There’s a revolution taking place in the living room called OTT. As video content delivered digitally to TV screens grows, so too does the opportunity for brands on OTT video due to its unique combination of big screen addressability, and consumer’s tendency to lean back and engage with ads and longer form content.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Trends
- Industry Challenges
- Technology Trends
- Pricing Trends
- Regulatory Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Key Market Players
- Strategic Conclusion
Definition / Scope
In the times of searching a new weapon to telecom market, over-the-top services had emerged as a saviour at present and for the next few years. After all it matters a lot when you control the data traffic.
The market is estimated to grow from USD 28.04 Billion in 2015 to USD 62.03 Billion by 2020, at an estimated CAGR of 17.2%. The availability of high speed internet has opened up new avenues for OTT applications.
The rising demand for improved automation of business processes and their execution in compliance with business and government policies are the driving forces of the OTT market.
The 4 strategic battlegrounds serving the purpose being :
- Mobile Voice. Operators are already facing a significant disruption in terms of revenue losses within this sector with OTT voice calling capabilities, for instance, as provided by Skype, WhatsApp, Viber and GTalk using open internet communication protocols to replace and sometimes enhance existing operator controlled services offered by mobile phone operators.
- Messaging. Though sticking to the base Short Messaging Services would be a challenge here with instant messaging and social networking already in abundance for consumer pattern, the strategy here being the traditional service should now focus to mobile marketing and M2M connectivity than killing this sector completely with replacement OTT options.
- Media. The most interesting sector with lots to explore here this is the driver to all consumer paradigm shift. Innovation and concept would decide the trend and fetch consumers within this segment. The key areas being on many fronts—television, video, gaming, music, advertising, and other digital services—and among adversaries that include telecom, media companies, OTT players, device and equipment manufacturers, and even the artists.
- Cloud Services. This is the fast growing market, opening the opportunities in consumer and enterprise business.
The over-the-top (OTT) market will continue to grow at a brisk pace. Look for the worldwide OTT market to surge with a compound annual growth rate (CAGR) of 10 percent through 2022, at which time it will generate $51.4 billion.
The area will have 400 million subscribers by the end of 2018, and will continue to put pressure on traditional pay TV services. Subscribers enjoy the lower cost of OTT options, as well as the lack of long-term commitments.
In North America and Europe, pay TV providers are adding OTT options to prevent customer churn. Some pay TV operators—including Dish Network and Sky—have created virtual multichannel video programming distributor (vMVPD) options, also known as skinny bundles, as a lower-cost path for subscribers.
Despite the new and exciting capabilities offered by OTT services, there are also risks to the content owners and service providers. These include content security and subscriber authentication, out-of-control content delivery costs, the margin risk of in-house content production, and the slow progress that’s been made on open content rights.
With regards to content rights, cost continues to be a major issue. Consider, for example, the price of distributing Premiere League soccer content in the UK. Currently, Sky and British Telecom have invested more than £5 billion in order to exclusively broadcast the football matches live.
And the price of streaming content continues to grow. According to Forbes, streaming content obligations ballooned from $3.9 billion in 2011 to $7.3 billion in 2013.
Another challenge in the OTT environment is piracy. If content creators choose to only offer their sports channel, TV show, or movie on one TV service, it leaves the end-user with two choices: Subscribe to the channel or TV service where it’s available, or view illegal pirated content. OTT service providers and content owners need to protect their investment.
Top Market Opportunities
Viewability Measurement: OTT apps—think of your favorite TV channel’s app on a Roku or an Apple TV—were never designed to allow third party measurement scripts (aka VPAID scripts) to run because of the risks of interrupting a user’s viewing experience if a script fails to run properly. Therefore, the viewability measurement that digital buyers rely on for desktop display and video inventory simply does not work the same in OTT.
