The average virtual pay-TV consumer utilized 13.5 video services per month compared to the average video household at 7.4 services during 2021, according to new research from Omdia. The latest outlook comes from India’s “TV & Online Video Intelligence Service,” which provides subscription video on demand, advertisement-based video, and pay-TV revenue forecasts across 100 territories worldwide.
In the United States, traditional pay-TV subscriptions saw a 7% decline in 2021, ending the year with 69.7 million households with a standard pay-TV subscription. Of the 125.1 million TV households in the country, 55.4 million will be left without a traditional linear experience. At the end of 2021, there were 13.6 million virtual pay-TV subscriptions in the US, representing approximately 11% of TV households.
In consumer surveys, virtual multiprogramming video distributors (vMVPD) customers rate the user experience higher for virtual pay-TV than SVOD, AVOD, or traditional pay-TV. “Because virtual pay-TV services are internet-based and have no long-term contracts like traditional pay-TV, user interfaces and experiences are received well and can adapt to changing customer needs,” commented Sarah Henschel, Principal Analyst at Omdia.
● VMVPD USERS PER SUBSCRIPTION
Omdia’s analysis also shows that virtual pay TV in the United States has continued to have more users per subscription than traditional pay-TV, Netflix, and Amazon. In April 2021, virtual pay-TV had 3.7 users per subscription on average, while traditional pay-TV had 2.3. This higher proportion of users to subscriptions may be multiple households sharing one singular virtual pay-TV subscription. Unlike pay-TV, some virtual pay-TV services offer multiple profiles per subscription, encouraging password sharing. Splitting a virtual pay-TV subscription across two households would also bring down the high cost of virtual pay-TV that consumers have been reluctant to get locked into.
YouTube TV is the driver of services with user over-indexing: in April 2021, YouTube TV accounted for 26% of total virtual pay-TV subscriptions but 39% of real virtual pay-TV users. Virtual pay-TV users also typically skew younger than the average pay-TV and SVOD users, meaning they may be more tech-savvy and more likely to seek content post-cord-cutting. While password sharing and subscription sharing may initially seem like an alarming trend for service growth, it has proven quite the opposite for YouTube TV. As a service, it has the most users per subscription, but that growth has allowed it to become the number one service in the United States.
“These users are more than twice as likely to use transactional video services (both retail and rental), with this growing to 3x as likely for premium video on demand (PVOD) and more than 5x for sports pay-per-view. Virtual pay-TV users are also almost 3x likely to have pirated video content. This over-indexing highlights that these consumers are content-hungry and are able to find the content they need — through paid means or otherwise,” Henschel continued.
Although virtual pay-TV users are highly engaged, price hikes continue to push consumers to entirely cut the cord and rely on SVOD or AVOD services. The average monthly pricing for a vMVPD service in the United States in 2021 was $58.89 per month, compared to $99.44 for traditional pay-TV and $8.75 for SVOD.
While virtual pay-TV looks to offer affordable pay-TV to the consumer, the economics of the business model still operate in the same fashion as traditional pay-TV. Virtual pay-TV services still pay carriage fees to channel owners to license content. Channel groups often bundle multiple channels together during negotiations to require carriers to take all or nothing. This forces virtual pay-TV services to pay high margin prices for licensing with a bit of margin left over for in-house profits. This also explains why companies in the United States have done well have more giant conglomerates backing them (Google and Disney) to offset operational costs. The virtual pay-TV business has struggled to find profitability with small margins causing US average pricing to double from 2017 to 2021.
● USER DEMOGRAPHICS
“US virtual pay-TV users skew toward high income 25 to 44-year-old males with interest in TV shows and sports. Live sports are one of the driving growth factors behind virtual pay-TV, but it is still niche in size compared to pay-TV or SVOD. US virtual pay-TV accounted for 7% of subscription revenue but only 3% of total subscriptions,” said Max Signorelli, Senior Analyst at Omdia.
Although the United States takes the single largest market share for virtual pay-TV globally, Western Europe is only slightly behind, with both regions taking around 30% global market share each in 2021. In non-US markets, virtual pay-TV can take a variety of formats, catering to all types of consumers at different price points.
Related News
