Future OTT Strategy

TV Connect / Knect365

The full impact of OTT is now being felt, with more competition for premium rights, the best content distributed across more platforms and consumers who are willing to self-aggregate their own selection of services.

https://knect365.com/media-networks/article/a8ab0306-4011-4f35-9da3-8ad76100f018/future-ott-strategy

Research from market analyst Digital TV Research (DTVR) forecasts strong growth for OTT both as a stand-alone proposition and as part of a broader PayTV offering.

According to DTVR, PayTV revenues (subs and PPV) and OTT revenues (variously AVOD, SVOD, TVOD and DTO) will reach $283 billion by 2022 worldwide. OTT’s contribution to the revenue total will increase from 15% in 2016 to 29% in 2022 with revenues more than doubling over the same period. At the same time, SVOD subscriptions will reach 546 million - half the PayTV total - by 2022.

In terms of top challenges, Media + Networks revealed that for some, the number one issue is how to design a “one product road map across multiple territories”. For others, it is “how to align premium and low-cost services”. 

However, regardless of whether you’re a content owner, broadcaster of a cable or satellite PayTV business the rising cost of programming is a major preoccupation.

Content economics

There is clearly a challenge for broadcasters that are competing with the new platforms, for producers that are not receiving orders from them and for distributors that are locked out of rights exploitation deals. For these companies, the cost of content is inflating rapidly with no obvious way of generating ROI. 

In terms of priorities for the next 12 to 24 months, some respondents went for the obvious, such as “improving viewership”, “growing audience” and “ensuring programming inventory is monetised”.  Others talked about the need to find “the right balance between rights acquisition and ARPU”. 

According to Ovum, the dominant multinational SVOD platforms enjoy vastly different economics to the majority of subscription-based OTT platforms, particularly around content investment and a total focus on growth, as opposed to margin, in operating models.

“Competing against them head on, as opposed to positioning services to be complementary, is an endeavor few firms will be capable of on a sustained and viable basis,” says principal analyst Tony Gunnarsson.

Last year the major tech players - Amazon, Hulu, Netflix, Apple, Facebook - collectively injected $18 billion into content, according to analyst Ben Keen. Apple has barely started and will invest around $4bn on originals this year. Meanwhile, Netflix is on track to outrank NBCU as the biggest spender on content. Currently, the streamer spends $8 billion annually in contrast to NBCU's $10 billion (a big chunk of which is sports, which as yet Netflix is not interested in). iQiyi, a Chinese OTT provider, spends $2 billion a year on content – that’s more than the BBC.

An illustration of the rights inflation is the $15 million per episode reported for the eighth and final season of HBO’s Game of Thrones (distributed first over SVOD) and the mammoth adaptation of a Lord of the Rings series under way at Amazon. It acquired global rights for around $250 million and could spend up to $500m more on a five series production over the next five years.

Against this backdrop, it may seem surprising that 9% of content creators responding to the survey reported a contraction. There’s no question there will be losers as well as winners in the new content ecosystem. Companies that don’t have access to talent or funds will inevitably become squeezed.

Rights balancing act

Content owners must learn to effectively evaluate the viability of new types of licensee, particularly from digital media, social networking, and technology. This must be done on a market-by-market basis and the optimal strategy is likely to vary significantly.

Gunnarsson recognizes this is “a tricky balancing act” because licensors like to establish long-term relationships to build audiences over time and to simplify discovery. Additionally, balancing reach and revenue in markets where the content is trying to build an audience poses challenges, predominantly in determining whether to sacrifice reach (much loved by sponsors and advertisers too) for revenue.

The Media + Networks survey also threw up the challenge of content recommendation with many executives concerned to identify what kind of content is best suited to multi-platform delivery.

“Rights must be packaged and divided to ensure sufficient reach while maximizing the value available from subscription services, balancing the requirements of sponsors and advertisers with commercial objectives with the needs of the audience,” advises Ovum. “Younger audiences may need cultivating in markets where PayTV growth is slowing and commercial broadcast holds few or no rights to show the content in question. In these cases, there is an argument for designing or even reserving rights packages for digital platforms, where the short-term revenue argument is weak but the reach among younger audiences is particularly strong.”

While regional variations around the rates of change persist, the direction of travel is clear. Younger audiences are perfectly content to collate multiple viewing sources from a variety of providers and are less likely to assume that a traditional, largely linear-TV service (whether free or paid) should be the central pillar of their viewing diet.

The importance of free and paid OTT is well established and the next big question to play out is whether the myriad of recently launched direct to consumer platforms will play a significant role in the entertainment diets of younger audiences as they leave their parental homes.

The bad news (outside of creative and athlete talent, perhaps) is that the price for content which drives audience purchasing decisions will continue to rise. This will be most pronounced for sports rights whose valuations are buttressed by the need for traditional PayTV distributors to retain some measure of exclusivity. At the same time content rights, particularly for sport, are being divided into more and smaller parcels to enable distribution across more licensees and, ultimately, platforms.

New types of licensee have emerged, with the giants of digital media, technology, and social networking now routinely bidding for content and, increasingly, sports rights. Aspiring distribution platforms are competing in rights auctions for top-tier talent, concepts, formats, and rights, especially sports rights.

However, the recent (and ongoing) auction for EPL rights is a salutary lesson for the rights holder. Many observers expected a digital player like Amazon to enter the bidding war. In the end, the package of matches (played simultaneously mid-week) intended to appeal to a digital streamer failed to attract the price the EPL had put on it. Deep pockets they may have but OTT giants are nothing if not shrewd as they look to expand their streaming business into live.

There will be great interest in the launch of the first F1 OTT service in May, since owner Liberty Media has to carefully balance its new streaming platform alongside long-term relationship and existing contracts with PayTV partners in several territories.

Ovum suggests that services need to have a “preternatural appreciation” of their own positioning and desirability in a given market, starting with asking if their presence there in the first place is justified? Is it worth the front-loaded investment to build a subscriber base? Is the content differentiated from what the global SVOD generalist giants are offering? And does my packaging help to minimize churn through bundling and pricing?

Continue the discussion at TV Connect where executives from Fox Networks, Insight TV, Viacom and NRK address ‘Traditional broadcast in an IP World’ and will confirm whether hybrid TV is the new norm [Wednesday, 9 May, 10:15 - 10:35]. Given the unprecedented investment in content and rapid international expansion, is the OTT bubble about to burst or expand? There’s no-one better placed to answer than Maris Ferreras, VP Business Development at Netflix alongside Nader Sobhan, Head of Media at iFlix and Pluto TV MD Olivier Jollet [9 May, 12:40 - 13:20].

Panelists from TELUS, TVN, and Sky are quizzed on ‘How far to take personalization?’ [May 9, 14:30 - 15:10]; while the rise of virtual MVPDs and the strategies for delivering skinny pay TV bundles is discussed by Azoomee and Horse and Country TV [9 May, 16:00 - 16:45].

Join Peter MacAvock, Chairman of the Steering Board at DVB for a special presentation examining OTT in a Linear World on day of TV Connect [10 May, 11:50 - 12:10].