‘Not great but not a train wreck’: Free-TV could lose 10% of viewing time to streaming by 2018

New research has claimed Australia’s major TV networks will lose around 10 per cent of consumer viewing time in the next three years to streaming services, with Netflix projected to have 2.5m local users by 2018.

The new study by Citi Research projects the US streaming giant already has some 1.6m active users in Australia – including 910,000 paying subscribers, with 25 per cent of those using virtual private networks (VPNs) to access the US version of the video streaming site.

Source: Citi Research

Source: Citi Research

The study appears to confirm other market research which shows that despite only launching in Australia in March Netflix has a five times the numbers of users as its nearest rival Stan, which has 332,000 users and Presto on 193,000.

It also projects local streaming service Stan, joint owned by Nine Entertainment Co and Fairfax Media, will lose $200m in the next four years.

Source: Citi Research

Source: Citi Research

Justin Diddams, equity analyst for media & telecoms at Citi estimates local subscription video on demand (SVOD) penetration will get to 35 per cent of households by 2018, equating to an average one hour per day per person or 10 per cent of free-to-air viewing time, described as “not great but not a train wreck” in the report.

“Across 2015 we have seen FTA TV audiences decline in absolute terms by 0.9 per cent year-on-year, yet the TV advertising market was flat (reporting 0.2 per cent growth in six months to June 2015), implying both a larger impact on FTA viewing relative to the penetration of SVOD but also that advertisers are still investing dollars in TV despite the audience declines.”

TV sales bosses have previously sought to play down the impact of the growth of SVOD with Nine’s Peter Wiltshire describing it as a “niggle” back in April.

Citi Research analyses the financial situation for Nine and Fairfax Media joint venture Stan and projects that the company is set to lose just under $200m over the next four years, on an EBITDA basis.

The report also looks at consumer sentiment and finds that among 1,000 people surveyed by Citi 14 per cent are likely to subscribe to Netflix, more than Stan (5 percent), Presto (3 per cent) and Foxtel (4 per cent) combined.

Screen Shot 2015-08-10 at 3.20.20 pm

Source: Citi Research

Mike Sneesby told Mumbrella this afternoon: “From a market perspective, on who is first, second and third, I think the Citi report is on the mark. But in terms of the consumer sentiment measured he is wildly off the mark in terms of what our data is showing and I think that is due to the sample numbers.

“Citi’s view (on profitability) is more conservative than ours”, he said referring to Citi projections on Stan’s profitability.

Despite the report’s financial projections the investment bank does however commend Stan subscriber growth on the back of the $100m contra advertising by parent companies Fairfax and Nine.

“With its access to contra advertising from its JV partners it’s made an impressive start in the battle for subscribers, gaining an estimated 300k sign ups in 2015, that said, the conversion of those customers into recurring ‘paying’ subscribers could prove challenging based on the research data,” the report finds.

“The key question for Stan is how much long is management willing to continue investing free cash flow into this business to achieve break even, whilst the competition is supported by two well-funded parent companies (Netflix and Foxtel). We note Stan has been funded with $100m ($50m from each partner), with contra advertising included in the deal, which implies the business has another two (maybe three) years to prove it’s on track to profitability.”

Citi’s report also appears to confirm that consumers are taking up multiple services but that Stan and Presto customers are more likely to then take up Netflix than the reverse.

Source: Citi Research

Source: Citi Research

Only 11 per cent of those Netflix subscribers had other services but well over half of Stan and Presto subscribers reported that they also used Netflix, although it should be noted that the sample sizes for the market overlap research was relatively small.

The report also looks at subscriber numbers for both the SVOD services and also pay-TV players Foxtel (2.72m), Telstra T-Box (458,000) and rival OTT/IPTV service Fetch TV (286,000).

Source Citi Research

Source Citi Research

By 2018 Citi Research projects that Foxtel will have 3.5m paying customers, Fetch TV 1m, while among the SVOD services Netflix is tipped to have 2.5m users, Stan will be at 750,000 and Presto at around 250,000-300,000.

Screen Shot 2015-08-10 at 3.43.46 pmNic Christensen 

Related content: 


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.