Digital TV Research (DTR) released a report this week saying that online TV and video will generate $35B worldwide in 2018. The company says the largest components of this figure will be online video advertising, $16B, and subscription revenue, $13B. However, comparing to U.S. numbers, there is reason to believe the online video market will do much better than this.
Online Video & TV Revenue through 2018 Source: Digital TV Research 2013
The first thing to examine is the components that DTR breaks out to get the $35B number. Subscription revenue is estimated to be $6B in 2013. Looking at the US, I would estimate the total subscription revenue from Netflix, Hulu Plus and Amazon Prime in 2013 will be about $3.5B.* Keeping in mind the U.S. is by far the biggest market, it is probably reasonable that the rest of world will account for the other $2.5B DTR is estimating for this year.
DTR says that figure is liable to double by 2018, which sounds like a conservative estimate. Growth rates in Scandinavia for Netflix have been explosive, reaching 17% penetration in the first 8 months of service. In the US, where streaming services have been around the longest, the market continues to expand fast. Netflix is growing at 25% a year, and Hulu plus grew subs 33% in just the first quarter of 2013. At this pace, revenue could hit over $15B by 2018.
DTR says worldwide online rental/PPV revenue will be $950million this year. DEG says that online rentals in the U.S. generated $2B in 2012, and are growing at 10% a year. This makes me seriously question the company’s estimate of $2B in online rental revenue for 2018. I would have expected a number 2 or 3 times this.
The category of download-to-own (DTO) is a strange one. It is not immediately clear if it includes ownership in the cloud, as typified by ultraviolet movie sales. If it does not include cloud ownership, this is a serious omission as DEG numbers for the U.S. show electronic sell through was over $800M in U.S. in 2012. DTR says the 2012 number was just $746M for download to own. DEG also says that electronic sell through grew 35% in the U.S. between 2011 and 2012. At that pace, the U.S. alone could account for the $3.5B in DTO revenue estimated for 2018.
Finally, DTR estimates online TV and video advertising will generate $7.4B worldwide in 2013, and grow to $16.4B in 2018. eMarketer estimates U.S. digital video ad spending will be $4B in 2013, and grow to $9B in 2017. The eMarketer U.S. numbers seem to lend some credence to the DTR’s worldwide estimates.
What does all this mean for the DTR estimate of total online video revenue of $35B? My guess, based on the above analysis, is that the number is very conservative. The actual figure could easily exceed $50B in 2018.
Before you get too excited at a $35-$50B range for online video in 2018, consider the following. In the U.S., eMarketer estimates 2013 US TV ad spend at $66B, and I estimate U.S. pay-TV subscription revenues for this year at nearly $100B.
Why it matters
Online video and TV consumption is growing strongly in all regions.
The estimate by Digital TV Research that the market will generate $35B worldwide in 2018 is encouraging, though this number is likely very conservative.
The major components of revenue will be derived from subscription and TV advertising in 2018. Rental and electronic sell through will account for less than 20% of the total.
DTR says that figure is liable to double by 2018, which sounds like a conservative estimate. Growth rates in Scandinavia for Netflix have been explosive, reaching 17% penetration in the first 8 months of service. In the US, where streaming services have been around the longest, the market continues to expand fast. Netflix is growing at 25% a year, and Hulu plus grew subs 33% in just the first quarter of 2013. At this pace, revenue could hit over $15B by 2018.
DTR says worldwide online rental/PPV revenue will be $950million this year. DEG says that online rentals in the U.S. generated $2B in 2012, and are growing at 10% a year. This makes me seriously question the company’s estimate of $2B in online rental revenue for 2018. I would have expected a number 2 or 3 times this.
The category of download-to-own (DTO) is a strange one. It is not immediately clear if it includes ownership in the cloud, as typified by ultraviolet movie sales. If it does not include cloud ownership, this is a serious omission as DEG numbers for the U.S. show electronic sell through was over $800M in U.S. in 2012. DTR says the 2012 number was just $746M for download to own. DEG also says that electronic sell through grew 35% in the U.S. between 2011 and 2012. At that pace, the U.S. alone could account for the $3.5B in DTO revenue estimated for 2018.
Finally, DTR estimates online TV and video advertising will generate $7.4B worldwide in 2013, and grow to $16.4B in 2018. eMarketer estimates U.S. digital video ad spending will be $4B in 2013, and grow to $9B in 2017. The eMarketer U.S. numbers seem to lend some credence to the DTR’s worldwide estimates.
What does all this mean for the DTR estimate of total online video revenue of $35B? My guess, based on the above analysis, is that the number is very conservative. The actual figure could easily exceed $50B in 2018.
Before you get too excited at a $35-$50B range for online video in 2018, consider the following. In the U.S., eMarketer estimates 2013 US TV ad spend at $66B, and I estimate U.S. pay-TV subscription revenues for this year at nearly $100B.
Why it matters
Online video and TV consumption is growing strongly in all regions.
The estimate by Digital TV Research that the market will generate $35B worldwide in 2018 is encouraging, though this number is likely very conservative.
The major components of revenue will be derived from subscription and TV advertising in 2018. Rental and electronic sell through will account for less than 20% of the total.
