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Q3 Streaming Signups Favor Ad-Supported Choices, at Expense of Netflix and Disney+

By James Brumley – Oct 19, 2020 at 8:27AM

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The free-to-watch streaming movement continues to pick up steam, and customers, at a clip the for-pay stalwarts can't ignore any longer.

The ever-changing (and increasingly competitive) streaming video market took another sharp left turn last quarter. Titans like Netflix (NFLX 1.35%) and newcomer Disney+ from Walt Disney (DIS 3.49%) are still picking up new customers, but not as quickly as they were earlier this year. Comcast (CMCSA 2.85%) entertainment division NBCUniversal's Peacock added the most new subscribers during the three-month stretch that ended in September.

That's the word from market research outfit Kantar, which reported its Q3 findings last week.

There are plenty of potential reasons for this, but the implication of this latest report is the one that seems the most obvious. That is, subscription-fatigued consumers are starting to turn to services that don't add yet another monthly bill to the pile.

Rising and falling arrows, with businessmen trying to hold onto them.

Image source: Getty Images.

Survey says...

Last quarter, Kantar's survey of over 30,000 U.S. consumers determined that NBCUniversal's Peacock accounted for 17.2% of all new streaming video on-demand (or SVOD) signups. A close second was Prime, from Amazon (AMZN 7.38%), with 16% of new SVOD subscriptions. The AT&T (T 0.50%) platform came in third with its HBO Max, which secured 11.3% of last quarter's new signups. At the other end of the spectrum, Apple, Netflix, and Disney+ lagged. Apple TV+ won only 4.9% of new streaming media subscriptions. Netflix and Disney+ accounted for only 8.3% and 9.3%, respectively.

There's a certain logic to the data, of course. Peacock and HBO Max are new, while Apple TV+ and Netflix aren't. Peacock only became available to non-Comcast customers in mid-July, and HBO Max launched in late May. Netflix and Disney+ did exceedingly well in the first and second quarters too, with most would-be subscribers already on board by the time the third quarter rolled around.

But there may be more in play than these services merely taking turns in terms of bringing in new members.

Amazon Prime has been around for years, but it still picked up a bunch of new members. Netflix is still regarded by most as the go-to name within the streaming arena. Netflix also boasts the most popular programming available via streaming, and ReelGood confirmed that its customers watched Netflix more than any other streaming service during the third quarter. Yet, Netflix doesn't seem to be expanding its customer base in a way that reflects this popularity.

Not just Kantar, and not just Peacock

Kantar's survey only considered for-pay streaming service signups, but its report acknowledged that the free tier of Peacock may have been a major driving force for its strong enrollments. Kantar specifically noted that value was the top consideration for customers when deciding on a new service, and the free, ad-supported version of Peacock clearly offers value in exchange for time spent watching television commercials.

The value thesis jibes with other recent consumer data. ReelGood, for instance, found a couple of months ago that about 90% of the time its viewers spent watching Peacock was spent watching the free version.

This strong interest in Peacock's free tier reflects a much bigger shift among consumers as well. A recent report from ReelGood further found that during the third quarter, 30.8% of its customers' viewing time was spent on free, ad-supported video services like the aforementioned Peacock, Fox's Tubi, and Comcast's Xumo. That was up from Q2's 25%. Subscription-based streaming services like Netflix and Disney+, meanwhile, saw their share of streams slide from the second quarter's 52.3% to 47.5% during Q3.

The big ad-supported video platforms have also seen explosive viewer growth this year, dramatically outpacing for-pay services' customer growth.

In this vein, The Trade Desk reported this year that nearly 60% of U.S. consumers aren't willing to spend more than $20 per month on streaming, which presents something of a ceiling for the industry's continued growth. A Deloitte study, however, found that about half of all streaming TV viewers would tolerate a few ads if it meant lowered streaming costs. Last quarter's data compiled by Kantar merely reflects the fact that consumers are acting on their stated preferences, now that ad-supported alternatives are viable and available.

Simply put, the ad-supported video industry is slowly but consistently chipping away at for-pay streaming.

The take-away

Don't read too much into the message. Neither Disney+ nor Netflix are doomed. Amazon Prime isn't a devastating disruptor within the streaming market. Prime's recent success may have more to do with coronavirus-induced lockdowns and consumers turning to Prime for free one-day shipping of goods bought at than it does with streaming video options.

Do pay attention to the implications of the Kantar survey though, as at the very least it implies top-tier names like Netflix and Disney+ don't hold the commanding grip on the streaming market many may have presumed they do. Both still have plenty of room to grow, but consumers are clearly finding other choices. Indeed, Wedbush analyst Michael Pachter recently suggested Netflix only added about a quarter of a million U.S. subscribers last quarter, and a modest 2.3 million international customers. Both would mark a sustained slowdown from yesteryear's growth paces, but more than that, they may be symptoms of more new challenges that will never go away.

At the very least, it's a trend worth watching.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley owns shares of AT&T. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, The Trade Desk, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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