Offering the first sign that the U.S. SVOD market might be approaching saturation, Strategy Analytics found that growth in the sector has slowed down a bit in 2016.
The research firm projects that spending on services including Netflix (NASDAQ: NFLX), Amazon Prime Video (NASDAQ: AMZN) and Hulu will grow by about $1.19 billion, or 22 percent this year to $6.62 billion. This compares to growth of $1.21 billion in 2015.
"Although the change in increase is relatively small, its direction is extremely significant," said Michael Goodman, Strategy Analytics' digital media director, in a statement. "It shows that, whilst actual market saturation is a few years off yet, the domestic U.S. streaming subscription market is now on the backside of the adoption curve. The incremental increase in annual $ spend will decline from here on."
Goodman said that nearly 60 percent of U.S. broadband homes subscribe to a subscription video on demand service.
"We put market saturation at 85 percent of broadband households – similar to saturation levels for pay TV. Within five years, annual growth will fall below 8 percent," he added.
Netflix accounts for 53 percent of U.S. SVOD subscriptions, the research company said, followed by Amazon Prime Video (25 percent of the market) and Hulu (13 percent). Nearly 40 percent of SVOD homes subscribe to more than one service.
"This multi-subscription behavior means growth relies on cannibalizing other services or getting people to subscribe to more than one — and companies seem to be betting on the latter," Goodman added. "Most of the new services being launched today are in the $2 to $5 range – clearly designed to be complementary to a Netflix or Amazon. The domestic situation is also a huge reason why international expansion is so important, this is underscored by Amazon's recent video initiatives, and is particularly relevant for Netflix who has the least room to grow in the U.S."
Streaming will account for 35 percent of spending in the home video market this year, Strategy Analytics added. Purchases of DVDs and Blu-rays will drop by 7 percent, the research firm noted, accounting for 30 percent of spending. Disc rentals will decline 10 percent and account for 14 percent of the market.
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