In our roundup of what we saw at IBC we mentioned that over-the-top (OTT) TV services are being launched around the world seemingly on a daily basis, so we thought that it would be a good time to have a look at what the analysts are saying about the OTT market.
By OTT TV we mean video delivered over the open internet to connected devices. It is a market that has only relatively recently been made possible by the widespread availability of high speed broadband either to the home, or on the move. It provides an alternative way of distributing television to consumers and allows new types of video content to be made available. Viewing time is increasingly being diverted away from long form video to short clips and user generated content watched on personal devices. For this reason OTT is a hot topic, and a lot of analysis is being produced to try to understand and predict what is going to happen. The general consensus is that OTT markets are growing fast and are becoming substantial.
Type of OTT video services and business models
Let’s look first at subscription video on demand (SVOD), the type of OTT service where customers have access to a broad catalogue of movies and TV series for a flat monthly fee. According to Juniper Research, revenues will hit $34 billion globally in 2021, up from $14.6 billion this year. That’s an average growth rate of 18% per annum.
Netflix is the leading SVOD platform. Originally launched in the US, the company now has over 80 million subscribers worldwide. Of these, 47 million are in the US. Outside the US, Netflix is particularly successful in other native English-speaking markets owing to its large stock of English language content. Outside those markets, local players are better able to compete owing to their access to indigenous content. To address this, Netflix is making efforts to localise its services over time. According to IHS, Netflix is expected to break the 100 million subscriber barrier in 2018, by which time the majority of Netflix subscribers will be outside of its home country.
Amazon Prime is another global SVOD example, Hulu Plus is a well-known provider in the US, and iflix offers SVOD in South East Asia. Viaplay in Scandinavia and MLB.TV in the US offer sports focused versions. There are many more. Setting up OTT services is relatively low cost, and this partly explains why so many are being launched. It is reckoned that there are over 100 in the US alone.
In fact, often consumers will subscribe to more than one service. In the US and UK for example, according to Futuresource Consulting, around half of Netflix subscribers also take Amazon Video Prime. SVOD subscriptions in the US average out at 2.5 per subscribing household. Looking at the world as a whole, Digital TV Research has found that there were 159 million SVOD subscriptions globally at the end of 2015, and expects this to more than double to 383 million by 2021.
Another type of OTT video service is transactional video on demand (TVOD). This includes pay-per-view (PPV) and download-to-own (DTO, ‘electronic sell through’ or EST) business models, where titles are paid for individually, and can either be watched during a fixed time period (like a DVD rental) or are saved to be watched at any time (like a DVD purchase). iTunes, Google Play and Amazon Instant Video are OTT services of this type.
Multichannel pay TV operators often offer their own version of this type of VOD alongside their broadcast services via a connected set-top box, though because a pay TV subscription is required to access the downloads, these services are not classed as OTT, even though they may actually be delivered over the open internet.
Yet another OTT business model is free-to-view where there is no subscription and revenue is instead generated from the sale of advertising in or alongside the program stream. These are often referred to as Ad-supported or Advertising-based video-on-demand (AVOD). YouTube is an example of this type. Maxdome offers an advertising-supported video service in Germany and in China it is the standard model, accounting for around 95% of online video revenues, according to IHS Markit. Social media networks, like Facebook, offering short clips, also fall into this category.
Market size and comparison with traditional digital TV
Taking all of these types together, Digital TV Research estimates that the worldwide OTT market was worth $29.41 billion last year, and will reach $64.78 billion in 2021. The market research firm expects AVOD to overtake SVOD in revenue by 2020.
So we are talking about a sizeable market, though still relatively small in comparison with a video industry which generates, according to the Boston Consulting Group, around $500 billion of annual revenues. Content production accounts for around $240 billion of that, according to the same source. This is paid for by fees that come from multichannel pay TV subscriptions (also around $240 billion in 2015 according to SNL Kagan) plus advertising, public sector funding and licence fees.
On this basis, unless it begins to eat more significantly into multichannel TV revenues, OTT is not forecast to become the dominant consumption method. There is nothing in principle to prevent this from happening, though IP delivery of mass live programming would put a massive strain on internet infrastructure. Cisco already expects video to account for 82% of internet traffic by 2020. Despite this, virtual cable TV operators (sometimes called Digital Multichannel Video Programming Distributors or DMVPDs) such as Sony with their Playstation Vue service and start-ups like Layer3 are already beginning to appear in the US.
Opportunity for pay TV operators
In order to head this off, and to generate some revenue from customers who are not willing to pay for a full subscription package, Pay TV operators are launching their own OTT offerings on the back of the content deals that they already have. Now TV in the UK offers live sports, Sling TV from DISH Network provides a ‘skinny bundle’ of a limited set of live channels in the US, and DIRECTV will launch DIRECTV Now, an offering with a wider range of channels, later this year.
Overall, UBS expects that there will be 14.7 million online pay TV subscribers in the US by 2020. This is a small number compared with the country’s 100 million cable, satellite and IPTV subscribers, but it will be growing, whereas traditional pay TV subscriber numbers there are in slow decline.
Another form of online video service is TV Everywhere. In this case an operator gives online access, to a subset of live channels and on-demand content, to customers that have a subscription to its traditional pay TV offering. Again, as a pay TV subscription is required, these are not normally included in OTT revenue numbers. Actual usage of these services appears to be quite low, with many customers not even being aware that they have this option. Despite this, Parks Associates puts the number of users with access to TV Everywhere in North America in 2014 at 27 million, growing to 64 million in 2018. Similarly in Europe, there were 27 million in 2014, and this is projected to hit 52 million in 2018. Asia Pacific is expected to grow even faster, from 8 million to 20 million users over the same period.
So in summary, there are many types of online video, but as can be seen in the figure below, all are taking off fast, and all are an excellent place for pay TV operators to look for additional revenue.
Operators have several options when it comes to exploiting the online video market. They can integrate third party OTT services into their offering, they can launch their own standalone OTT service, or they can offer TV Everywhere.
From a client device point-of-view, adding an OTT service as an extra to the traditional pay TV experience requires that an app be added to the user’s set-top box (STB). To be successful, it is critical to choose an STB middleware vendor that already has experience of doing this integration.
For standalone OTT and TV Everywhere services the key thing to get right is the user experience (UX) on all the many devices that consumers have access to nowadays. Ideally the UX should be fast, intuitive and consistent wherever the subscriber chooses to make use of the service, even on the set-top box. A UX design framework that is optimised for all platforms is thus an essential requirement.
Product Marketing Manager at Zenterio
Tel: +44 208 432 6143