Over-the-top content Video providers seem to be in a hurry to exploit new opportunities as more people switch to online channels by cord-cutting. The main reason for the surge in the popularity of OTT streaming platforms like Netflix, Amazon Prime Video, Hulu, HBO, Disney+, etc., is that you get unlimited access to original and high-quality content on-the-go.
With over-the-top content fast emerging as the foremost medium of entertainment, OTT video streaming space has become a far more crowded ecosystem than it was a decade ago. According to eMarketer, as of 2019, there are over 182 million OTT subscribers in the United States, that’s more than half of the country’s population.
“According to comScore, around 50 million households across the world, today have OTT video, which they consume in the same time-of-day pattern as traditional TV viewers.”
The video media landscape is being reshaped with OTT video streaming providers and mobile network operators (MNOs) collaborating to decode the complex behavioral and consumption patterns of the modern day online video content users. OTT video streaming platforms are coming out with new and innovative product offerings that can enhance customer engagement and expand their subscriber base.
“Netflix recently (July 24, 2019) launched a mobile-only plan exclusively in India to bring a personalized experience to smartphone users of the country. This plan, affordably priced under $3/month, is aimed at targeting the tier two and tier three segment of India – a country with the biggest smartphone user base in the world.”
Here are four emerging OTT video streaming platform trends for 2019 that warrant additional discussion for OTT market players, if they must succeed in a highly competitive market.
Trend 1: Hybrid Monetization Models
A prerequisite for sustaining an OTT platform is to make money. There are three primary monetization models that OTT streaming platforms operate on – subscription video on demand (SVOD) like Netflix, advertising (or ad-based) video on demand (AVOD) like YouTube, and transactional video on demand (TVOD) like iTunes.
The AVOD model suits YouTube perfectly well as it has a massive audience. Users willingly wait for the advertisement to finish before they can watch the video of their choice on YouTube, which has become a household name. However, AVOD is unsuitable for new OTT market players, who are yet to create their subscriber base, as AVOD is driven by volumes.
SVOD payment model offered by major OTT platform players like Netflix and Amazon Prime Video is the most popular in terms of revenue, accounting for 51% of global spend on OTT (Source: A.T. Kearney). SVOD services are like an all-you-can-eat buffet of OTT where users pay a subscription fee to access unlimited content available on the platform. The biggest advantage of SVOD is that it is convenient to sign up and convenient to unsubscribe.
TVOD payment model on the other hand offers a more selective viewing experience by allowing you to download the content of your choice by paying a single-time fee to binge-watch. Unlike SVOD and AVOD, TVOD doesn’t rely on volumes. If SVOD is a buffet of OTT, TVOD is al-a-carte OTT, where you get nothing but what you order.
However, OTT platform players have now begun to experiment with hybrid content monetization models and exploit all opportunities as subscribers are showing willingness to pay for premium content. YouTube is an often cited example of the “freemium” model which has been put to abundant use by other OTT streaming platforms as well to acquire new users.
“In March 2019, a survey conducted by PwC on 1,000 adult video-on-demand viewers in the US revealed that more than half of the content that the respondents streamed was licensed, while 44% of it was original to the platform it was viewed on.”
Although YouTube had initially begun as an AVOD pioneer, it now provides TVOD services as well by making premium content available for a fee. This is typical example of a hybrid monetization model. In a freemium model users are given free access to limited content supported by advertising, however, there is a fee for watching premium content. Hybrid models are an effective medium to drive up the average revenue per user and maximize profit by opening all possible revenue streams.
Another relevant example is of Spotify – a global leader in digital online music which offers freemium services. Spotify sources 90% of its revenue from 75 million paying subscribers in subscription fees out of its total 170 million monthly users. Exponential growth is expected in the long-run for OTT platform players adopting hybrid payment models as they enable selling content at a higher average price.
Trend 2: Rising Demand for Digital Originals
Netflix changed the TV game in 2013 by rolling out ‘House of Cards’, spawning a plethora of similar web television series. Since then, the OTT glossary has been enriched with terms like “Netflix and chill” and “binge-watch”.
The year 2018 saw tremendous growth for SVOD platforms in terms of the global audience demand for original content. So if you haven’t heard of ‘Orange Is The New Black’, you’re probably an extraterrestrial!
Millennials and Generation Z subscribers choose an OTT platform on the basis of the original and exclusive content it offers. Word of mouth publicity has become a catalyst for the popularity of OTT video streaming platforms. Such is the buzz around original and exclusive video content that overhearing workplace conversations and animated debates amongst peers focused around shows like Game of Thrones is commonplace.
“According to Parrot Analytics’ Global Television Demand Report 2018, SVOD platforms in combined released 319 new digital original series in 2018.”
