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Streaming Floods Past Pay-TV in U.K. as Biz Goes Over the Top

The news that there are now more streaming subscribers than traditional pay-TV customers in Britain made headlines last week, but it was a moment the business knew was coming — and one the incumbent players are scrambling to counter by fighting fire with fire.

Media regulator Ofcom’s new Media Nations report logged 15.4 million streaming subscribers in Britain at the end of March, edging out traditional pay-TV customers, at 15.1 million, for the first time. The finding is a portent of what’s likely to come elsewhere.

“The U.K. is now among the first international markets to follow the trend from the U.S.,” said Tony Gunnarsson, principal analyst at London-based Ovum. “We’re seeing the same trend across a few other markets, including the Nordics, Australia and New Zealand. Looking ahead, most mature international markets are heading this way.”

Traditional pay-TV revenues in the U.K. remained far higher than SVOD revenues in 2017 — £6.4 billion ($8.38 billion) versus £895 million ($1.17 billion) — but declined last year after a sustained period of growth. The number of Amazon subscribers grew faster than for Netflix in 2017 but still lagged behind — at 4.8 million versus 9.1 million — in the first quarter of the year, according to the Ofcom report.

Europe’s largest pay-TV business, Sky, which is at the center of a takeover battle between Comcast and 21st Century Fox, is trying to get in on the over-the-top game with its own streaming service, NOW TV, which had an estimated 1.46 million subscribers in the first quarter. Sky told Variety that almost 70% of its customers now stream some content.

Sky and others are banking on consumers signing up for multiple services. More than 70% of SVOD customers in the U.K. also take traditional pay TV, and more than half subscribe to more than one streaming service, generally Amazon and Netflix. British cable giant Virgin bundles Netflix; Sky is integrating Netflix into its service across Europe.

But embracing OTT presents a challenge to Sky and its peers, which risk sacrificing high-revenue subscribers for lower-value ones. Free-to-air broadcasters, which have their own on-demand services, are also worried about big streamers’ encroachment.

BBC director general Tony Hall has railed about the threat he believes U.S. digital giants pose to British content. Yet his organization works hand in hand with the streamers, including Netflix, on a raft of premium drama — an arrangement he appears to be rethinking. “Whose brand are we building?” Hall told Variety recently.

David Clementi, the BBC Corp.’s chairman, said the U.S. firms have made life harder, and a lot more expensive, for the pubcaster. “We’re still thought of by some as the big beast in the jungle,” Clementi said. “The reality is of course very different. The market is increasingly global and competitive, and increasingly is dominated by a very small number of organizations with extraordinary creative and financial firepower. Their big budgets have driven up costs to a significant degree, and we have seen super-inflation in key areas such as drama production, sports rights and talent costs.”

Alliances are being redrawn to counter the so-called FAANG companies (Facebook, Apple, Amazon, Netflix and Google); free-to-air broadcasters in Britain, France and Germany are among those looking to band together to create OTT offerings.

In Britain, competition authorities blocked an attempt by domestic broadcasters almost a decade ago to join forces, in a project dubbed Kangaroo. Now, with its new report underlining the broadcasters’ falling audience share and ad revenues, Ofcom says it would welcome a “British Netflix” and would not stand in the way of a joint OTT service.

But the OTT landscape continues to shift. Ofcom’s Media Nations report landed the same week that Netflix reported lackluster subscriber growth. Formidable new competitors are preparing to enter the fray, including a potentially game-changing streaming service from Disney.

Analysts also expect subscription-based digital platforms that serve up content in linear rather than on-demand fashion to take root. Sky has launched an OTT version of Sky Q, its most advanced and premium service, in Italy and will soon do the same in the U.K.

“Growth in SVOD is already starting to cool off,” said Gunnarsson at Ovum, which expects 40% to 45% of over-the-top video subscriptions to be to linear-style services in five years. “In short, OTT is moving toward linear OTT services.”

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