Brazil: Netflix catalyst for home video market recovery
February 20, 2019
Brazil’s video entertainment market faced a challenging 2018, with consumer spend down 6 per cent to R$ 22.4 billion (€4.85bn), according to a new video insights report from Futuresource Consulting. However, despite the decline, there are pockets of growth and a path to recovery ahead.
“Brazil’s video entertainment industry is still feeling the after-effects of recession,” says Tanzim Rahman, Research Analyst at Futuresource Consulting, “and although the economy returned to growth in 2017, the video sector has yet to recover. Total video expenditure is dominated by pay-TV, which in 2018 accounted for 77 per cent of spend. Therefore, a declining pay-TV subscriber base means that despite a growing home video market, driven by SVoD, the total video entertainment market spend finished 2018 down 6 per cent. Nevertheless, the situation is poised for a turnaround. With the economy recovering, broadband penetration growing, connected device uptake increasing and payment options improving there are now the foundations for future expansion.”
With a GDP of $3.4 trillion, Brazil has the largest economy in Latin America. It is also the largest market for smart TVs in the region, but at 52 per cent penetration there is plenty of headroom for growth. Broadband household penetration was around 50 per cent in 2018, which will rise to 60 per cent by 2022, improving access to services and ushering in a new raft of digital participants. Faster broadband is also on the way, with speeds increasing 50 per cent by 2022 to 14Mbps, further enabling digital services and improving the consumer experience.
The Netflix Effect
The launch of Netflix in 2011 has acted as a catalyst for change in Brazil, with the company driving SVoD revenues and triggering a major shift in premium entertainment consumption. Futuresource estimates that Netflix added more than 1.5 million subscribers in 2018, to exceed 8.5 million subscriptions, similar to the number in the UK. Together, these are Netflix’s two best performing international territories.
SVoD accounted for three quarters of home video spend in 2018, with physical video (DVD & Blu-ray) posting a 20 per cent decline and digital transactional growth (EST and TVoD) almost exactly compensating for the decline to leave total transactional video flat in 2018.
“Consumer spend on SVoD is almost entirely driven by Netflix,” says Rahman, “and accounted for around 8 per cent of total entertainment spend in 2018. Beyond 2019, the SVoD market is projected to experience 20 per cent+ growth in revenue per year, with revenues projected to nearly double by 2022 reaching just shy of R$3.8 billion.
Survey explores consumer behaviours
Netflix’s wide availability on TV-based devices has helped its strong appeal in Brazil, providing a low-cost alternative to pay-TV services. In a recent Living with Digital consumer survey carried out by Futuresource, over 70 per cent of Netflix users said that their preferred way to watch the service is via the TV, with smart TV access driving this. Over 90 per cent of users are watching at least weekly and one in every three are watching every day, according to the study. Although Amazon Prime Video is available in the region, there is little awareness of the offering, due to a delayed start and relatively low marketing spend.
Pay-TV suffers, but will recover
Brazil’s pay-TV sector felt the impact of the poor economic conditions within the region, with consumers shedding subscriptions to satellite pay-TV in particular. As such, revenue declined 9 per cent in 2018. However, Futuresource expects pay-TV performance to pick up in 2020, in line with a general economic recovery, with an increasing number of households and a return of consumers to pay-TV. Despite this, pay-TV’s significance in the video entertainment sector is expected to marginally reduce from 77 per cent in 2018 to an anticipated 75 per cent in 2022, with other video markets, particularly SVoD, rapidly expanding.
Box office stabilising
After five years of strong growth, box office remains relatively stable in Brazil, with international content dominating the sector and representing 90 per cent of the box office. The top 10 grossing films last year were all from the US, with the best performing Brazilian film of 2018, Minha Vida em Marte, finishing the year as 13th highest grossing movie. The continued growth in SVoD will see it overtake box office spend by 2020.
The Market Outlook
“Despite a choppy ride, the overall video entertainment market will begin to rise again, although it faces another decline in 2019,” says Rahman. “We project a climb from a retail value of R$22.4 billion in 2018, to R$27.4 billion in 2022.”
The Brazil Video Insights report from Futuresource reviews the overall video entertainment market in Brazil and assesses the impactors and drivers. Key areas covered include digital video (EST, TVoD & SVoD), physical video (DVD & Blu-ray), subscription pay-TV and box office, with detailed market data provided from 2015 out to 2022