It’s no surprise that Parks Associates named 2015 as “the Year of OTT.” The emergence of the OTT market has contributed $25 billion in global revenue to the video industry. A study by Boston Consulting Group (BCG) also found that, while OTT currently accounts for about 5% of the video business worldwide, it is growing at a rate of 20% — which is 10 times faster than the growth of traditional TV.
Hold on. What the heck is OTT, and why is it developing so fast?
OTT, short for Over The Top, represents Internet-based video streaming services like Netflix, Youtube, Hulu, Amazon Video, and Apple iTunes. Each OTT platform runs on at least one of three business models: SVOD, TVOD, and AVOD. You may notice that each model has three letters in common: VOD, or Video on Demand. With SVOD (Subscription VOD), viewers pay a subscription fee to gain access to all videos on the platform (like Netflix). TVOD (Transactional VOD) requires users to pay per the content they choose to watch (like Apple iTunes). It’s not hard to guess what the A in AVOD stands for: Advertising. With AVOD services like YouTube, audiences watch the content for free but pay with their valuable eyeballs.
I like to think of each option as a different type of meal: watching broadcast TV is like having dinner at home (where you have no other choice but to eat what and when your mom cooks for you), while OTT is like dining out at a restaurant. SVOD provides you with an all-you-can-eat buffet, and TVOD is like ordering à la carte. Of course, content owners don’t have to stick to one meal, er, service model. A hybrid model that includes SVOD, TVOD, and AVOD is becoming more common, because it can reach all types of customers’ needs. The business model that a content owner chooses highly depends on content type, catalogue size, consumers’ willingness to subscribe, and preferred payment method.
So does the rise of OTT mean the end of the Broadcast Era? No. On the contrary, OTT and Broadcast TV have a symbiotic relationship.
The Increasing Demand for a Seamless Experience
With the wide use of mobile devices, content viewing is becoming more fragmented than ever before. ZenithOptimedia forecasted that by 2018, brands are expected to spend more on mobile advertising ($114 billion) than on desktop, second only to TV ($215 billion), and mobile ad spend will grow at a CAGR of 32%. Research by Parks Associates found that 23% of millennial heads of household are OTT-only, but that 61% of millennial households subscribe to both pay-TV and OTT services (which is higher than the national average of 52%).
Content viewing has truly become a whatever, wherever, whenever experience. John Rose, a senior partner at BCG, said it best: “The biggest impact of the OTT market on the television and film industries is the removal of barriers — strategic, economic, and national — to the distribution of video content.” But even though OTT viewing on tablets and smartphones satisfies consumers’ pursuit of a sense of independence, the cord-cutting trend cannot be interpreted as the public discarding traditional linear networks. According to PwC, 79% of the U.S. population still pays for cable TV. Let’s face it — there are still times that viewers just want to sit back and turn on the TV without being overwhelmed by all those choices!
A Case of 1+1 > 2
The relationship between legacy broadcast companies and digital streaming services may seem rocky, but these two competing mediums can actually benefit from one another while fighting for the same eyeballs. A Nielsen case study commissioned by Google found that “TV reach seems to drive Youtube engagement, and in return, YouTube engagement drives TV reach.” Youtube audiences who watch a sneak peak or a clip of a TV program are more likely to stay connected to the actual TV show. And when TV audiences increase, so does Youtube viewership.
This symbiotic relationship also exists between SVOD platforms and TV networks. Viewers are willing to pay for OTT services like Netflix and Hulu to get access to the shows that no longer play on linear networks, while the TV network’s new shows receive a larger audience base from viewers who got hooked on older seasons. The competition between the two frenemies increases the market value of content and encourages the adoption of a hybrid service model.
The Evolving Hybrid Model
Within the North American market, there are over 130 active OTT services so far, not to mention a considerable amount of linear networks and traditional aggregators. Content owners have no choice but to experiment with balancing content offerings and costs, and to adapt to consumers’ cord-cutting trends with effective revenue generation methods. Just as Bob Bejan, Global Executive Creative Director of AOL said: “We’re seeing the breakdown of the traditional media landscape. The control and power is shifting into the hands of the consumer.”
There’s an old saying: if you can’t beat them, join them. Examples like AOL with AOL.On, The Weather Channel with LocalNow, Showtime with Hulu, HBO with HBO GO & HBO NOW, Vice with Viceland, and Youtube with Youtube Red are already proving why the adoption of a hybrid business model is beneficial to media companies and audiences alike. The symbiotic relationship between broadcast and OTT video is critical for providing audiences with a truly seamless viewing experience — and for content providers to remain competitive in an increasingly fragmented market.
