What We Learned About On-Demand Consumers This Week

We live in the age of the on-demand customers, a reality measurable by various metrics. You can measure it in money and the flow of investment dollars. In 2014, VCs dropped over $1 billion into on-demand food and grocery business alone.

You can measure it in the nearly exponential proliferation of business emerging to offer on-demand and subscription services for almost any imaginable consumer good.

One could measure by the enthusiastic embrace of the on-demand and subscription models by the world’s biggest and most established players. For example, last week, Google rolled out YouTube Red, its $10 a month iteration of YouTube, with promises of enriched exclusive content and an ad-free experience.

Or you could measure by the enthusiastic public endorsements the subscribed, on-demand and instantly stream future keeps managing.

“We believe the future of television is apps,” Tim Cook declared (adding another entry to the the list of Cook’s bold, forward-looking declaratives in 2015) when Apple introduced the latest updates to the Apple TV a few weeks ago. He doubled down on that sentiment during Apple’s Q4 2015 earnings call with investors. He noted that the on-demand is in essence what consumers are demanding, along with the expected assurance that Apple is innovating to make sure their consumers have a better experience than they can currently conceive.

But, interestingly, the thing that is hardest to measure when talking about the future of the on-demand customers is what exactly the size and shape of that customer demand is. There is not a lot of data readily available on the subject — and firms in the business are somewhat selectively forthcoming with their data.

Which makes Nielsen’s latest Local Watch Report interesting. Though directly focused on drawing some conclusions about gift buying that our R2 newsletter will delve more closely into next week, the study also throws some interesting, if unexpected, light on the on-demand customer.

What did Nielsen point out this week?

Live TV Is Alive And Well

While cord-cutting captures a lot of headlines, on the whole, Americans are still watching a lot of live television.

“When it comes to time spent, live TV continues to reign supreme,” Nielsen says in the report. “Television continues to play a major role in the lives of the American consumer.”

The study points out that where one lives and their demographic background heavily influences one’s TV watching habits.

That said, in 9 of the 25 major markets surveyed, consumers averaged more than four hours of television per day; in 24 of 25 markets, viewers watch more than three hours on average. Even in tech hub San Francisco (the demographic most known for cord-cutting in the United States) consumers spend, on average, two hours, 49 minutes watching television vs. about an hour watching time shifted or using exclusively a multimedia device.

Those time shifted numbers are on the rise, Nielsen noted in its report, particularly as mobile device ownership goes up. However, television through the cord still reigns supreme — though admittedly it is often sharing eyeballs with the other smart devices that consumers have in their hands or on their laps.

Streaming: Almost At 50 Percent On Average

The new Nielsen report also measured VOD subscription streaming, particularly via the penetration of the three best known and most dominant services: Netflix, Amazon and Hulu. Taken together as a category, they aren’t quite in the majority of American homes just yet. The average penetration across the 25 major U.S. markets is 47 percent.

Netflix dominates that stat and does a lot to pull up the average; it is in 42 percent of homes (as measured by the 25 major market Nielsen average) and is in over 50 percent in Portland and Los Angeles homes. Amazon Prime streaming is in 18 percent of households, though it does much, much better in certain markets, doing 30 percent or better in Washington, D.C. and Seattle, and 25 percent or better in Boston, San Francisco, Portland and Baltimore.

Nielsen notes that those figures are growing, particularly in certain markets. Almost half of the Top 25 markets have VOD subscription service penetration of 50 percent or better – and a variety of cities saw 8, 9 and even 10 percent growth.

But, it does seem worth noting that Netflix — far and away the category leader — has been reporting a slowdown in sign-ups as of late. During their latest earnings report, Netflix notably missed analyst expectations that it would sign on around 1.2 million new subscribers, instead clocking in under a million at 880,000.

Netflix’s official explanation was that the slowdown was in the cards, since the EMV conversion (and the unusual sudden rush of new customer cards) would have disrupted a bunch of subscription charges that otherwise would not have happened.

Netflix was the only major market player to report a case of the EMV-inspired unintended churn, and, given the 14 percent hit Netflix’s stock price took, it seems the public markets were slightly more concerned that perhaps the available pool of consumers looking to “watch Netflix and chill” might be somewhat less vast than initially reported.

Wait …What Was That Amazon Number Again?

Some interesting food for thought also makes a fleeting, but perhaps meaningful appearance in the data.

According to Nielsen’s data, 18 percent of American households on average have Amazon Prime streaming — i.e. Amazon Prime (since it is a standard feature of the service).

The United States Census indicates that there were 123.2 million households in the United States in 2014 (the most recent year of available data). Some quick back of envelope math, using that 18 percent figure, indicates there are about 22 million Amazon Prime streaming households in the United States.

Depending on which estimate you like, most market watchers take for granted that the number of Amazon Prime subscribers in the U.S. is 30 million-45 million.

A Consumer Intelligence Research Partners report floated earlier this year puts that figure at 41 million. CIRP is a boutique market research firm, and its process for achieving those figures was widely questioned, as The Motley Fool complained their math didn’t add up.

The 30 million-40 million figure (for the U.S. only) came via RBC Capital analyst Mark Mahaney, who speculated that the figure ticks up to 40 million-50 million when looking at membership worldwide. His numbers are based on an RBC survey of 4,000 Amazon customers, 37 percent of which self-identified as Prime customers. Mahaney had initially pegged Amazon Prime’s subscriber base at between 10 million and 20 million, and that figure was an upward revision.

Looking at that Nielsen data, it would seem there is a very big gap between Amazon Prime streaming and Amazon Prime subscribers.

It is possible that Nielsen is underreporting streaming accounts by not capturing multiple accounts in one household. However, given the set of aggressive rules Amazon recently put forward to essentially force more independent accounts in households, it is probably safe to assume that is not something that is happening a lot on its own.

More likely one of two things is the case.

The first is that Amazon Prime actually has around 40 million U.S. subscribers — as the frequent citations of that figure in media reports about Amazon Prime would indicate — and only about half of those users bothered to take the extra step and sign up for Amazon’s video streaming service. That is certainly possible, but given the amount of money and promotion Amazon has plowed into its stream service, it is a bit surprising that 40-50 percent of Prime customers don’t interact with it.

The second possible conclusion one could draw is that the number of Amazon Prime members is much closer to that 30 million figure and that a little over two-thirds of Amazon Prime customers have signed up for its video streaming service. That might be more in line with what one might expect from Prime streaming, but it also indicates that the news media is guilty of number inflation by echo chamber, which is a disturbing result.

Notably, Amazon has never comprehensively disclosed just how many Prime customer there are, so whether the answer is closer to Nielsen’s ~20 million, RBC’s ~30 million or CIRP’s 41 million, any of those outcomes would be consistent with Amazon’s “tens of millions of Prime accounts.”

So the moral of the data story this week? The future is going to be on-demand. Inevitably, the tide does seem to be turning that way. But the future is not here yet — and just how fast it’s arriving still remains to be seen.