Detailed within a new study published by The NPD Group, subscription video-on-demand (SVOD) services like Netflix and Hulu Plus have been consistently on the rise for the past two years while subscriptions to premium channels like HBO, Showtime and Starz have seen a steady decline. Specifically, the study indicates that subscription video-on-demand has grown from 23 percent of U.S. households in March 2012 to 27 percent by August 2013. Conversely, subscriptions to premium channels in cable or satellite channel packages has fallen from 38 percent of U.S. households in March 2012 to just 32 percent in August 2013.
Obviously, Netflix dominates the subscription video-on-demand category. However, both Amazon Instant Video and Hulu Plus are growing significantly within U.S. households. Both Netflix and Hulu Plus are roughly $7.99 a month, but Amazon Prime service is a yearly fee of $79.99 which comes out to about $6.67 a month. Amazon Prime also comes with the benefits of free two-day shipping on qualifying purchases as well as additional Kindle benefits.
Remarking about the shift in consumer behavior, NPD Group senior vice president Russ Crupnick said “As SVOD services have gained momentum, it’s clear that some consumers are trimming their premium-TV subscriptions. As SVOD increasingly strives to become a channel itself, viewers might consider it to be an adequate substitution for other premium channels, or perhaps they are switching to economize on their time and money spent.” The study had a survey group of about 7,500 households that also had Internet access, a necessity when subscribing to SVOD services.
However, the study does not indicate a cause-and-effect between the rise of subscription video-on-demand services against the decline of premium channel packages. In other words, the study doesn’t support the hypothesis that Netflix is replacing HBO in the supposed cord cutter movement. In some studies, Netflix have been proven to be a complimentary service to households that continue to subscribe to premium television content.
The study also seems to show an opposite trend when compared to the actual numbers released by representatives of the premium channels. While HBO ‘s subscriber rate has been flat at around 28 million households within the United States, Showtime has grown by one million households over the last year to 23 million and Starz added an additional 1.2 million in the last twelve months. Alternatively, Netflix surpassed HBO’s domestic subscriber base last year and currently have over 31 million subscribers within the United States. For the streaming side of Netflix’s business, that generates a yearly revenue of approximately $3 billion.
Netflix has been particularly successful at growing the subscriber base due to the popularity of original content. While both Hulu and Amazon have struggled to gain traction with original programming, Netflix’s original programming has gained praise from both critics and consumers. On Valentine’s Day 2014, Netflix will debut the second season of Kevin Spacey’s political drama House of Cards. Later this year, Netflix will roll out the second season of comedy/drama Orange is the New Black and horror series Hemlock Grove as well as new series that include historical drama Marco Polo and sci-fi series Sense8. Netflix is also branching out into the documentary space more aggressively with original films Mitt and The Square.