“The harder the conflict, the greater the triumph.”
― George Washington
The revolution did not begin with a bang, or even a whimper – but with laughter. Netflix’s entry into streaming was once compared to the Albanian army taking over the world and in 2008, NBCUniversal head Jeff Zucker cautioned others to “not end up trading analog dollars for digital pennies”.
In the 11 years since, OTT has gone from curiosity to inevitability. 90% of 25-34 year olds are likely to watch streaming video content as well as 63% of adults aged 50-59. This movement has spanned generations as users of all ages want accessibility and empowerment in their viewing choices.
We are seeing not just a shift in distribution and economics, but in culture as well. A recent Hub Research report found that for the first time ever, more Americans have said that they discovered their new favorite show on Netflix (32%) than on any other outlet (26%) and that 57% watch their favorite shows online. “Binge-watch” is now in the Oxford English Dictionary and “Netflix and Chill” is well, “Netflix and Chill”. OTT has transformed a generation and as future generations are being brought up with the idea of “on-demand content anywhere” the stakes of being a leader in this platform are high.
How High?
In 2018, OTT access revenue grew 37% ($16.3 billion) with expectations of $22 billion in 2019. When you factor in that OTT ad revenues hit $2.7 billion in 2018 and are expected to double to $5 billion by 2020 there is an undeniable up-and-to-the-right growth trend.
Estimates show that by 2024, 265 million households worldwide will have more than 400 million OTT subscriptions. We’ll see a battle being waged on two fronts. First, for recurring subscription revenue. Then, for the increasingly valuable ad revenue. The competition will be fierce and the battlefield will be littered with passed-over services, poorly designed and ill-built solutions. Those at the front of this revolution are now fighting to expand their reach while warding off newcomers, new entities are joining the fight with ambitious plans and deeper war chests, and all the while, the smaller, more agile content creator lurks…
The Players
There are hundreds of streaming services already available — with countless more being developed — and they all fall into at least one of the following categories.
These titans want it all. The subscriber base AND a huge slice of the ad revenue. By bundling with their hardware devices, they act as gatekeepers and if you want in, you need to play by their rules.
Roku, with 27 million active users, is leading the way in this space. They’re the current top streaming device on the market and have a huge lead in terms of market share. With that lead comes benefits, such as the potential of 30% of any ad revenue that’s earned on the Roku platform. By setting the table for other OTT channels and services it can reap the benefits of its hospitality without the need to spend large sums of money for original content.
Amazon, whose ambitions are only outnumbered by its resources, recently made a heavy push towards increasing its ad revenue on their Amazon Fire Stick device. While Amazon has the means to do pretty much anything – even land on the moon – it appears that it’s just trying to catch up. Catch up to Roku in ad revenue and catch up with Netflix in original content. It’s currently planning to spend $7 billion dollars in its quest for not just any content, but prestige content, which has always been just beyond their grasp. With the exception of “The Fabulous Mrs. Maisel,” Amazon has yet to deliver content that overtakes the national conversation like “Stranger Things” or “The Handmaid’s Tale” has. But what makes Amazon such a fierce competitor is that they have the means to keep at it and with enough time and enough spend, they can succeed on both fronts. They’re in it for the long haul and grinding down the competition is this player’s top skill.
As one of the only three trillion dollar companies in the world, Apple can go toe to toe, dollar for dollar, with Amazon in pursuit of their moonshot goals. Debuting in 2012, the Apple TV device was one of the first streaming devices on the market and introduced millions to the concept of OTT. The benefits of the device were to keep users inside Apple’s “walled garden” while promoting its iTunes offerings and becoming an esteemed place to host your OTT app.
As Apple makes its pivot towards becoming a services company it has set its sights towards its own subscription streaming service “Apple TV+”. While details about the service, such as pricing and release date are vague, its goal is crystal clear: become one of the premier streaming services available, with a user base rivaling that of Netflix.
