Broadcasters are embracing a new reality as industry charges into 2017. OTT video, which started as a vexing outlier, has not only been welcomed into the industry fold but is now driving mainstream broadcast strategies. Its hold on cord avoiders and its radical influence on technology, programming, and advertising shifts are certain and can no longer be ignored. OTT now shapes how all think of TV, how the world consumes it, and how broadcasters produce, distribute, and monetize it. OTT is, without doubt, a central part of the broadcast experience today and will continue to be in the year and years ahead.
The new reality of TV has arrived. OTT is now in the broadcast mainstream – an integral part of how video content is made, delivered, consumed, and monetized. Led by changing consumer habits, video and advertising are evolving to offer more mobile and personalized experiences. The industry is plotting its future around new services and synergies, and technology is adapting to deliver video in advanced and immersive ways. Differentiated programming is becoming a critical competitive advantage in a crowded and fragmented marketplace, where content demands are exploding and production processes are changing to help solve these challenges. Data will prove to be the connective tissue and winning ingredient to ensure broadcast success everywhere.
The pay-TV broadcast industry is now facing the growth of OTT services head-on. Networks and operators are launching their own robust OTT offerings, forming strategic alliances with OTT providers and digital companies, or merging with traditional and digital companies for survival and growth. There will be winners and losers in the battle for audiences and revenue, but the time to watch and wait is over. It is time to commit and move forward.
The impact of audience shifts and OTT hits is creating a great cataclysm felt across the industry. Pay-TV households have fallen below 100 million in the US, while SVOD streaming penetration is now at 48 percent – up 7 points from a year ago. Pay-TV companies are seeing their subscriber numbers continue to drop and are trying to slow the exodus by filling the service gaps that are inhibiting growth, and by expanding their reach to new audiences. 2016 saw major industry mergers not only among traditional pay-TV and content players like AT&T, Charter, Time Warner, and Starz among telcos, and online leaders including Vodafone, Verizon, Yahoo, and AOL. These companies are looking to increase content offerings, distribution, infrastructure investments, and, ultimately, revenue.
Alliances have grown among OTT, digital, and TV players as well. A multitude of TV networks like ESPN are building production partnerships with digital media companies, while OTT services like Netflix, Hulu, and Crackle seek to widen their footprint via cable set-top boxes (STBs) owned by Liberty Global and others. Other partnerships like ABC and Warner Bros. have focused on building out stacking rights to grow in-season viewers and lifetime value for content. Amazon is even selling Comcast services. What is at stake? Audience and revenue growth, and control over content and services coming into the home.
This activity is sure to influence consumer fees and choices, and the already tenuous carriage of smaller networks, which are also morphing and embracing OTT to meet the new market place demands. Nielsen Research recently noted that the average percentage of TV channels viewed is down to single digits, so more channels will likely be on the chopping block as programming costs rise and viewers drop. Look for the melding of traditional TV and online companies and the change in the political climate at the start of 2017 to affect how companies think about future mergers and investments in the space.
Globally, partnerships have been forming to streamline billing, making it easier for consumers to manage multiple services in the home. Expect to see more alliances like this, particularly in other Asia-Pacific markets and Latin America, where limited payment options are hampering OTT services from maximizing growth.
Amidst all of this, video business models continue to look different. While most OTT services are still subscription-only, hybrid revenue models that meet audience desires to choose how they want to subsidize content are becoming more prominent.
A recent Ooyala Global Video Index Report noted that mobile devices were used slightly more than PCs to watch SVOD content, while the opposite was true for AVOD content – indicating that watching subscription-based premium content may be a more personal experience preferred on personal devices. The share of time watching content differs among the models as well. A hybrid set-up helps broadcasters reach as many viewers in as many ways as possible.
Many companies are acting on this strategy. Across the board, subscriptions, advertising, and transactions are blending, and OTT is playing a significant role in helping content providers determine which mix of models makes sense for their overall businesses. Look for these mingled offerings to become more of the standard way of monetizing video content going forward.
Research indicates that broadcast channels remain a top consumer priority for OTT packages in the US as well. While some new services are seeing solid growth, others are struggling to turn viewers used to free content into paying customers, and many niche services are finding it tough to break out – especially amidst such a crowded marketplace of content options. At the same time, consumers are still doing the math on whether assembling their own collection of skinny bundles makes economic sense in the long run. Expect to see more services emerge in 2017 – including more sports OTT services which have high consumer interest – with offerings that apply lessons learned from these early experiments and new entrants.