Supply Path Optimization: One of the known challenges with buying display advertising inventory, particularly on an open exchange, is not knowing how many steps removed that final impression is from the original publisher. Knowing that you can buy directly from a supply-side platform (SSP) that has direct relationships with their publishers provides buyers with a lot of advantages.
Audience Targeting and Measurement: The first advancement is the ability to begin targeting users by device ID (a unique id assigned to each OTT device) which can give advertisers more abilities to leverage their first-party data or a data management platform (DMP) to target their identified audiences in OTT environments.
Frequency Capping: Anyone who has watched a show on an OTT device has typically encountered this problem and can agree that it results in a terrible user experience.
Lack of Scale for Programmatic Buyers: TT and the initial hesitation to make this inventory available programmatically. With more viewers moving to OTT and more inventory becoming available, publishers are becoming more open to programmatic.
Strong market growth forecast, driven by Netflix and new market entrants. Niche services are also expected to grow significantly, although from a low base.
Prices for premium offerings are set to increase, both from existing providers and new entrants. This is already proving to be true with Netflix’s $11.99 per month family plan and HBO’s $14.99 per month plan.
Broadcasters are responding to the rapid growth of OTT in various ways, seeking to retain control of their content and brands in the premium OTT market and launching services of their own.
Similarly, pay TV providers are pursuing various strategies, bringing OTT offerings onto their platforms and launching new OTT products and services to defend their existing services and capitalize on growing consumer demand.
The biggest challenge for OTT is the diversified governmental regulations and policies present across domestic and international borders, which continually are subjected to variation.
The vendors in the OTT market are continuously innovating and remodeling their present revenue model and technology to develop more proficient and advanced platforms.
The first, awareness, is obvious. If people don’t know an OTT service exists, they aren’t going to subscribe to it. This is especially difficult for niche content players that may not have the marketing dollars to continually bombard consumers with messaging in specific geographies.
The second is usability. Right now, many OTT providers are trying to figure out the best way to showcase content in order to help users navigate their services.
The third challenge is relevance. Whether we agree with it or not, content is king. Having the right content that appeals to users is critical because, without that, why would consumers frequent the service? Although Netflix is at the top of the OTT heap, it, too, suffers from content woes. People often complain that, once they’ve binged-watched their favorite shows, there’s not much left to watch.
Finally, there’s quality. In order for OTT services to truly rival broadcast television, they must “just work.” Consumers want the same, consistent experience they get from linear broadcast TV in their OTT services. The rift between perception and operation must be bridged.
Companies are Experimenting with New Models for Content Monetization – The digital on-demand content market is still evolving, and an array of companies are experimenting with alternate monetization models—the most popular being subscription video on demand (SVOD) and advertising (or ad-based) video on demand (AVOD).
Consolidations and Strategic Partnerships Are Changing the Ecosystem – With competition intensifying and greenfield growth becoming more challenging, the market is ripe with M&A talks and partnerships with companies seeking to expand into new markets or otherwise differentiate themselves.
The OTT Model Is Changing the Value Chain of Content Creation and Distribution – Streaming television is touching every corner of media, disrupting not only how content is distributed, but also how it is created and by whom.
Mobile Is Surpassing TV to Become the Main Growth Channel for Content Delivery; MNOs Are Playing a Central Role in Distribution as Cord Cutting Accelerates – The mobile channel has become a widely accepted medium for video delivery, overtaking traditional TV as the leading growth channel.
The overall price of consumer OTT subscriptions would drop in due time, since revenues would grow based on a burgeoning number of subscribers.
As the subscribers are growing, for example, with Amazon Prime Video north of 66 million subscribers and Netflix ending 2016 with 93.8 million subscribers worldwide, up from 17.4 million in 2015—but subscription prices are also trending upward.
If raw materials prices rise early in the supply chain, the cost is passed on to consumers of the finished goods. That may be a part of what’s happening here, as OTT providers increase demand for premium content to service a growing number of subscribers.