Netflix, the largest OTT video streaming platform on the planet with over 140 million international subscribers, was at the forefront by investing a whopping $12 billion on producing 139 digital original series in 2018 (Source: Parrot Analytics’ Global Television Demand Report 2018). Analysts have forecast that the Netflix 2019 content budget could be as high as $15 billion. Original content is here to stay and shall remain king in 2019 and much beyond, period.
Trend 3: Intensive Competition Leading to Content Fragmentation
Another noticeable OTT video streaming platform trend for 2019 is the increasing content fragmentation. Much of the content that you find today on Netflix or Hulu is about to become exclusive to other rival OTT streaming platforms. Content fragmentation is expected to continue at brisk pace with intensifying competition as players like Apple, WarnerMedia, and Disney launch their own streaming services.
Disney announced in early 2017 that it will be pulling its Marvel and Star Wars content from Netflix ahead of the launch of its own platform Disney+ in 2019 along with taking a controlling stake in Hulu. Since Disney’s current deal with Netflix ends in 2019, the day is not far that you would have to subscribe to Disney+ to watch their exclusive content rather than finding it on Netflix. Disney was willing to forgo the estimated annual revenue of $350 million it receives from Netflix once it realized that the future of OTT video streaming lies in direct-to-consumer content creation and distribution.
After a social media-driven frenzy, Netflix announced that the $80 million Friends licensing agreement with WarnerMedia had been renewed, confirming that the popular American sitcom would remain on the Netflix network throughout 2019. It was earlier being speculated that Friends would leave Netflix as of January 1, 2019. Analysts believe that WarnerMedia would eventually move its popular titles like Friends to its own platform in 2020.
There is also a regional focus developing in the OTT platform landscape for delivering custom content. Disney recently concluded its $71.3 billion acquisition deal of Rupert Murdoch-owned 21st Century Fox, which includes Indian TV giant Star India. Post the deal, Disney now owns all of Star India’s assets including their OTT platform Hotstar.
All these developments indicate that content fragmentation is only going to get worse in the coming time. It is imperative for OTT streaming platforms and network providers to come of age by forging strategic partnerships and alliances as fragmentation is generating a growing number of proprietary ecosystems. This leads us to another problem of app proliferation as each ecosystem requires a separate app which results in app congestion on users’ devices.
“The Content Discovery study by PwC has found that video content discovery is a bigger pain point and source of frustration for consumers than finding other types of media.”
The bonhomie between OTT market players should primarily focus on white-labeled or co-branded offerings, revenue sharing models, and technical integrations into the user interface (UI) or service integrations into tariff plans.
Trend 4: Mobile Surpassing TV as the Primary Content Consumption Channel
Not everyone today watches TV shows on a conventional television screen. Mobile is fast emerging as the dominant growth channel for audio and video content distribution. Users who stream content to mobile devices represent a growing market and include audiences that often overlap. For example, a particular individual who watches Game of Thrones on a regular TV screen while at home streams video content from YouTube on a smartphone while travelling.
“According to a report from eMarketer, over 75% of worldwide video consumption occurs on mobile devices.”
Data from Netflix shows that an impressive 20% of their viewing occurs on smartphones with at least 50% of their customers logging in from mobile devices at least once a month. Furthermore, 30% of the initial Netflix sign-ups occur on mobile devices.
Taking a cue from the opportunity at hand, mobile network operators (MNOs) are accelerating the deployment of broadband to provide mobile users access to high-quality streaming. At the same time, MNOs are providing bundled deals for incentivizing over-the-top content users to consume more content on their mobile devices.
The recent launch of commercial 5G (fifth-generation mobile internet) services in South Korea and the US promises a new wave of capabilities for smartphone users. It is expected that 5G connectivity that will offer 20-times the speed of current phones would be abundantly available in most emerging OTT markets of Asia Pacific, Africa, and the Middle East by early 2020. The arrival of 5G would foster the growth of technologies like AR/VR in OTT video streaming as users will get more data faster, with reduced network latency.
From the Perspective of Kellton Tech
These four OTT video streaming trends mentioned above are expected to impact the evolving OTT industry way beyond 2019-20. It is entirely up to OTT platform players on how they align their businesses in synchronization with the maturing markets. OTT streaming platforms will have to refurbish their user acquisition (UA) strategies, from running cost per install (CPI) campaigns to providing free trial subscriptions, as differentiator for staying ahead of the curve.
Amongst the pioneers of this technology, we at Kellton Tech have vast experience in OTT platform development. Leveraging our deep domain knowledge, we had started developing OTT streaming platforms for market players across scales more than a decade ago.