More pain before gain?
TV1.0 (90s to 2019) was dominated by bundled linear monopolies with high ROIC. The
evolution of TV is likely to follow two phases: (i) TV2.0 (2019-2024) – a streaming land
grab phase dominated by unbundling; and; (ii) TV3.0 (2025-2030) – a consolidation
phase - dominated by re-bundling and/or aggregation of services. This report examines
how this transition will significantly impact Global media companies.
New UBSe Global SVOD model forecasts $167bn industry by 2030
UBS's Global media team has built a global SVOD model. It forecasts streaming
customers using an "S" curve penetration function, a stacking rate (subscriptions per
household) based on UBS Evidence Lab surveys and ARPUs based on in-country pricing.
Our base case forecasts a total market of $167bn by 2030 with global penetration of
~55% and ~3 subscriptions per household. US and China account for ~50% of global
subscribers, with Netflix share forecast to remain relatively stable at ~17%. Upside
scenario assumes $300bn market with 75% penetration and limited subscription
fatigue, while downside is $110bn with 47.5% penetration.
TV2.0 Economics challenging but could improve in TV3.0
The economics of streaming are challenging with large upfront investments required in
marketing, streaming technology and original content to gain scale. This, combined
with lower ARPUs, higher churn (or subscription switching) and more competition
means profitability could be challenging for sub-scale players. Based on UBSe Monte
Carlo analysis there is an 85% probability of a reasonable ROIC for large-scale SVOD
operators. Netflix or Roku revenue multiples of 5-10x are possible if operators can
achieve in country or global scale. Base-case economics are likely to improve in TV3.0.
New framework helps pick most favoured in TV2.0 and TV3.0
UBS has built a qualitative model that ranks media companies in each phase of the TV
evolution based on competitive intensity, discovery, adoption, distribution platform and
ROIC (refer Figure 1). Our most favoured SVOD exposed stocks are Netflix and Disney
given premium content and global scale. In Europe we prefer exposure to ITV and
ProSieben given greater earnings diversity despite secular headwinds. Asian stocks such
as Sun TV are least preferred but expected to improve in TV3.0