Meanwhile, within the existing major OTT services, changes are apparent as well. The players who have been in the space are maturing by deepening their offerings and changing up pricing as more competition comes into play and content licensing costs soar. Hulu is rolling out a bundled service in 2017, while Amazon has monthly Prime Video subscription plans now and is thinking about offering its own bundled TV network package, all in service of higher retail revenues. Netflix is achieving feature parity by now providing offline viewing to give audiences more flexibility for watching content. This feature is particularly helpful in emerging global markets and other areas with limited Internet access. The Asia-Pacific market is expecting rapid expansion, despite the need for more local-language programming throughout the diverse region. And in the UK, OTT services are dominated by free broadcast catch-up offerings like the BBC iPlayer and ITV Player.
Overall, analytics and personalized video recommendations will continue to be among the key factors in building successful OTT services. As OTT video continues to grow, technology advances promise to push it in new and immersive directions. The growth and future of broadcast content is undoubtedly via OTT. Mass or niche, local or global, singular or hybrid – OTT will rule with consumers and drive further industry shifts and alliances. As always, data will help make or break services. Look for providers to embrace it whole heartedly in the year ahead.
OTT has become highly relevant in the emerging markets of Asia, particularly India, where the growth of digital content distribution has leapfrogged traditional media distribution. Not only are services seen as a companion or value-add to the provider's core business, such services have reached a point where the scalability, distribution across devices and platforms is critical, and forming significant content partnerships is key to remaining viable.
The future of VOD or OTT is bright in India. Although the industry is flooded with various regional and global brand players, still India's OTT subscribers are expected to grow to 105 million by 2020, according to a report by Media Partner Asia.
Smartphones have initiated a new era of television viewing in India. Smartphones with large screens and enhanced audio and video quality have made the switch from traditional to digital medium easier for the young generation. It is estimated that by 2020, the smartphone penetration in India will be 520 million and broadband usage will rise by 40 percent. This shift will boost a person's online time. Various studies indicate that about 62 percent of YouTube users in India prefer to watch short and snackable content. This realization has inspired top digital content producers to come up with snackable and short-form entertaining content. This short and entertaining story-telling trend is driving the growth of digital content visualization in India.
With every major telecom service provider rolling out lucrative 4G plans at affordable prices, industry experts suggest that the demand for online content will increase tremendously. Even rural customers are shifting to online content. With the government's demonetization drive in 2016, rural population is driven to take up digitization seriously. Currently, India's Internet community comprises 35 percent rural customers, which will continue to grow in 2017. This indicates business opportunities for VOD players such as Viacom 18, Hotstar, Press Play, and Netflix. Currently, most popular OTT players are making revenues through ad-supported models and freemium subscriptions. Initially, VOD players are luring their unique customers through free subscriptions, and converting them into paid subscribers. Hence, the market potential for digital content is huge.
Original content is going to be a key trend in 2017 and in future. This reality is driving OTT service providers to invest in original content programs. By the end of 2016, many OTT service providers have teamed with big production houses to create original content for their viewers.
The Technology Shifts
The technology shifts that the industry has seen to get to an OTT world are nothing compared to what is on the horizon. Technical applications that put consumers smack in the middle of video content make it larger than life and expand it throughout the home are next to hit the mainstream.
While video screens are getting smaller, larger screens like connected TVs (CTVs) still dominate for longer content. Data from the Ooyala Q3 2016 Global Video Index Report notes that their share of medium- and long-form content has increased due, in large part, to two factors – the availability of more premium content and the increasing number of CTVs in households. During the quarter, 93 percent of content on these devices consisted of medium- and long-form video, up from 73 percent a year ago.
This CTV growth also bodes well for 4K as it continues to build momentum. Research from Irdeto and SNL Kagan indicates that both content producers and video service providers expect consumers to pay more for 4K content, and, therefore, they have active plans to deploy more of it over the next few years. While this UHD format is currently being helped along by OTT services, STBs are also expected to play a role in this for pay-TV providers as well. While broadcasters, operators, and consumers are weighing their investments in these technologies against their ROI, these groups are already turning their attention to the equipment and content surrounding even more forward-looking and deeply engaging experiences.
Currently, industry is all talks about virtual reality (VR), augmented reality (AR), and 360-degree video. Similar to 4K, both large and small screens and bandwidth capacity are key to the rollout of these immersive formats. Video content quality, production investment to increase content, and the consumer experience all need to improve to fulfill VR's potential.
Ultimately, what will drive full consumer interest and adoption of all of these new formats beyond the experience are deep libraries as well as original and live content that can best be experienced and monetized in a modern way. The broadcast industry as a whole is coming to the same realization.
Technology promises to shape how video content looks and grows going forward. The industry is moving to a dichotomy of large- and small-screen experiences, with audiences able to just jump in the middle of it all. Broadcasters will employ more consumer-friendly ways for audiences to get and engage with content on their terms. While it is clear that OTT video is the new norm for the broadcast industry, it is still in an early growth spurt, with much iteration to come for consumers, industry players, technology companies, creators, and advertisers. Data will be the collective glue that binds them all and helps them charge forward together.