The over-the-top video (OTT) marketplace is beginning to reach a new level of maturity. Last year, OTT revenues climbed 37% to $16.3 billion—with a projected 35% jump projected for 2019. Meanwhile, Netflix added a record 9.6 million new subscribers in the first quarter of 2019, bringing its subscriber count to a whopping 150 million.
Whereas major media companies could once afford to treat OTT as a secondary concern, the medium’s meteoric growth has inspired some of the world’s biggest companies to invest heavily in the space. Over the past two years, Disney, NBCUniversal, WarnerMedia and Apple have all announced or launched streaming services of their own.
When you add these titans to leaders like Netflix and Hulu, you get an OTT landscape that has become every bit as competitive as the film and linear TV arenas. With so many smart, well-capitalized companies entering the market, OTT players—from TV networks and film studios to content producers and streaming platforms—will have to make informed, highly strategic decisions if they’re going to succeed.
Here’s the current state of play as it stands today.
OTT Competition Forces Media Companies to Adapt and Consolidate
The anticipated debut of new platforms is already changing the dynamic in the OTT space.
In an increasingly crowded marketplace, big media companies are taking full control of their content assets and consolidating, rather than allowing rival services to license their content. Disney has already announced that it will pull its content from Netflix ahead of its own streaming service launch. WarnerMedia is planning to do the same.
With the big guns stockpiling exclusive rights to their own content, any new entrant to the mass-market OTT space will need to be well-capitalized, ideally with an existing brand or library. Lionsgate and MGM come to mind as companies that may have the assets to pull it off, but other brands will more than have their work cut out for them.
Potential new entrants will also have to consider that there is likely a point at which consumers are no longer willing to add new services.
“I do think there’s a breakpoint, I wish I could tell you what it is,” said Peter Foley, managing director and co-head of the technology, media and telecom group at Fifth Third Bank. “But I think we’ve learned that when you get to $200 a month, people just kind of throw their hands up and say, ‘Not for me.’”
All this competition has the potential to put the squeeze on niche content producers. Certainly, brands with hardcore enthusiasts and highly compelling content may be able to come out ahead by offering a $3-$5 monthly subscription service. Otherwise, they might find themselves winding up on platforms like Netflix, which produces its own regionalized content in different markets and has long collected subscribers at the margins.
If niche players do license their content to bigger platforms, it remains to be seen whether they will have the capital necessary to continue producing the high-quality content they did as independents.
Linear TV is Far from Dead
Of course, the rise of OTT doesn’t mean that media companies should immediately abandon their traditional content businesses. In fact, many linear TV and film companies are thriving. Advertisers spent nearly $70 billion on TV ads in the U.S. last year and Disney’s latest Avengers movie recently became the second-highest grossingfilmof all time.
For companies such as WarnerMedia, CBS, and Disney, the trick is to strike a balance that both recognizes the growing OTT opportunity while capitalizing on the substantial eyeballs and ad dollars that remain in the linear TV space. Ultimately, media companies will maximize their revenues by building the infrastructure to provide enticing content offerings in both worlds.
Similarly, the linear vs. OTT split is providing a great deal of flexibility to content creators like MGM and Lionsgate, which can afford to be platform agnostic and sell their rights to the highest bidder.
“If someone’s choosing to watch one of Disney’s TV shows on a network or cable platform where they’re consuming ads, and then someone else chooses to see that same program later on without ads, that’s okay,” said Kevin Khanna, Managing Director and Co-Head of the Technology, Media and Telecom Group at Fifth Third Bank. “They’re going to make money both ways.”
OTT is Disintermediating Film
Overall, the rise of OTT has been kinder to TV networks than it has been to film studios.
Due to its monthly recurring revenue stream, Netflix has a great deal of flexibility and leverage in negotiations. The film industry, on the other hand, is a hit-driven business with fluctuating revenues and high costs. Even the largest players have to pay for physical real estate and other overhead costs that Netflix simply doesn’t. At the same time, Netflix is flooding the market with competing long-form content driving down demand for movie tickets.
“One end of it is the business model disruption, and at the other end of it, Netflix has created a lot of quality content,” Khanna says. “In each country, they’re creating local content in that language that’s compelling, and in the U.S., they’re doing both film and television. So they’ve made it a lot easier to ‘Netflix and chill’ rather than go out to a movie.”
The studios, especially smaller ones, attempt to overcome this disadvantage through a combination of consolidation tactics ranging from aggregating content and streamlining overhead to shedding non-core properties.
To take proactive steps toward growth during the transition to OTT, studios will need access to capital markets and to secure the liquidity required to move business plans forward.
Consumers Have Options—But How to Navigate Those Options?
The future of OTT is unwritten. Yet one thing is abundantly clear: Consumers have plenty of options.
In addition to Netflix and forthcoming services from big content players such as WarnerMedia and Disney, viewers can subscribe to live and on-demand bundles from YouTube or Hulu. They can also check out free content on Facebook, which is champing at the bit to serve more TV-style offerings to its massive user base.
One major emerging area of competition is in services designed to help consumers make sense of the multiple platforms they use to watch OTT video. Apple’s planned Apple TV+ combines original programming with a dashboard for searching across multiple platforms—but doesn’t yet include Netflix. Conversely, Comcast offers a similar dashboard feature on its set-top boxes and it does enable subscribers to search Netflix for content.
“At some point the consumer might be indifferent about buying a bunch of a la carte services if there is a unified platform by which they interface with it,” Khanna said. “Okay, you’ve got 10 services, but now you don’t know where to watch what show or which content is on which service. If we can create the right interface for you where you can look at everything all together, then that’s a real value proposition.”