What’s up with OTT?

Over-the-Top (OTT) streaming holds a strong position in the entertainment mainstream, and it’s still growing in popularity. It’s popular on screens of all sizes, from phones to home theater TVs. Many people subscribe to multiple services. This fall, giants Apple and Disney will jump into the market.

Where will the OTT market go from here? Is it reaching saturation? What direction do users want to take it in? What changes are in store? Present trends give us some strong clues for the future.

In over-the-top (OTT), ‘content is king’ is translated to ‘original content is king.’ Check out our blog post “Original Content as the Selling Point for OTT”.

What is OTT?

The term OTT specifically for streaming video is a recent one, but video programming streamed over the Internet dates back more than a decade. Netflix has been streaming movies since 2007. Today, many of the most popular TV shows and movies are available through streaming channels.

OTT video is the delivery of video programming through the public Internet. It’s distinguished from several other categories like delivery through private networks, such as cable and IPTV. OTT video is presented according to the content’s origin, the way it is commercialized and the distribution platform in different categories:

• Sites that make user-provided content available, such as Vimeo and YouTube.
• Selling or renting videos for download or one-time viewing, from sources such as the Apple Store and Amazon Instant Video, both originating in different industries than the content industry.
• Big, established players such as HBO, offering their content online via direct subscription without intermediaries.

OTT may deliver programming through the browser or a dedicated application. Viewers can use desktop, laptop, or handheld devices, and small screens constitute a large fraction of the market. Some applications, such as the latest version of the TV application for iOS, support multiple content vendors. Revenue comes from subscription fees, ads, or a combination of the two.

The growth of OTT

Research by the Harris Poll shows that the OTT market is strong and still has ample room for growth. The survey covered 2,000 adult OTT users in the United States.

According to the survey, 52% of Americans use OTT services, and that percentage jumps to 61% in the 18-34 age bracket. The average OTT user owns three devices for viewing the content and subscribes to three services. In the millennial group, over 60% of those who have cable TV don’t expect to keep the package. Many users are willing to spend up to $100 per month on OTT programming.

Some users prefer a free service with commercials. Others would rather pay for an ad-free experience. There’s no clear majority in either direction. This creates some uncertainty for advertisers, who haven’t made OTT one of their biggest markets yet. Only 5% of TV advertising expenditures current go into OTT. The prospect of selecting ads based on viewer preferences makes it an attractive market in the long run, once advertisers figure out their strategy.

OTT vs. Cable

The growth of streaming content on the Internet is cutting into the cable TV market, and cable’s share may greatly shrink in a few years. Internet-based services let viewers choose the mix that they want, with more flexibility than the bundles offered by cable services.

This shift isn’t necessarily a disaster for cable service providers. Cable is still the leading way of getting broadband Internet connections in the United States, so the providers just need to be agile enough to provide the best possible Internet experience.

Cable TV is already digital, and TCP/IP networks are a rapidly growing portion of the providers’ infrastructure. Innovations such as Remote PHY are reducing the scope of RF coax to the “last mile” to the consumer locations. Cable companies are already very much in the Internet business, and the shift to OTT will just accelerate the trend.

The issue of quality of experience (QoE) still remains. Streaming Internet services rarely match cable TV for video quality. They suffer from glitches, buffering, latency, low resolution, and low frame rate. A brief signal degradation during a climactic scene will leave viewers feeling frustrated. OTT currently aims for “near broadcast quality.” This hasn’t proven a serious impediment to adoption, as many people consider choice and availability more important.

As Internet speeds improve, the quality gap will decrease. DOCSIS 3.1 in cable services and 5G in cellular systems will deliver higher data rates and lower latency, allowing better video quality than ever. When streaming video over the Internet catches up with cable in QoE, the shift in viewing patterns will accelerate. This will be a gradual process; upgrading an entire telecommunication infrastructure takes years.

