By the end of 2000, you could forgive U.S. telephone companies for thinking the good times were all gone.
Because: Where was there to go? Residential telephony had peaked, with the FCC calculating that 100 million homes had landline phone lines, nearly equal to the nation’s entire pool of occupied homes – about 105 million. Aside from some modest demand for second lines for fax machines, dial-up modems, and the surly teenager upstairs, there was basically nowhere else to go. Everybody already had a phone line.
Fast-forward to today, however, and the number of lines in service has more than quadrupled. According to the industry trade association CTIA, the U.S. ended last year with more than 440 million wireless phone connections. Add in the lingering base of around 45 million residential landlines, and the total number of consumer phone lines runs close to 500 million.
That’s not a misprint. There are roughly 110 million more wireless phone accounts in the nation than there are people, and 2x as many wireless accounts as there are adults over 18. Demand for second (or third) accounts from businesspeople and others has enabled carriers to pull off a seemingly improbable feat of blasting through what appeared to be an immutable limit to market penetration.
Video lessons
Why does this matter to the video industry? Because there’s a lesson here about where the market is going, and how big it may get.
Ever since U.S. cable companies started stringing their lines across streets and into neighborhoods, the “household” has been the unquestioned determinant of market presence. Calculations about “penetration” for cable TV have always hinged on the household as the denominator: If your cable system served 3,500 homes out of 6,500 in the township, your penetration was 54%. Everything from programming contract deal terms to the number of F-connectors a cable company needed to inventory was rooted in an understanding of the household as the arbiter of it all.
But as the cellular telephone numbers suggest, continuing to rely on a legacy construct for determining the boundaries of the market is deceiving. It’s what your high school semantics teacher would have called a “false map,” and it skews your view of the world.
Instead, in the modern world of personalized video, it’s a human being, not a structure, that maintains an account with Netflix, or AMC’s Shudder, or baseball’s MLB.TV. That has implications for market scope. Rather than counting a “household” as a “subscriber,” we can now count people. And in what is surely a large number of cases, there are now multiple video subscriptions per household. The four roommates in a three-bedroom home who maintain their own streaming subscriptions, the teenager upstairs who insists on having her own credentials for Peacock (the premium version, of course), and the uprooted Chicago Cubs fan who’s enduring the team’s unremarkable 2021 season in San Diego on an iPad via MLB.TV all count as “subscribers.” It’s not unreasonable to intuit that in millions of U.S. homes, there are multiple video subscriptions in play, often on top of a traditional pay TV account.
Obviously, that’s good news from a unit-subscription standpoint. Instead of gating the opportunity at the roughly 120 million occupied U.S. homes, we can assume the field of play is more like the 200 million adults with credit cards. And if we take to heart some recent research from Deloitte, this pool of buyers typically maintains four premium video streaming subscriptions each, further multiplying the market dimension.
Granted, the economics don’t always measure up to the good ‘ol days. The net revenue associated with a streaming account is a fraction of what a loaded-up cable package costs. But still: The point is, there are many more “units” of subscription than there once were.
Except, wait. They’re not “units” anymore. So says Netflix co-CEO Reed Hastings, who recently made a point of emphasizing the human dimension of Internet video. Netflix and Hastings like to call their 209 million global account holders “members,” not “units.” Thus, what most participants still call “ARPU” (for “average revenue per unit”) is recalibrated in Netflix-land as “ARM” (for “average revenue per member”). After sharing second-quarter results earlier this month, Hastings doubled-down on the semantics, tweeting that the aim is to bring a different vibe to video category economics. “Trying to be more human,” Hastings wrote.
Whether “ARM” catches on or not, the point is that the field of play for video today looks more like the cellular data market, with its hundreds of millions of accounts, than the cable market of yore, with its opportunity gated by a set number of physical structures. Industry traditionalists may have to re-learn their core metrics, but the truth is the Internet, wireless data, modern devices, and personalization technologies have significantly widened the scope of possibility. “People power” is the new mantra for the day. Those who recognize that are more likely to flourish than those who do not.
Stewart Schley is Senior Vice President and Lead Analyst for One Touch Intelligence, which provides market intelligence and industry analysis services for leading companies in the media and telecommunications space. The One Touch Intelligence STREAMTRAK® series is a complimentary service offering industry professionals insights and context around developments in the digital media sphere.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceVideo staff. They do not represent the opinions of FierceVideo.