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The US remains the largest single OTT market, generating $29
billion across transactional and SVOD last year — with double-digit growth in
2021 alone. Throughout the pandemic, many consumers who previously eschewed
paid video entirely were finally convinced to take the plunge, and there’s new
data to prove it.
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PwC‘s new “Global Entertainment & Media Outlook
2022-2026” explores these recent growth metrics in detail, and pinpoints how
connected TV is shaping up to be an AVOD battleground.
On OTT Growth
In absolute terms, the US added $6.4 billion of OTT video
revenue in 2020, and $4.8 billion in 2021, driven by a combination of new
subscribers and subscription package price increases.
Over the next five years, PwC expects the market will
increase at an average 6.8% compound annual growth rate (CAGR).
“While this represents a significant cooling compared to the
recent past, in absolute terms the US will still be adding more revenue than
any other single market.”
In total, by the end of 2026, OTT video revenue in the US is
expected to reach $40.4 billion, an increase of $11.3 billion from 2021.
SVOD will increase its share of the total OTT video market
over the next five years and is expected to represent 83%, or $33.6 billion, by
the end of 2026.
However, now that traditional entertainment companies have
SVOD platforms of their own, they are beginning to pull back content as they
look to grow their OTT subscriber bases. As more and more SVOD services are
launched, PwC finds “a contrasting state of negotiating power that any single
SVOD holds,” as the consumer is able to choose from a far larger portfolio of
services and platforms.
This loosening of SVOD’s grip on the streaming model is
featured in a number of data points in the report. Let’s look at those:
FAST Channels Solidify
FAST channels are increasingly gaining attention from the
gatekeepers in online advertising. Google has agreed a broad-ranging
partnership with Pluto TV that will see the FAST channel distributed to Google
TV devices. PwC thinks it likely that Google will also be using Pluto TV and
other platforms to begin distributing its own content at some point in 2022.
While Pluto TV is perhaps the largest household name, it is
joined by a range of other services which are increasingly widely distributed.
Rakuten TV is now available across 12 countries in Europe. Tubi, Peacock, Roku
and Crackle all feature some sort of FAST provision which is alongside paid in
some instances, creating a hybrid service that can often be used to upsell more
premium content to users once they are within the content ecosystem.
CTV, the AVOD Battleground
Connected TV (CTV) is a varied term, which applies not just
to the TV set itself but to any device that connects to it, turning it into a
device capable of streaming content OTT. Examples include Roku and Amazon’s
stick-based devices. But the term also extends to games consoles and smart TVs
like Sky Glass and OS-based solutions like Google TV.
“CTV is a driving force behind the changing nature of OTT
thanks to AVOD and ad-insertion and more specifically the hardware companies in
control of hardware manufacture,” says PwC.
Rather than ads sold at the point of broadcast, ads can be
served in a variety of dynamic ways. This could mean all the way up to being
completely dynamic across unrelated channels and aggregated through the
platform rather than the broadcaster.
“While this does not directly affect SVOD and TVOD players,
there are several reasons why this will affect them as services are carried
across the range of CTV options available to consumers. Hardware manufactures
are ceasing to be content agnostic.
“In the past, a set was primarily designed to provide the
best image (for the cost), with other UX components like sound and user
interface (UI) coming second. Because CTV represents an increasingly important
battleground and revenue-generation stream, the UI is significant. Carriage and
prominence within a platform will be affected by the relationship of that player
to the hardware manufacturer, not just the popularity of the app with the
general viewership.”
Pay-TV Continued to Decline
The US saw a revenue decline of 7.4% across 2021, seeing a
loss of over US $6.6 billion, decreasing from $89.4 billion in 2020. By
comparison, the global decline in traditional TV revenue was just 1.5%, with
regions like Asia Pacific and EMEA showing slight growth.
Cable, which represents 63% of the US market, previously
used to best retain its customer base by bundling telco services with pay-TV;
however, this has changed in recent years and now Internet access is being
bundled along with SVOD and OTT services, as well as access to linear OTT such
as Comcast Xfinity and Spectrum.
The analysts at PwC note that this has contributed to the
fast growth in SVOD and OTT services but has slowed growth in pay-TV. Even so,
pay-TV has slowly been growing its market share (in terms of subscriptions),
with an increase from 56% in 2017 to 63% in 2021.
Pay TV Finally Gains a Foothold in OTT Distribution
Cable companies are at the center of consumer video, says
PwC. Cable allows customers to sign up to OTT services through a single package
and allows integration of these services through pay-TV STBs and platforms.
“This is important because it allows cable to weather the
storm of cable-cutting and cord-trimming as users move to using more
stand-alone TV providers. Retaining these now lower-paying subs means that as
the re-bundling of third-party services occurs, cable TV will be able to recoup
these losses.”
To be specific, this proposition states that while SVOD has
unbundled pay-TV and caused a huge degree of chaos in the industry, to a major
extent this model only works where there are one or two major SVOD services to
choose from.
“When there are more, competition between each of these
services takes its toll on the performance of all of them. In order to grow
revenue across all of these competing companies, it is necessary for a neutral
aggregator to play the role of the consumer gatekeeper.”
