The UK Video on Demand (VoD) landscape is shifting at lightning pace. As the DVD market slows, distributors and consumers alike have embraced the plethora of online services now jostling for attention in the territory.

“This space never stands still, it’s continuously morphing,” says Simon Morris, chief marketing officer of Amazon-owned LoveFilm. “Infrastructure, content and consumer taste are changing at breakneck speed. I have been doing this for eight years and there hasn’t been one period when you think you have arrived at the status quo.”

‘Infrastructure, content and consumer taste are changing at breakneck speed’

Simon Morris, LoveFilm

Since the UK’s incumbent online Subscription Video on Demand (SVoD) kingpin LoveFilm was joined in the market by Netflix last January and Sky’s online subscription and transactional film platform Now TV last July, the three brands have been locked in fierce competition. Netflix hit one million UK and Ireland subscribers within seven months, faster than in any other territory it has launched. Consultancy Futuresource estimates UK consumer SVoD spend could hit $302m (£200m) this year.

Add to these subscription services the expanding and diversifying Transactional Video on Demand (TVoD) services, which offer individually priced content, as well as free catch-up platforms, and online consumers are spoilt for choice.

“Compared to 18 months ago, it’s even more crowded and noisy,” says Michael Comish, CEO of Blinkbox, the Tesco-owned service that provides ad-funded, buy-to-own and rental options. “Perhaps that’s not surprising as we have reached a tipping point, where physical entertainment is giving way to digital and everyone is sensing the scale of the opportunity.”

For consumers, each paid-for service has its strengths. LoveFilm offers the cheapest monthly streaming package ― at £4.99 per month without DVDs, compared with £5.99 for Netflix ― and has what most consider the largest film catalogue. Similarly priced Netflix is widely considered to offer the strongest TV portfolio, while Sky’s Now TV has blockbusters at an early stage, but is a pricier subscription proposition starting at £8.99 per month, rising to £15.

Blinkbox, iTunes, Virgin FilmFlex and other TVoD services offer films and series generally before the SVoD services. Some distributors ― including Curzon Artificial Eye ― are seeing opportunities to create their own platforms.

Distributors were initially wowed by the big MGs offered by LoveFilm and Netflix for exclusive rights to content, but are now honing the way they interact with all of the services as the opportunities to build brands become clearer.

‘Education is still the biggest challenge… consumers think windows have changed, but they haven’t’

Kelly Merryman, Netflix

“All eyes are on this market,” says StudioCanal COO Robb Smith. “We’re realising the increasing importance of these services as a distributor and looking at more innovative ways to work with them, whether that be on releases that go live before DVD or making extra materials available as they would be on a DVD. They are all getting involved in a release earlier.” Sophisticated algorithms and growing consumer data banks are also key for the services, which are now curating more targeted content.

However, the market also presents challenges. “SVoD is still being understood by the UK audience,” says Kelly Merryman, US-based Netflix’s vice-president of content acquisition. “Most consumption in five to 10 years will be in an on-demand fashion. BBC [iPlayer] and Channel 4 [4OD] have both invested well and have seen great numbers in their on-demand services. But education is still the biggest challenge. With all these developments consumers think windows have changed, but they haven’t.”

The proliferation of digital devices has helped drive the boom for online film and TV services. Comish says: “We are seeing significant growth in the use of tablets and games consoles to access our service. PC consumption has definitely slowed, but we’re also seeing the predicted smart TV adoption take off.”

Premium VoD, which would see titles available before the theatrical window, and cloud-based ownership network UltraViolet, are also on the minds of many in the industry. “It’s still only day one for the internet and what it can do,” says Morris. Indeed, the rollout of the high-speed 4G wireless network across the UK will only increase the ease of watching content on-demand.

And as for the vital question of online monetisation, while physical sales still accounted for more than 90% of the video industry in 2012, distributors are reporting real growth. “We’re seeing the retailers go down but we are seeing an increase in revenues from TVoD and download to own,” concludes Smith. “The SVoD deals are now largely in place. As for the TVoD platforms, they aren’t replacing physical revenues yet but they are increasing all

Factfile

• LoveFilm has around 2.5 million subscribers in the UK, Germany and Scandinavia, according to Screen Digest.
• As of December 2012, Netflix has 6 million subscribers in the UK and Ireland, Canada, Latin America and Scandinavia.

UK consumer entertainment spend

Source: Futuresource Consulting, 2013

Supply and demand

Andreas Wiseman on why TV content is vital for on-demand services

While LoveFilm, Netflix and others spent 2011 and 2012 locking up lucrative output deals with film distributors as well as amassing volume, a dominant theme across all on-demand platforms in the past 12 months has been the growing importance of original, licensed and library TV content.

Netflix’s vice-president of content acquisition Kelly Merryman estimates the ratio of TV to film consumption in Netflix’s international territories has grown from 50/50 to 60/40. At a time when it is more important than ever for online entertainment services to differentiate themselves from competitors, intriguing original commissions are proving hot property.

“Our message has changed,” explains Merryman. “Exclusive content is becoming ever more important. We now need to position ourselves as a programmer rather than only as a distributor.”

That’s where Netflix’s much-talked-about series House Of Cards comes in. The political drama ― which reportedly cost $100m ― has been a game-changer, not only in terms of cost, but in the way it was delivered. The radical decision to make available the entire first season on the same day [February 1] in all Netflix’s territories, meant the series benefited from a unified global marketing push, reduced chances of piracy and satisfied consumers’ increasing propensity for so-called ‘binge-watching’.

Upcoming on Netflix’s original TV slate are thriller Hemlock Grove, produced by Eli Roth and starring Famke Janssen and Dougray Scott, prison-set comedy-drama Orange Is The New Black and a second season of House Of Cards.

LoveFilm owner Amazon is also getting in on the act, with six children’s and six comedy TV pilots under commission.

But alongside original programming, the services are also jostling for more established series at the earliest stage possible, as well as rights to back-catalogue series. In particular, kids and family-oriented product is increasingly in demand.

“Film remains fundamental to the services but TV has become increasingly important,” acknowledges Jonathan Ford, executive vice-president, Content Television and Digital.

“In the beginning, the platforms competed for films in the first pay- TV window because the film brands had already been built by theatrical and home video, and they needed the second window for TV because they needed those brands to be established. Last year, they started competing for first-run TV series and commissioning their own TV content, as they have become established enough in the market. A film is a one-off enjoyment whereas a series brings a customer back to the service time and again.”

In that vein, the incoming UK TV tax credit represents further opportunity for the likes of LoveFilm and Netflix to potentially produce original content from within the UK.

“The TV tax credit will be beneficial for all broadcasters, linear and on-demand. I’m sure the Netflixes and Amazons of the world will look to work with co-productions that can make use of those tax incentives,” anticipates Ford.

After House Of Cards tapped Maryland’s tax credit and Hemlock Grove utilised Canada’s, what is the chance of Netflix tapping into the UK’s credit for an original commission or co-production? “It’s on our radar,” says Merryman.