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Is the OTT Market Heading for Consolidation?

TV service providers are always looking for ways to increase engagement. Higher engagement in turn can positively affect the bottom line. 
In September, it was announced that SVOD company Afrostream was to close down. It was billed as ‘the African Netflix’ and with huge ambitions to serve as a bridge between the emerging African film industry and the European markets. 

However, Afrostream found that it could not attract enough funds to keep ahead of the growing costs of recruiting and servicing more subscribers. In other words, it simply could not grow fast enough to keep away from financial disaster.

OTT Technology

Afrostream Founder and CEO Tonjé Bakang’s lengthy dissection of events, In the Wings of Afrostream’s Adventure is a fascinating read, and it does raise issues for the global industry as well. Despite what you may hear elsewhere, standalone OTT services are not a license to print money.

As a recent blog post from Ovum’s chief research analyst, Ed Barton, points out, the sheer amount of services being launched could well lead to consolidation down the line. He notes that “the problem is the TV industry's characteristic response to witnessing a commercial strategy that works, which is to do more of it.”

OTT Market Still Expanding — but for How Long?

The OTT market is currently still very much in its expansion phase. In Europe alone, it is forecast that the 45 million subscribers to SVOD services from 2016 will grow 278% to 125 million by 2022. These are impressive numbers and clear signs that there is still room for growth. But the global picture is uneven. Growth in North America, where OTT market penetration is at its highest, for instance, is forecast to be significantly slower, only climbing 153% to 171 million subscribers by 2022. 

Again, at first glance it seems that there is plenty of room for expansion, but Barton suggests that there may be a limit as to how many services the market can sustain. He points to casualties such as NBCU's comedy-focused SVOD play, Seeso, which is closing in the coming months, and casts doubt on the whole genre-based approach. 

There are several problems in the OTT market at present. One is that competitors invariably peg their pricing to Netflix’s, but very few have the same depth of catalogue that Netflix can offer, even though this varies quite widely across territories. Secondly, the number of companies entering the market is, if anything, accelerating as the skinny bundles in particular proliferate. Ovum is tracking 40 of them in the US alone for 2017, double the 2016 number. 

Then there is the question of how willing consumers are to stack their services, which is becoming a steadily more complex operation as more services enter the market. Once, a simple combination of Pay-TV subscription augmented by one SVOD service was sufficient. This is being replaced by a shifting pattern of multiple subscriptions that changes as new content debuts or ceases. 

“Multiple services have fought to make sure they have at least one marquee reason to watch their service, such as House of Cards, Grand Tour, The Handmaid's Tale, and Star Trek: Discovery,” says Barton, pointing out that all made their US debut on an exclusive basis on an OTT D2C (Direct 2 Consumer) platform. 

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OTT Market Futures

Barry Schwartz’s influential 2004 book ‘The Paradox of Choice’ argued that an abundance of choice was not always necessarily a good thing when it came to consumer happiness. The current choices seem to be multiplying, as content owners such as Disney establish their own direct OTT relationships with consumers, and not renew distribution deals with the likes of Netflix.

Barton, however, seems to think that the paradox will not be a problem affecting the OTT industry for too long. “Our concerns are whether services are doing enough to distinguish themselves from competing offerings and whether the market can sustain the majority comfortably.” 

The opportunities for expansion in the OTT Market are undoubtedly still there, but the playing field is shifting and operators have to adapt in turn. The fundamentals that we talked about last year in How to Make Sure That OTT Delivers For You are still in place, but the relationship between them is changing month by month. It has never been a better time to enter the OTT market, but long-term survival depends on careful planning and clever thinking. 

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Ludo Rubin

Ludo Rubin is Director of Product Marketing for Viaccess-Orca. Ludo has 20 years of experience in product management, product marketing and business development in Software/SaaS for telecom, enterprise and video applications. Prior to VO, he worked with IBM, Nokia/Alcatel-Lucent and niche enterprise software providers where he successfully built, launched and marketed innovative software products. Ludo holds a Master of Science (MsC) in Computer Science and Electrical Engineering from Ecole Centrale de Lyon (France), a post-masters’ degree in mobile communications from Telecom ParisTech and completed the Management Accelerator Program at INSEAD. Ludo lives in Tel Aviv