Replicating this kind of model in the SVOD space is expected
to be increasingly prominent over the next five years. A light form of pay-TV
is expected to be bundled with a data subscription, while premium sports and
movies will remain as a core pillar of pay-TV.
TV and Home Entertainment Outlook
Over the next five years, pay-TV is expected to continue to
decline in the US, both in terms of subscriptions and, at a slightly slower
rate, in terms of revenue.
By 2026 North America as a whole, with the US making up 90%
of its revenue, will have seen a significant decline in global market share,
decreasing from 44% in 2017 to just 33% in 2026.
The US will be worth $65.6 billion in 2026, slightly smaller
than the EMEA market, which is expected to bring in $72.4 billion.
Satellite is expected to continue to be the worst affected
platform experiencing the fastest decline due to extensive cord-cutting and an
industry shift towards OTT services. Over the next five years, satellite will
churn around one-third of its total base (at a -8.0% CAGR), or around 6.7
million subscribers, falling from almost 20 million in 2021 to 13 million in
2026.
Cable is expected to lose 4.5 million subscribers over the
next five years, with losses slowly decreasing and expecting to stabilize, from
-3.9% year-on-year in 2021 to just -0.8% in 2026, shrinking at a -2.1% CAGR.
“By this point, cable distribution is expected to be nearly
synonymous with broadband double-play, meaning that for many of these
households there will be little difference between a cable and an effective
IPTV home. Indeed, the underlying technologies driving cable and IPTV
television continue to move closer together.”
VOD usage in particular means that an increasing amount of
viewing by cable subscribers is of content delivered through IP — in essence
the end product that consumers use is rapidly becoming “an indistinguishable
proposition.”
Performance of these two platforms is therefore driven more
by the proposition than the technology behind the platform.
Internet Ad Revenues Accelerate
The US Internet ad market enjoyed an acceleration in growth
in 2021, expanding year-on-year by 35.4% after the uncertainties in 2020. The
market will continue to increase at an 8% CAGR between 2021 and 2026 to reach a
value of US $278 billion, still the largest market globally.
Contributing to the rapid expansion in US Internet ad
revenue is the shift towards ad-funded online video (such as the ad-supported
options from Discovery+, Paramount+ and HBO Max), and E-commerce with market
leader Amazon capitalizing significantly alongside other prominent retailers
that launched their own retail media services.
Internet advertising is expected to evolve over the next 10
years into a broader category of Web 3.0 and “metaverse advertising” which will
encompass online 3D advertising (three dimensional ads expected to run soon on
Facebook and Instagram platforms), VR ads and perhaps other IOT advertising
channels and spaces, along with new ad formats such as branded NFTs.
“The business cases for these technologies remain unclear
and uncertainty about adoption makes category forecasting challenging,” PwC
finds.
Meanwhile, regulatory attention continues to be a thorny subject
in the US for the market’s top-10 leading tech players — which together combine
to take 78.6% of US digital Internet advertising revenue, according to an April
report by the IAB.
The regulatory environment is set to become more stringent
from 2022. PwC says: “This will be a critical aspect of protecting the open
Internet, which is being threatened by increasing shifts towards privacy
protection, some of which could potentially strengthen the hand of big tech and
its first-party data-rich walled gardens while heavily impacting the open
programmatic market.”
Streamers Shift to Hybrid Models
The bounce in video consumption during the pandemic
continued in 2021, when the online video market also shifted greater attention
to ad-supported monetization strategies. As a result, total online video
advertising revenue grew by 50.9% during 2021 to reach $39.5 billion. PwC
expects rapid expansion to continue, forecasting that in five years from now
online video ad revenue will reach $66.6 billion. By that point, it will
represent 44.2% of total Internet display advertising revenue in the US and
25.2% of the country’s total Internet advertising market value, up from 40.5%
and 22.0% in 2021, respectively.
Much of this will remain dominated by mobile-first social
platforms — like YouTube, Facebook, Instagram and, increasingly, TikTok — but
opportunities for premium ad-funded platforms are growing rapidly in the US as
more viewers shift from linear TV to Internet-delivered alternatives.
“In the medium term, shifts towards hybrid monetization
methods, connected TV and FAST channels will cement video’s role as the main
driver of revenue between 2021 and 2026.”
As uptake of ad-supported subscriptions and FAST channels
increase, and advertiser appetite for premium, brand-safe, addressable
messaging on connected TVs grows. The connected TV advertising segment will
enjoy substantial growth over the forecast period when it expands from $8.1
billion in 2021 to $17.5 billion in 2026, representing an increase at a 16.8%
CAGR.
Additionally, while online TV advertising is occasionally
seen to be competing with other forms of online advertising, the reality is
most experts consider that online TV advertising is in fact additive in this
space. The net result is that the impact of online TV advertising over the next
five years will be net positive both for TV advertising and for the advertising
industry as a whole.
In total, broadcast networks will increase their share of
total terrestrial advertising revenue from 48% in 2021 to 50.9% in 2026.
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