Traffic management by ISPs has prompted governments to intervene to ensure Internet traffic equality. The need for government intervention to achieve a neutral Internet has been debated for a long time. Since the rise of the public Internet, governments have been weighing the merits of regulating such an expansive space against the risks of curtailing freedom.
Regulators must recognize the factors that enable a sustainable net neutrality program. A concerted implementation plan is needed to push forward the net neutrality agenda and attain sustainable progress.
Network operators must seek ways to partner with OTT content and app providers. In the past few years, a number of MNOs have chosen to partner with OTT service and app providers, as an alternative or parallel strategy to rolling out proprietary Internet applications.
Participation in multi-stakeholder initiatives can help ISPs engage in the policy-setting process of their respective countries. By participating in such initiatives, broadband operators can boost their influence and make sure their technical and economic interests are considered in the development of net neutrality rules.
Market Size and Forecast
The OTT content market is projected to grow at 14% CAGR during the forecast period (2017-2023).
Some of the key players operating in the OTT content market include Apple, Inc. (U.S), Facebook (U.S.), Tencent Holdings Limited (China), Netflix, Inc. (U.S.), ActiveVideo Networks, Inc. (U.S.), Google, Inc. (U.S.), Brightcove Inc. (U.S.), Hulu LLC. (U.S.), Microsoft Corporation (U.S), Nimbuzz (Netherlands), Limelight Networks, Inc. (India), Roku, Inc. (USA).
Western Europe comprises a highly competitive OTT services landscape. The protectionist framework of the region is creating a highly competitive environment for leading global OTT service providers to expand in the European region. A major challenge that persists in this region is the OTT/VoD window.
Any negotiations pertaining to cutting short this window have been scrutinized by theatre exhibitors and TV channels, stating that, any type of alteration in the policies to benefit multi-territory platforms, such as Netflix, could lead to the downfall of the film financing system in the region.
Below is a comparison graph of Netflix with other OTT providers at present, which showcases it as a market leader currently.
On the other hand, the launch of the 5G network in Japan across various circles is expected to improve the video streaming experience of Japanese users.
Moreover, continuous development in the Internet service is expected to fuel the market through extended efforts in introducing 6G and 7G services in the country. While this scenario is likely to provide access to networks with ultra-high speeds, it will eventually encourage widespread adoption of VOD services in Japan, in near future.
Augmented Reality and Virtual Reality are immersive technologies that will put customers right into digital environments. The latest iPhone X with Augmented Reality feature is a hint which about the oncoming surge of mixed reality.
Original Content Streaming in particular has been rising steadily in terms of OTT services. This unexpected move has definitely trumped established players like Netflix. In the coming days, expect more small players to get into original content streaming services.
Live Video Streaming attracts 3 times more viewership than ordinary video playback. Even Twitter and LinkedIn have also switched their loyalty towards live video streaming hinting that live streaming still present amidst trends in OTT.
Hybrid video streaming will usher a new stream of OTT video market trends. Traditional cable TV will take a step back as content owners will emphasize on selling their content merchandise alongside online video playback. OTT video solution will be in foremost for such purposes.
Key Market Players
Over the top (OTT) messaging leaders are rapidly evolving their key mobile messaging application interfaces to new voice and video communications, with revenue dilution implications for carriers worldwide.
The progress made in mobile IP voice and video in the past year alone from key OTT players such as Facebook and Google is a clear indication of heightened mobile communications competitive pressure from these new players in 2018 and beyond.
The key players covered in this study
- Akamai Technologies
For OTT platforms offering quality content which is exclusive to their audiences is the key to winning the scattered attention of today’s highly fragmented audiences.
Depending on the geography, demographics and the user preferences OTT players will have to create content that suits a variety of viewers. That is why the pioneers and prudent OTT players are not just investing in creating quality and original content, but also on localization.
- vMVPD: Virtual Multichannel Video Programming Distributor
- OTT: Over-The-Top services