Netflix faces subs losses if it includes ads between shows

Just as the SVOD leader confirmed that it has begun testing the idea of inserting promos for its shows and movies between episodes of current programme, Hub Entertainment Research warns that Netflix could face steep subscriber losses for such actions.

In its study, The Future of Monetisation, the analyst gauged consumer reaction to alternatives to the Netflix pay model status quo, including possible price increases and an ad-supported plan. It conducted its survey among 1,612 US consumers with broadband, who watch at least an hour of TV per week.

The overwhelming conclusion was that the subscription video-on-demand faced alienating its customers substantially, especially if ads were included without a reduction in monthly fees.

Hub found that if Netflix raised the fee for its current, ad-free service by $5 or more per month, about a quarter would consider dropping their subscription. A $2 increase would have just a marginal impact with only 8% saying they’d cancel, while at a $5 boost, 23% say they’d drop their subscription and this figure would rise to 28% at a increase of $10 or more.

Looking at scenarios of what would happened if Netflix began including ads during shows, about a quarter of current subscribers said they’d definitely or probably drop the service. Just 41% said they’d definitely or probably keep their subscription, with 37% undecided.

Hub also investigated what would happen if Netflix content included ads, but the subscription fee were $3 less per month. It found that subscribers would be more likely to keep the service, but that losses could still be significant. In this scenario, 16% said they’d cancel their Netflix subscription if ads were included while half of the sample said they’d keep their service under this scenario, but just 25% say they’d definitely keep it.

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Live Linear TV Drops: Only 39% Go There First

What do TV viewers look at first when they switch on their sets? According to new data from Hub Entertainment Research, only 39 percent start out with live linear TV from a pay TV service, a decline from 47 percent last year.

Today, 48 percent of viewers are more likely to start their viewing with a time-shifted or on-demand option, such as Netflix, Hulu, or a DVR.

Viewers have more options than ever, and live TV is no longer the go-to. Hub finds that the average viewer now has 4.5 different video options to choose from—such as live, DVR, on-demand content, Netflix, Hulu, and more—a rise from 3.7 options in 2014. Hub notes that 50 percent of adults 18- to 34-years-old subscribe to two or more of the three most popular subscription services (Netflix, Hulu, and Amazon).

Live viewing is down in all age groups. While 56 percent of viewers 55-years-old and above still start out with live TV, that’s a drop from 66 percent last year. And for young adults (age 18 to 34), only 26 percent start out with live TV (a drop from 35 percent last year).

“Watching TV shows live when they air is quickly becoming a relic of times gone by,” says Peter Fondulas, principal at Hub and co-author of the study. “The majority of younger consumers already consider services like Netflix their TV home base, but even older consumers are beginning to make on-demand sources their first stop for viewing. And all of that naturally has huge implications for an industry that’s already in a constant state of disruption—implications for how TV content is monetized generally, how ads are served up—not to mention how live TV services and vMVPDs, which have been touting their live TV networks, need to position themselves in the future.”

This data from Hub’s report Decoding the Default, which uses data from a June survey of 1,933 U.S. consumers with broadband connectivity who watch at least 1 hour of TV each week.

Live TV no longer 1st viewing choice

According to findings from Decoding the Default, the annual study by Hub Entertainment Research which tracks the TV sources US consumers consider their go-to viewing platform, there is a continuing increase in multiple platform use and a steady move away from live TV as a default source.

Highlights from the study:

1) Multiple Platforms Proliferate: Consumers are using more sources for TV watching than ever before.

The average consumer has 4.5 different sources to choose from when they’re ready to watch TV, including linear TV, DVR, video on demand, Netflix, Hulu, etc. That number is up from 3.7 in 2014.

Among younger viewers age 18-34, the number of platforms is even higher (5.1 different sources).

As just one example, half (50 per cent) of 18-34 year-olds subscribe to two or more of the ‘big three’ SVoDs: Netflix, Hulu, or Amazon.

2) First Choice No Longer: With multiple sources at their disposal, only 39 per cent of viewers now say live, linear TV from a traditional pay-TV service is what they turn on first.

That’s down 8 points from just last year, when 47 per cent called live TV their viewing default.

Consumers are now more likely to turn first to an on-demand, time-shifted source of TV, including Netflix, Hulu, Amazon, a DVR, or pay-TV video on demand (48 per cent combined).

3) Live TV Down in Core Demos: Consumers who consider live TV their default has dropped significantly across the board, even among older viewers.

The majority (56 per cent) of viewers 55 and over still default to watching live. But one year ago, it was two-thirds (66 per cent).

Among those 18-34, only about a quarter (26 per cent) say that live TV is their default. One year ago, it was more than one-third (35 per cent).

“We’ve been watching live TV drop steadily as a default source since we first conducted this study in 2013,” said Peter Fondulas, principal at Hub and co-author of the study. “But this is the first year where we’ve seen a sharp drop among older consumers too which has huge implications for the monetisation of linear TV in general. As online, on-demand platforms continue to become mainstream, live viewing has become the exception rather than the rule.”

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Study: Growing consumer desire for aggregation

Findings from The Best Bundle: Consumer Preferences in a Peak TV World from Hub Entertainment Research point to increasing consumer frustration with the rapid expansion of TV viewing options.

Highlights from the study:

– Consumers find themselves forced to create their own TV bundles to satisfy their needs: Only those who subscribe to at least three TV services (pay-TV, SVoDs, virtual MVPDs, etc.) are more likely than not to feel that their viewing needs are “very well met”.

– But the work required to choose between services is becoming more onerous: Only 22 per cent say that the growing number of TV services makes it “easy to choose what’s best for me” (down 11 points, from 33 per cent in 2017).

– This is driving consumers to lean toward providers that offer aggregated solutions: Among those with a preference, more than twice as many would rather access all their TV content from a single source (69 per cent) than access sources individually (31 per cent).

Even with an aggregated solution, viewers only want to pay for the content they know they’ll watch: Consumers would overwhelmingly prefer services that let them choose and pay for just the networks they want (43 per cent) over services that offer a large number of networks in a pre-set bundle (10 per cent)—even if the larger bundle means a lower cost per network.
“The novelty of having so many options for TV content is wearing off. Now consumers want simplicity and efficiency,” said Peter Fondulas, principal at Hub and one of the authors of the study. “Bundles that aggregate content from multiple sources are highly desirable – but only if those bundles include little or no content they know they won’t watch.”

“Consumer preference for an à la carte TV offering has never been higher,” said Jon Giegengack, co-author of the study. “It’s not the price of traditional big TV bundles that turns consumers off, so much as how much of what they pay goes to content they don’t use. Viewers would rather have a bundle comprised of just the content they care about – even if it means they have to pay more for each network”.

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