The number of operators either looking to launch new OTT services or transition their traditional television business to OTT is not slowing down. [Updated June 2020]
One of our most popular recent white papers looked at the reasons for this evolution. We’ve summarized some of its findings and arguments in this blog post below, as well as introducing some recently published survey material that adds even greater impetus to the movement towards OTT. We have come a long way since the inflection point of 2015 when major media networks decided to launch their own OTT streaming services in the shape of HBO Now, CBS All Access et al. And with a second wave of recent high profile launches, including Disney+, Apple TV +, and more, the OTT phenomena of growth looks set to continue unabated.
For Pay-TV operators this makes OTT both the elephant in the room and the 800-pound gorilla; you would rather not acknowledge its presence but the disruption it is causing and the threat it represents is undeniable. The challenge for media businesses then becomes one of meeting their customers’ OTT demands over and above their normal services. If they can manage that, they will secure recurring revenue and expand their opportunities to reach and gain new customers.
Pay TV and OTT revenues crossing over
The Covid-19 pandemic has skewed a lot of figures in recent months, with viewing up and advertising down (excepting digital) across the board. However, looking at the broader trends, in terms of revenue Pay TV seems to have hit its peak in 2016 according to recent figures from Digital TV Research. Then, 138 countries contributed $202 billion to the sector's revenue. The analyst forecasts that this will decline to $150 billion in 2025 despite the number of subscribers rising by 35 million.
This is a major 25% decrease in revenue, though it should be pointed out that most of it - $31 billion - takes place in the US market where cord cutting is a major problem. Elsewhere, Simon Murray, Principal Analyst at Digital TV Research, comments that: “Much of the losses are down to subscribers converting from standalone TV to a bundle where they pay more overall to the operator but less on TV services."
OTT services can, of course, be considered part of this overall figure, especially as they are now typically offered on a non contract, pay-as-you-go monthly service, allowing consumers to flex their subscription depending on a variety of factors, chiefly income and access to exclusive content. Plus, of course, we should mention our new Targeted TV Advertising solution, that gives Pay TV operators access to a valuable new revenue stream.
But what about OTT itself? Keeping with the same analyst for purposes of continuity, Digital TV Research's recent report on the OTT market paints a picture of sustained growth. Revenues were $83 billion in 2019 and will double to $167 billion in 2025 (it should be pointed out that these figures have been updated by Digital TV Research to account of the surge in Covid-19 viewing).
In other words, sometime around 2024/2025 OTT revenues will overtake Pay-TV revenues.
The OTT TV Platform paradigm shift
This represents a significant moment. ‘Paradigm shift’ is an often-abused term, but the degree of change which OTT has brought to the business of distributing content cannot really be described any other way. It has shifted not just the goalposts but the whole playing field, with a host of high profile services launching in the last few months alone
Essentially it is a technology whose time has come. Companies offering OTT services are able to do so on the back of technological change sweeping through multiple industries, from the smartphone and tablet that enable the portability of content, to the growth of broadband networks fast enough to guarantee QoS for high quality video signals, to the advent of the cloud and the ability to scale computing power and server capacity to meet demand. And the way that these technologies intersect with socio-economic forces on a national and international scale has led to the development of five distinct OTT niches.
1. Dominant premium OTT video platforms:
Netflix, Amazon Prime, Hulu,
- Virtual MVPDs
Sling, DIRECTV Now, Sky’s Now TV, fuboTV
- Major studio and broadcaster stand-alone platforms
HBO Max, CBS All Access, Peacock
- Platform players
Apple TV+, Roku
5. Niche SVOD services
The last two are worthy of note as, between them, Crunchyroll (manga and anime) and WWE Network (wrestling) have over 4 million paying subscribers.
Consumers: The Key to Joining the OTT Future
So, how do companies that wish to enter the OTT market position themselves to take advantage of its accelerating growth? Having been associated with OTT from its initial deployments up to its current state of the art, we have come up with a long list of key factors that can be the difference between failure and success.
And we mention ‘failure’ here in particular because, while the opportunities in the field are immense, it is not without its risks. There have been several high profile failures in the field, with NBC Universal’s shuttering of the comedy-specific Seeso probably still the most spectacular to date, and even Sony was forced to pull the plug on its PlayStation Vue service in January 2020.
The real key though is satisfying the consumer. If you take Netflix and Amazon Prime Video out of the equation, churn rates in the US OTT market have now gone through the 50% barrier. From the sign up process onwards, the user experience of an OTT service needs to have the consumer front and centre at all times. Essentially they want to watch exactly what they want, when they want, and on any device. That means a seamless, customer-facing and high quality video experience with no pain points powered by a data-driven back-end that can understand their needs.
As Patricia Frith writes in her conclusion: “Perhaps now more than ever in the history of our industry, consumers are in the driver’s seat. Should anyone forget this basic premise they will be left on the side of the OTT super highway.”