The Transformation of Video on Demand

Let’s take a break from “engagement” to talk about another interesting aspect of television—how Video on Demand (VOD) is changing. Rentrak has published a “State of VOD: Trend Report” for several years now. (You can order a copy at Rentrak.com/SVOD.) One thing that clearly stands out in this year’s report is that popular TV programs are becoming the mainstay of VOD.

First, a little explanation of the jargon (every industry has to have its own). “Subscription Video on Demand” (SVOD) refers to On Demand content from pay cable services such as HBO, Showtime, Epix, etc. Most operators (or in the true inside lingo: Multichannel Video Programming Distributors or MVPDs) give pay cable channel subscribers the ability to watch their movies and programs On Demand, so a subscriber can catch “True Detective” on HBO On Demand, or “Hunger Games” on Epix On Demand.

“Transactional on Demand” (TOD) refers to movies or events paid for by a household. As an example, a MVPD will make a movie like “Frozen” available On Demand several months after it has been in the theaters. The viewer then has to pay to watch the movie (usually within a window of 24 hours after ordering). TOD content is really what the MVPDs thought VOD was going to be all about— generating income from movies, events… and porn (oops, make that “Adult Content”).

There is also the “TV Entertainment” category. This category consists of the most popular TV shows, across all dayparts, which broadcast and cable networks make available On Demand, including current (and sometimes past) series or seasons.

Finally, there is all other “Free on Demand” (FOD) content, which refers to all other free programs, including some specifically made to air On Demand, Music on Demand, and a variety of other niche programs.

So with the lingo under our belts, let’s go back to the days of yesteryear (2010) and see what VOD looked like then. The chart below shows the share of viewing hours accounted for by each type of VOD described above in 2010.

VOD-2010

In 2010, “Subscription Video on Demand” had the largest share of viewing hours, followed closely by “Other Free VOD.” “TV Entertainment” was a distant third, and Transactional on Demand trailed in fourth place.

Now, let’s shoot forward to last year, to see a drastically changed picture. Again, we are looking at share of viewing hours by type of VOD format, this time in 2013.

VOD-2013

There is a dramatic change. The cable and broadcast network’s “TV Entertainment” category is now number one, at 35% share of hours. “Other Free VOD” edges out “Subscription Video on Demand” by a hair, and “Transactional on Demand” remains in fourth place, slipping to only 10% of hours.

Share is one thing, but one also needs to consider the absolute growth in VOD. The total number of VOD hours watched was 3.6 billion in 2010 growing to 4.5 billion in 2013, an overall growth rate of 25%. But that growth rate was by no means even as indicated in the chart below, which lays out the percentage growth in hours by type of VOD format.

VOD-GrowthDecline

You can see that the popular shows in “TV Entertainment” grew by over 120%. “Other Free VOD” grew by 10% while time spent viewing “TOD” and “SVOD” fell in the 3% range. However, Rentrak’s Digital Download Industry Service reports that revenue for OTT movies (purchased) has grown by 124% since 2010. So demand to watch movies at home has not fallen, rather the supply has grown with OTT options.

Why has viewing of “TV Entertainment” grown so much? Again, supply is a big factor. In the fall of 2013, the networks and MVPDs worked together to make available more than the traditional four most recent episodes of popular series to each household. When more programming options are available, the audience will come. Or as Willie Sutton, the famous bank robber, said in response to the question, “Why do you rob banks?”: “Because that is where the money is.”

And advertisers are starting to go where the audience is. Rentrak estimates that there is a potential multi-billion dollar business in VOD advertising, just with digitally inserted pre-roll ads. Those and other details can be found in the full “State of VOD: Trend Report 2013,” which you can learn more about by clicking here.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues – which I will do from time-to-time on this blog.

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