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Industry Report: Distribution, Exhibition and Streaming

The SVoD-led production boom may come to an end earlier than expected, a report by Enders Analysis argues


The study identifies as one of the main root causes the fact that European SVoD penetration is close to plateauing

The SVoD-led production boom may come to an end earlier than expected, a report by Enders Analysis argues
l-r: Enders Analysis's François Godard, Tom Harrington and Tom Standen-Jewell, the authors of the report

Undeniably, streamers are investing heavily in European video production. But is this SVoD-led production boom set to continue for long? This is the main question tackled by a report compiled by François Godard, Tom Harrington and Tom Standen-Jewell, published on 15 December by London-based research firm Enders Analysis.

The boom may not last as long as expected, as the authors argue that European SVoD penetration is close to plateauing. Already in Q1 2019, in the USA and Canada, Netflix recorded a 42% rate of household penetration, with the pandemic facilitating a leap to just over 50%, and in Q2 2021, the region’s subscriber count declined.

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Apparently, Europe is destined to follow similar trends, Godard told Cineuropa: “We believe that SVoD is close to plateauing in Europe because Netflix is doing likewise in the USA, and penetrations in the top EU markets, the UK and Scandinavia, are at US levels and growth has slowed down notably. In other continental markets, we expect ceilings much lower than in the USA, in line with historically lower demand for pay-TV and US content.”

Other indicators include Netflix’s subscriber growth in the EMEA region in the first nine months of 2021, standing at 3.8 million net additions, which is just above one-third of its rate during the same period of 2019 (9.5 million, even though the demand was likely dampened by the pull-forward effects of the 2020 lockdown period), Sweden’s slowdown in penetration growth during the pandemic (from 8% in 2019 to 2% in 2020), and France’s peak in individuals aged 15+ already standing at 69% in August 2019.

On the topics of the possible decline in European content spend and the subsequent shifting financing models, Godard commented: “Spending on content in Europe is currently boosted by loss-making SVoDs fighting for market share, and content is effectively subsidised by the capital markets. Once growth slows down and stops, streamers will focus on breaking even. We are sceptical about their capacity to raise prices significantly because the value that the consumer puts on content has fallen. So SVoDs will stop feeding growth in content spending while other sources are, together, more likely to erode further. We expect the independent production model to gain more traction with the streamers owing to the regulation and consolidation of producers.”

In the report’s conclusions, the three authors discuss two possible future scenarios. In the first one, they explain that European broadcasters will be livingoff stagnating or decreasing resources, and that the demand and investment of streamers will have pushed up the cost of talent, crew and facilities. Thus, in order to gain valuable content, commissioners will be forced to spend more and more, and broadcasters will have to put pressure on producers to bring in additional financial resources. This dynamic will lead producers to offer SVoD platforms their best projects, and it has been described as potentially “self-reinforcing”. SVoD platforms will be able to propose “the most and the best content”, while “taking audiences, and thus resources, away from broadcasters, allowing them to further enhance the attractiveness of their offering”.

The second scenario, however, is more likely to happen, the authors claim. In it, “platforms would reach a penetration ceiling in Europe that is much lower than in the USA”, and “their efforts to source local material from Europe would be curtailed by their balancing act seeking local-for-global projects, and by the local broadcasters’ higher capacity to spot local-for-local ideas”. As soon as the penetration and consolidation trends have stabilised, platforms will shift the priority from growth to profitability and will stop growing, or will reverse their expenditure on content. Meanwhile, consolidated European broadcasters and producers with resilient resources may find themselves in a better position to snatch premium IPs. The authors argue that these changes may result in “a large competitive space” left open to independent producers, “albeit in a market with few growth prospects once the SVoD boom is over”.

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