now rather curious decision of the BBC to shut down the BBC3 linear channel which specifically served younger audiences. There is little suggestion they have moved to the online service, on devices at least.  That being said, the BBC themselves have recently stated that Q1 2018 was their most popular quarter to date for the iPlayer, so this can only mean significant growth on the TV set platforms and away from devices, which is not surprising given their heavy drama based programming. But it does further re-iterate the need for joined up thinking for player apps, you might have the best integrated collaborative app around, but if it still difficult to access from the EPG then you’re in trouble.

Either way, these recent developments have got to be a good thing, not only for the viewer, but also for the UK television industry as a whole.

Left to our own devices

We’re able to watch television on more devices than ever before, whether it be live TV or catch-up, it’s now possible to watch when we want, and where we want.  Online player apps now ensure there is no excuse to miss out on our favourite programmes.

But what devices, other than the old faithful TV set, do we prefer when it comes to watching premium television? Well, now we know.

With weeks to go before BARB’s new integrated measurement system is due to launch, BARB has updated their website to allow users to interrogate further just what devices are most popular for which player and which broadcaster. It’s the first time there is an audited viewpoint based on census data of online viewing by different devices in the UK, and it makes for interesting reading.

AllPlayersSource: BARB TV Player Report – All Audited TV Players

For starters, the device and screen do indeed matter. Much has been made of the role of mobile in video, and how it’s a potential game changer for viewing. Ultimately, this data, certainly for premium, high quality, immersive content, suggests otherwise.  Across the reporting period (May ’17 – Jan ’18), mobile made up less than 20% of all premium video, suggesting, given the chance, people will opt for a larger screen if possible.  Tablets made up the largest proportion of viewing at 46% of all viewing, followed by PCs/Laptops at 35%.

But ultimately, one size doesn’t fit all, and the popularity and use by device does change significantly by player and broadcaster.

iplayerSource: BARB TV Player Report – BBC iPlayer
itvhubSource: BARB TV Player Report – ITV Hub

Lets take the two main PSB Players, the BBC iPlayer and ITV Hub. The profile of respective device usage suggests some subtle differences, not only in the potential audiences, but perhaps also to the types of most popular programming.  The iPlayer profile, follows closely that of all players overall (not unsurprising considering it’s size and contribution to the base), with tablets accounting for 44% of viewing, PCs/Laptops 37% and mobile 18%. But for ITV Hub, this changes. Tablets and PCs are similarly popular (40%, 38% respectively) and indeed across late spring and early summer 2017, PCs were the most popular. For ITV Hub, it’s the shift to mobile that is most interesting with this device accounting for 22% of all viewing.

All4Source: BARB TV Player Report – All4

And what of other players, well, the profiles change once more. For All4, PCs/Laptops are the most popular (43%), above that of Tablets (37%), with mobile, like ITV Hub, above average at 20%.  This might suggest a significant demographic or content skew within All4 viewing driving PC viewing.  This perhaps rings true with other data provided from BARB. In a recent report based on data from their viewing panel, it suggested a young adult/student skew for this player. This is a demographic that is more likely to own and use a laptop for studies etc.

SkyGoSource: BARB TV Player Report – Sky Go

And what of Sky Go, the UK’s largest channel aggregator of broadcast television, well, again, the profile shift on the norm is significant, and it’s all about tablets. Across the period, 60% of all viewing to the Sky Go app, was via a tablet, with PCs only marginally above that of mobile with 22% and 18% of viewing respectively. From the same data we can see that SkyGo viewing is dominated by Live Streaming and of which we know that Premier League Football dominates the top programmes, so again, we begin to see how certain type of programming and audience segments have different device choices from the norm.

Of course, why does all this matter? Well, the environment in which we watch and how immersive that screen is surely has an impact on the effectiveness of commercials delivered to those screens. Simply put, are all screens equal? Maybe, maybe not, and this data, and the integrated data soon to be launched, will help in evaluating these questions.