Should European operators worry about cord cutting as Amazon, Netflix push deeper into their market? Absolutely

When the Big Two come to play in our backyard, it’s time to up our game. Netflix has over 2 million subscribers in the Netherlands alone and Amazon have launched a push into Europe that will likely result in some bad nights of sleep for operators, pay-TV channels and broadcasters looking themselves to do more business over the top.

Both OTT players have long-term toe holds in Europe, pretty much since the dawn of streaming. Both were early into the United Kingdom – in one form or another – and used that base to help catapult them onto the continent, Netflix through the Netherlands and Amazon into Germany via its purchase of LoveFilms.

While each company is expanding original content production in Europe, they’ve chosen two different paths to growth.

Netflix, as has become its norm, announced a major cash outlay on originals, much of it specifically for Europe. It’s increased hiring, as well, adding hundreds of jobs to its European workforce.

Looking to deal with some of the political headwinds it’s facing on the continent – tax law, privacy issues, net neutrality and media ownership challenges, the company has begun looking for a new vice president to handle global public policy.

Meanwhile, in addition to Amazon budgeting an estimated $4.5 billion on original content itself this year, also is rolling out new channels to members of its Amazon Prime program only in the United Kingdom and in Germany, two strongholds, that will propel its rapidly evolving position as not just an aggregator of content, but as a pay-TV provider offering content à la carte. Prime annual subscriptions run £79 in the U.K. and €69 in Germany (and Austria). Prices per channel will be £1.49 and £9.99 per month in the U.S. and €1.99 and €7.99 in Germany.

Live linear and video-on-demand content will be available as the U.S.-based etailer debuts channels including, among others, Discovery, MGM, Shudder, Comic Con HQ, Eurosport Player and ITV Hub+ plus Amazon’s Heera. Its German offerings include, among others, Syfy Horror, GEO Television, MGM, Studio Universal Classics, E! Entertainment, Terra X, Motorvision TV, sportdigital HD, Fix&Foxi, Kixi Select.

Eurosport will start live streaming premium sports content, beginning with the French Open.

Amazon’s existing platform – with its original content – will remain part of Amazon Prime, as well.

For content owners and channels that are part of the new Amazon play, it’s an opportunity to connect with cord nevers they really haven’t had access to before, and for the cord nevers – many of them Millennials and Gen Xers – it’s an opportunity to access premium content they might not have had access to previously.

For operators not already engaged with Amazon or Netflix, the moves could be the start of harrowing times akin to U.S. operator and broadcaster experiences.

While European providers have seen the early impact of cord nevers, cord cutting and cord shaving have been less prevalent.

But that could change as the two companies establish deeper roots. It’s worth noting that substantial cord cutting in the U.S. didn’t occur until streaming became more common. In fact, as SVOD services have proliferated, cord cutting and shaving have become the norm. U.S. operators experienced their worst first quarter even in 2017, losing subscribers during a period traditionally seen as a time for strong gains.

The more than 802,000 subs who left in Q1 have cast a long shadow over Q2, traditionally the worst quarter for subscriber losses.

As younger viewers in Europe discover more premium content available from SVOD services, and more channels that include live sports online, that consumers will cut or reduce their spending on pay TV is inevitable.

As more streaming devices are sold in Europe and more connected TVs include the Netflix and Amazon apps, look for an increased migration away from legacy services to the new breed.

For content owners not already playing in the online space, the expansion of the two SVOD giants should be seen as a starter’s pistol shot to be off and running, especially for services with original or unique niche content.

While some pundits have pointed to the cumulative expense of SVOD services and à la carte channels for the consumer being higher than a pay-TV subscription, a different reality already is developing in North America where consumers regularly churn into and out of services as specific content becomes available, keeping costs lower.

While this new reality can be irksome for OTT providers, most accept the lower cost of customer acquisition – and the likelihood of subscribers returning as new content becomes available – as just part of the new economics of the OTT ecosystem.

An interesting note from the U.K. this week shows just how much the market there has been changed by Netflix and Amazon.

The BBC is quietly shuttering its 18-month-old download portal, which allowed customers to purchase digital content because it hasn’t been able to compete with Netflix and Amazon. As one BBC source told the Telegraph, “the download market isn’t what it once was.”

The solution? The BBC may expand its own SVOD offering currently operating in the United States, the Telegraph said.

Jim O’Neill – Strategic Media Consultant

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