In Competition for the Content Pie: OTT vs. Operator

The irruption of over-the-top (OTT) services has given way to the appearance of new big players on the content production market. The TV industry invests in original and local content, not only to contend among themselves but against the presence of new competitors like Amazon and Netflix. Telecoms have made pay-TV the indispensable commercial hook for customers to use new high-capacity fiber networks they have deployed at very high costs. And for the last four years, they have become practically the only providers of pay TV. But these OTT competitors, who allow contracting the service directly without going through the operator, put this strategy at risk.

Both Netflix and Amazon are looking for greater participation in the market by challenging big operators such as the French Canal Plus with 15 million subscribers and Sky with 21 million and a wide range of soccer, rugby and other sports programs in which they spend billions of pounds.

In Germany, Sky has increased the original rate expense, and they allied with HBO and Showtime to distribute their shows, while the Internet-based services are trying to entertain customers with productions in the local language. For example, in February 2016 Amazon said to have employed the popular German actor Matthias Schweighöfer to direct and star in his first original series outside the United States. Two weeks later, Netflix announced its first project in Germany, a series directed by the Swiss Baran bo Odar. In May 2016, Netflix released the French political drama “Marseille”, with Gerard Depardieu, in addition to “Suburra”, a series of Italian crime, scheduled to be released this year. And that’s why from October to December 2016, 5.2 million new users were added to total more than 92 million subscribers worldwide at the end of the fourth quarter. In the third quarter of 2016, video revenue on demand was $ 2.158 billion, 36% compared to the same period a year ago. Growth in subscribers and sales of the company are mainly due to its commitment to the generation of own content. Netflix intends to generate 1,000 hours of its own series and movies this year, up from 600 hours of its own content in 2016.

But there’s another reason for this growth: price. Netflix and Amazon have an advantage – they are more accessible. In Germany for example, Netflix starts at 7.99 euros ($ 8.87) a month; Amazon Prime is 49 euros per year, which also includes streaming music and free shipping for purchases from your Internet store. Cable TV, on the other hand, costs 20 to 100 euros per month, although the most expensive packages usually include Internet service.

All this growth was reflected in last Oscars, where Amazon and Netflix joined the ranks of the film industry elite with four statuettes between them.
In the online video-on-demand industry, Netflix is the king – at least under the paid subscription model. But with the growth of fixed and mobile broadband accesses, telecommunication service operators will have the opportunity to “diversify” this market.

So, should operators ally with OTT services like Netflix and Amazon?

For operators that don’t have big budgets in programming, and focus more on the development of their broadband offer, Netflix and Amazon can be a good offer. An example is the agreement that Dish Network signed with Netflix in the United States to incorporate the service into its offerings. Another example is Vodafone and Orange in Spain. They are not equipped to compete in content with giants like Netflix and Amazon. In allying with OTT services, the operator becomes a marketer of the production offer, and both benefit from the notoriety of their respective brands.

On the other hand, for operators who invest heavily in their own production might not be looking to collaborate with OTTs anytime soon. Companies such as América Móvil already have its on-demand video service under the Clarovideo brand; or Televisa, owner of Izzi Telecom, which offers the Veo service. Telefónica also launched the Movistar TV service in Spain.
In the end, we just have to wait and see which one will win the biggest chunk of the market.