Streaming will certainly cut into the download rental and sales markets, but it won’t kill them. People have favorites which they like to view frequently, and downloaded video currently offers better viewing quality than streaming. Some areas have poor Internet connections, and the download option will continue to be attractive there.

New entries

One of the strongest indicators of continued growth is the entry of new major players. In the fall of 2019, the appearance of Apple TV+ and Disney Plus will be a major shock to the existing competitors.

Apple TV+

Apple has already made a significant advance in the market with the new version of its iOS TV application. It makes many channels, including HBO, the Smithsonian Channel, MTV Hits, and Showtime, available through per-channel subscriptions. Sections specializing in children’s and sports programming are available. The application will become available on the Mac OS in the fall of 2019.

The Apple TV+ streaming service will launch in the fall. Specifics such as subscription models and pricing aren’t available yet. One thing which is known, and is a major shift for Apple, is that it will be available on non-Apple hardware. Supported devices will include ones from Sony, Roku, LG, Amazon Fire, and others. The service will be ad-free, supported by subscription fees. It will have original content from names like Steven Spielberg and JJ Abrams, but not licensed movies that have been previously released. It’s covering a distinct territory from Netflix, which offers a movie library and is available on a very wide variety of hardware.

Disney Plus

The launch of Disney Plus is scheduled for November 12, 2019. At an announced price of $6.99 per month and no ads, it’s targeting the low end of the price range. Disney is terminating its licensing relationship with Netflix in favor of streaming its content through its own service. The content will consist of five categories: Disney, Pixar, Marvel, Star Wars, and National Geographic. It isn’t clear yet what devices will support the service.

As a result of Disney’s acquisition of 21st Century Fox, all 30 seasons of The Simpsons will be available. That acquisition gave Disney a controlling interest in Hulu, but it will remain the same for the time being. Disney also controls ESPN Plus, and it may offer bundle pricing on the three services.

Subscribers will be able to download the movies and shows as well as streaming them. However, reports indicate that movies will be available on Disney Plus only after their theatrical run and initial DVD release. Disney’s name recognition and low price are bound to make it a major part of the market quickly.

Is the market saturated?

The OTT market has many competitors, and new entrants need to differentiate themselves in order to be noticed. However, there is still a lot of room for growth. Some researchers think the market is reaching “peak OTT,” but it would be more accurate to say it is maturing. Poorly planned ventures will get lost amid the competition, but there’s still room for ones that find a niche or have strong corporate backing.

“Subscription fatigue” is a concern. As people realize they’ve subscribed to more services than they have time for, they prune their lists. Searching across so many services for the titles they want tires them, and they give up if they can’t find them quickly. This could lead to a weeding out from the market of services that offer a limited selection, even as people’s total usage of the services grows. There is still room for specialized services, such as early movies and educational content.

The entry of Apple and Disney says that they don’t think the market is saturated, or at least that they can draw a large number of customers away from existing services. Their appearance may make it harder for services with less recognition to compete.

The future

OTT is definitely in today’s mainstream, and it may become the dominant way of delivering TV programming before long. As broadband Internet improves, it will become more competitive on video quality.

There’s still uncertainty about what economic model will dominate the scene. Disney and Apple have both announced ad-free, subscription-supported services, but many viewers are willing to accept free content with ads. Perhaps tiered models like Hulu’s will become more common, offering a lower price with ads or a higher one for an ad-free experience. If viewers see commercials which match their interests, they won’t mind them so much.

Any rapidly growing industry experiences a shakeout at some point. Viewers are willing to subscribe to multiple services, but they don’t like having the available content spread out over too many silos. Applications which allow access to multiple services, such as Apple’s new TV app, are likely to become popular.

Individual services may succeed or fail, but the OTT market as a whole still has considerable room for growth.

In over-the-top (OTT), ‘content is king’ is translated to ‘original content is king.’ Check out our blog post “Original Content as the Selling Point for OTT”.