Being a two-way player has its advantages, you’re giving yourself the opportunity to double your revenue stream. If Roku decides to create their own content and create their own subscription service (as analysts hope they do) they can rely on the steady income that comes with a subscriber base along with ad revenue from both their content and others publishing on the platform.
A disadvantage of committing yourself to a singular platform of your design is your overall growth is dependent on the success of your hardware. This can be especially difficult since the competition is established and entrenched in this market place.
AVOD or Advertising Video on Demand are free streaming services that rely on ad-based revenue in the form of video ads or commercials. Sound familiar?
While the monetization strategy is traditional, the execution is anything but. The pull of this service is access to free content wherever and however you want it. Most of these services are available on your laptop, tablet, smart tv, and smartphone for a user experience you can take anywhere.
PlutoTV (recently acquired by Viacom) is one such service offering a linear television experience on a modern scale through your browser or through a mobile or OTT app. Offering 100s of channels of video and web-based content for free with the inclusion of ads. With 12 million monthly users, it’s ad revenue is expected to rise to $150 million in 2019 alone. Viacom acquired PlutoTV for $340 million, making this (on paper) a good investment.
That is one of the big advantages of an ad-based model: the more eyeballs, the greater the engagement, the higher the ad rates. You don’t need much commitment from your users beyond their passing attention and the low (or non-existent) price point for these type of services makes it more accessible than a standard subscription.
The disadvantage is the possibility of an inconsistent revenue stream once you’re getting started. With a subscription model, you know your exact subscribers and what you can expect from them on a monthly, quarterly, or annual basis. What you gain in accessibility you could be sacrificing for less stability. But, as more eyes turn towards OTT, free is a tough price to beat.
Netflix launching their streaming service in 2007 was the spark that lit the fuse on this revolution. It was quickly joined by Hulu and Amazon Prime but the value proposition was clear. Enjoy unlimited access to your favorite content with no (or limited) commercials for a set price per month. A simple concept that has meant so much more.
It meant liberty and empowerment to the user, giving them choice and autonomy. No longer did they need to adhere to broadcast television scheduling or purchasing DVDs to have access to their favorite show on demand. It was now all at their fingertips, or in their pocket, or in their living room. Real, actual choice had arrived.
Since then, Netflix had amassed power and market share off the backs of traditional broadcasters who (at the time) saw no use for having all that content on demand. By the time they realized the value of what they had, Netflix had become a multi-billion dollar giant.
As broadcast viewership drops it seemed like every major media publisher wanted what Netflix had: a large subscriber base with a steady revenue stream.
In the coming months WarnerMedia, Apple, and Disney will bring their extensive content libraries and deep pockets in an attempt to carve out their own piece of this ever-growing pie.
It’s easy to see why having guaranteed revenue is quite an advantage as well as asserting yourself as an industry leader in a space that’s expected to reach $119 billion by 2022. The downside? What, exactly, is the cost to achieve that kind of market share? Billions are being spent annually in the name of content to gain an advantage in a battle that not everyone can win. As these media heavyweights duke it out, another group stands to benefit.
While the largest media publishers have the resources, the future of OTT may very well be democratic and meritocratic. It isn’t about who has the highest budget or the most exclusive content but about who can introduce content that resonates with their audience. Success in this new era will go beyond the size of your audience. Creators and publishers will need to elicit deep reactions and zealous viewer engagement. Whether it’s an ad or subscription-based model, if you can get your content to the right audience, they will watch, they will buy, they will stand behind it.
How will it end?
When the smoke clears, we’ll see who’s left standing. Sure, the big companies will have dented their coffers to outlast their competitors and lived to fight another day. The surprising contenders? Agile content creators who moved swiftly through the carnage and gobbled up all the rewards they could carry. The spoils of this war will go to the nimble assassins instead of the lurching giants.
The internet gave everyone a voice. OTT gives every creator a presence. The key will be to craft a strategy that effectively distributes video everywhere your audience lives (including channels that may not yet exist). And you better be sure that content in razor sharp.
This revolution will be televised. It will be mobilized. More than anything, it will be on-demand. Trust us, you’re gonna want to tune in.