One of the disadvantages of OTT platforms is that there are many reasons why an OTT business can fail. These are the 6 OTT Challenges that you need to overcome for success. [Updated May 2023]
There has never been an easier time to launch an OTT service. Demand for content remains strong after the pandemic; technology platforms have evolved and pivoted to the cloud to make the process even easier and now encompass live streams, bringing sports and other live events into the mix. Ultra-fast broadband networks and the growing rollout of 5G networks can deliver the high-quality, low-latency streaming video that consumers demand.
But, while it is tempting to see OTT as a business plan that cannot fail based on the success of Netflix, Disney+ and other SVOD players, OTT businesses have failed in the past, and the uncomfortable truth is that they will do so again. Even these global giants have run into headwinds over the course of the past year; they are still expanding, but not at the rate they once were.
One of the disadvantages of OTT platforms is that there are many traps for the unwary; some are obvious, some are subtle. So, here is how to start an OTT business and a brief guide into avoiding the most common pitfalls.
6 OTT Challenges
Some of the following may seem obvious, but the growing list of failed OTT companies suggests that not all these issues were carefully thought out.
1. Not understanding your audience
You need to know who is going to be watching and what they might want to watch. This is particularly important when it comes to niche channels, which can be guilty of two things: either targeting too narrow a niche or entering a niche space that is already over-crowded.
Attention is being stretched thinner and thinner. The latest figures from the US market has found that the average number of individual TV services consumers use has reached 11.6 video services per household. While this number includes everything - traditional Pay-TV, all available streaming services, and over-the-air reception through an antenna - the key takeaway is it’s rising. In 2022 the number of video services per household was only 8.9.
Unsurprisingly this is being driven by younger viewers, but there is even stratification amongst them. Millennials take an average of 16.3 video sources compared to Generation Z, with 12.7 sources and Generation X with only 12.2 sources.
There are only so many viewers to go round and these in turn only have so many hours in the day to watch content in his entertaining 2019 post, Whistling Past the OTT Video Graveyard. Parks Associates’ Brett Sappington lists a few failures. Fandor and FilmStruck chased the over-crowded cinephile market and struck out; while overly niche specialists such as Hortus TV targeted gardeners and XtraFrame provided live access to bowling events, both failed to achieve lift-off.
There have been more since, including such high-profile shutterings as Hooq in Asia, and Quibi and TVision in the US. Recent casualties have included Acorn TV in South Africa, live music specialists Mandolin and Sessions, GolfTV, and more.
Do your research and be certain of your audience. To be honest, some of the proposals out there are perhaps more suited to starting life as YouTube channels rather than fully-fledged OTT services. Certainly, despite all the issues with the YouTube model, the opportunities for monetization are perhaps easier there.
2. Using the wrong technology
There is a right way and a wrong way to do all this from a technology standpoint nowadays. The right way is to leverage the power of the cloud. It has been over seven years — a lifetime in the current TV industry! — since Netflix CEO, Reed Hastings, turned on the streaming giant’s global service, but nothing illustrates the power of the cloud better; one press of a button during a presentation at CES and 130 new countries joined the service at a stroke. The company currently operates in 190 countries.
This is, in a nutshell, what the cloud provides: the power to scale quickly and efficiently without the enormous capital expenditure of relying on on-premises equipment. There really is no other rational business plan in play anymore, whether for an OTT platform or other service.
3. Showing the wrong content
This is an element of the first two points ― giving your audience what they want to watch and by using TV business analytics. Big Data, as it used to be called (the industry much prefers the term ‘analytics’ now ) provides invaluable insights into what parts of your content library are working and what parts are not. These analytics offer invaluable insights into what needs to be deleted from your library because it’s simply sitting there racking up server costs and what is worthwhile keeping around and will still attract viewers many years into the future.
Content is going to be one of your largest expenses (especially if you move into the growing OTT sports market); you need to make every minute and every GigaByte count. And, it goes without saying, you then need to protect it as well. With new forms of video piracy emerging on a regular basis - and illegal apps, IPTV and streaming on the rise - a holistic approach to piracy is required.
4. Offering a poor user experience
One of the issues operators face in launching a new OTT service is that the competition is, essentially, the big global SVOD players - Netflix, Disney+, Amazon Prime Video etc. These have developed their user experience carefully to be an ultra-efficient means of connecting customers with content swiftly, employing personal recommendations, exemplary user interface design, and seamless support across multiple platforms.
The good news is that you don’t have to invest the same R&D budget to develop it; the techniques are there and ready to be deployed off the shelf in solutions such as ours. The bad news is that your customers will demand something similar.
Obviously, this approach extends all through an organization to customer service; the user experience is not just limited to interaction with a screen but any and all contact with a company, whether that be an email to technical support, an account query, a Twitter request or something else.
As part of this, we’re also going to list some barriers to entry. You need to make it easy for people to sign up. Long contracts, heavy fees, a lack of payment options…all these can conspire to ensure that you never attract enough subscribers to thrive. Speaking of which…
5. Catching a bad wave
Anyone who’s surfed in the ocean or even thought about surfing will understand that not all waves pick you up and carry you to the beach; some fade to nothing around you, leaving you paddling in open water. And this is all in constant flux.
For instance, when we first wrote this piece in May 2019, we felt confident in saying that "Transactional VOD, for example, was considered to be the next meta-trend in the industry, but has been constantly out-performed by the subscription model time and time again."
In 2021 we updated that with the addition of "Covid has made a fool of that statement, with TVOD becoming a powerful tool of the Hollywood film studios in particular who have been looking to recoup revenue in the face of shuttered cinema chains."
And now we can write confidently of the rise of AVOD and FAST and how many operators are looking to subdivide their offerings and provide a tiered service that stretches from ad-supported and/or free to premium SVOD, with even further graduated layers in-between.
Admittedly, the pandemic is almost the very definition of force majeure, but there are still a lot of changes in four years.
As with anything, there are tides, and there are trends. Services aimed at the 3D market and the VR market have failed, ones that have looked at esports have grown rapidly. Trying to guess second which way the OTT market will develop is very much like playing the stock market; the rewards are potentially great, but then so are the risks.
6. Managing expectations
This is an internal problem, but no less of an issue because of that. Because some companies have made successful investments in OTT operations, it doesn’t necessarily follow that all will. Nor, indeed, that a company will be as successful and show returns as quickly as its investors want. Netflix is just one company whose share price is still incredibly exposed to shifts in subscriber numbers growth, with any quarter that underperforms compared to analysts' expectations seeing it punished in the market.
The long and the short of it is that companies can achieve success in subscriber numbers and even turn a profit but still be killed off because the internal expectation was set so much higher.
Solving the common OTT challenges
The opportunity that OTT solutions represent is extraordinary, but it’s also an increasingly crowded marketplace where companies need to get the fundamental basics right before launching services. Some of the solutions are technical, such as use of the cloud and the employment of data analytics, some of them are simply good business practices and apply to any part of their business.
OTT is not a gold rush. There is money to be made and there are audiences to be had, but you have to do more than just turn up with a product and expect the money and viewers to start rolling in. You need a good plan and you have to serve up engaging content at the right price - then give the product time to scale. Even then, after an initial flush of success, the period that is meant to lead to sustained, long-term growth can still be a nervous one for all concerned.