Disruption of Media & Entertainment Industry by OTT
Video streaming, mostly referred to as OTT (Over-The-Top), has taken the Media and Entertainment (M&E) industry by storm in the last decade and has almost changed everything about the industry including the market players, power positions, investments, companies’ financials, stability, technology, content consumption and advertising. OTT has changed the M&E industry that operated in a very standard way for decades with very high entry barriers and with a few media companies having powerful and unchallenged positions in the market.
Let’s look at the few major things that have changed due to OTT primarily in the last decade. The boundaries between the segments within M&E have almost vanished. The studios that used to only create content and were dependent on broadcasters and distributors for reaching consumers are going direct to consumers (D2C). Similarly, the broadcasters who always needed cable or DTH companies for distribution are taking their TV channels and content directly to consumers. And then there are native OTT companies that do everything from content creation to distribution. If that was not disruptive enough, there are companies from adjacent or completely different industries launching OTT platforms such as Apple, Amazon, Google, Samsung etc. These changes have triggered a chase for vertical integration driving hyper M&A activity primarily for access and control on good content and for direct access to consumers. Also, the entry of new age tech giants in OTT has intensified competition, technology and content investments and innovation.
OTT has also taken away the full control on content consumption experience as it used to be with traditional consumption
Another key change in the industry is the shattering of entry barriers. In the pre-OTT era, the media value chain was owned and controlled by very few large media companies and regulatory authorities. They dictated the content creation and most significantly, the distribution. It required huge capex to become a broadcaster or get into distribution through satellites and movie theaters. Everything was standard and robust for decades until OTT arrived. With OTT, anyone just needs a few content hours and a website or an app to reach directly to consumers without any dependency on a cable or a DTH or a movie theater company.
OTT has also taken away the full control on content consumption experience as it used to be with traditional consumption. For example, in traditional broadcasting, the TV channels are received through cable/DTH where the cable wire, set-top-boxes, dish antennas etc. were deployed by distributor and didn’t have much dependency on the likes of consumer internet or devices as is the case of OTT. With OTT, the content consumption experience is dependent upon factors such as internet bandwidth, mobile devices being used etc. While there’s a lesser control on content consumption experience, the OTT has enabled better data and measurement and interactivity which wasn’t feasible with traditional channels.
OTT has come a long way now and is no longer a ‘new’ thing but it is still evolving in many ways. While the OTT market is growing at a CAGR of over 15%, the business models are still evolving and the industry is still searching for ways to profitability, stability and size to something more closer to and as robust as traditional media businesses.
One of the key needs currently for the OTT industry is the need for consolidation. The market is super crowded with all kinds of and hundreds of OTT platforms that are driving the costs higher for content, talent, technology and marketing in this industry. On consumers, the paradox of choices have confused them and that’s also not helping the OTT businesses. The consolidation is inevitable and will make this industry more realistic, objective and prudent. What needs to be seen is when this happens. Sooner the better.
Monetization model is the primary factor impacting growth and profitability for OTT businesses. The OTT platforms make content available to consumers as on-demand or linear channels or live streaming. This content is monetized primarily through subscription and advertising. The other less common models are per transaction, pay-per-view and rentals and represent only a fractional percentage of the total OTT market. With subscription and advertising based offerings, majority OTT businesses are working on hybrid models, sometimes referred as Freemium, offering some content as free (monetized through advertising) and premium content behind the paywall (paid as subscription by the consumer).
A multi-dimensional or hybrid monetization model will be the solution to OTT businesses’ pursuit of growth and profitability. The world’s biggest subscription-only OTT platform, Netflix, is also moving to a hybrid offering despite being a longtime naysayer of ads on its OTT platform. The hybrid model helps OTT businesses target a broader audience pool and better monetize and get more ROI on their content investments. In the consumer world out there, not everyone will pay for watching and from those who pay, not everyone will pay for every content out there. The OTT businesses need to have a model where they don’t leave money on the table. For example, making some ads revenue by giving some free content to the users who won’t buy subscription and by putting some content as free, which even the paying users won’t pay for. Another example would be moving a highly premium title to a higher PPV or TVOD category for users who would come only once for that title. There needs to be experiments with such models until the given OTT business finds its sweet spot considering its positioning, content strategy and library, target demographics and financial capacity. At the end, all these decisions can in reality and should be data driven to keep it more objective, completely contextual and measurable.
While OTT has clearly disrupted the M&E industry significantly, some more disruption is needed internally within the OTT industry to bring some maturity, stability and predictability to the industry and to build long term sustainable and profitable businesses. Till the time that happens, OTT will still be in the shadows of the traditional media businesses that are declining but are still few times bigger that OTT businesses.