Media & Entertainment Industry Trends, Technology and Research

5 Reason why 2015 is the year of OTT

Posted In Featured, New Media, OTT - By Nitin Narang on Thursday, June 11th, 2015 With 4 Comments

The wait for Apple WWDC is finally over but Apple TV plans still remain a mystery. Had Apple announced its internet TV service, this story would have more reasons to prove its point. Regardless, Apple does controls a large part of Over the Top video delivery. Apple devices drive 62% of all authenticated pay-for-TV video views and it is the preferred medium where premium programming behemoths are going direct to customers. This year Apple has challenged existing music services and the world expects nothing less for video. While we wait for Apple to launch its uber TV service, the industry continues to shift gears beyond traditional borders.

5 reasons 2015 is year of OTT copy

With less than 6 months in 2015, there are already noticeable change agents like HBO NOW and yet be introduced ShowTime going the OTT way at programmers end. Similarly trimmed down channel lineup services like SLING TV and Yaveo are making waves without the cable for much less cost. These events are unique and have potential to set the stage for new era in video distribution which is ONLINE. OTT based full TV service is not far, similarly it is a matter of time when premium networks worth their salt will be available Over the top as apps across platforms without allegiance  to cable. OTT is present day TV reality and programming networks have no reason to ignore it. Premium OTT video services are making their impact loud and clear, and for most reasons it is not cord cutting but the sheer quality of package which is hard to resist. The results are for all to see, an ever growing bandwagon on SVOD subscribers. 2015 does marks as an year when OTT video services are coming of age!

People have been watching TV for decades and they will continue to watch. The importance of Linear TV is not fading from OTT onslaught, although it is bound to influence its packaging and pricing. Linear TV is still the chosen option for live, sports and localized content in both short and long formats, but Over the top is new consumer reality which is changing ways of TV consumption for large masses. The era of making travel, work and play plans based around TV schedules is largely gone except for few unique events. While challenges remain aplenty, OTT is surely making way towards a more mature offering. It is also not difficult to understand what brings so much favoritism to OTT. Put simply, these three attributes and some basics economics sums it all

  • Convenience – Anytime anywhere consumption
  • Control – To choose what and when to watch on the screen and device of choice
  • Content – Availability of large existing content libraries and original programming

Online Video Categorization- It is all over the place and is Expanding  

Online streaming which was unknown 20 years back was first demonstrated by RealAudio in 1995 by streaming audio over internet, today it has come a long way and continues to grow rapidly. Online Video is a big ocean with multiple facets and service categories. It is spread wide and gets governed by rules of partnership, delivery, nature of content, business modelsUniverse of Online Video and markets in which it exists. It is essential to understand these categories since it is sum of parts which is making the difference. Having said that,  SVOD is still the brightest and strongest contender making waves for all the good reasons. Let us briefly look at the universe of online video services

  1. SVOD – Subscription Video on Demand are new age content aggregators like Netflix, Hulu, Amazon Prime and HBO Now. Having amassed large content libraries, exclusive content deals and all you can have content packages at a price which is hard to resist, they are are clearly the home favorites. Original programming comes as an icing on the cake.
  2. Ad Supported Over the Top –  YouTube is the big daddy with players like Yahoo Screen and Crackle playing their part. Large repository of TV shows, movies and non-premium content available across devices at no physical cost
  3. User Generated Content – YouTube, Vimeo along with Social network kingpins Facebook and Twitter rule this category.
  4. TVOD Transaction Video on Demand – Players like iTunes, CinemaNow, Amazon, MS Xbox Video and Google Play with option to rent or buy premium content.
  5. MVPD OTT and Device specific Services – A recent hot trend with Traditional TV players launching slimmer channel packages services with Live and VOD content. Sling TV from DISH, PlayStation Vue from Sony, Yaveo from Direct TV make this category shine.
  6. TV Everywhere – A long delayed initiative by major broadcasters to enable pay-TV subscribers to enjoy subscribed content across connected devices under controlled network conditions. Limited content, device coverage and authentication have played spoilers but recently it is coming back to limelight.
  7. IPTV – Full service video delivery model similar to cable and satellite but delivered over managed IP networks. Read here for difference between IPTV and OTT

Online video has many service lines and a recent report from Cisco reveals its growing leadership position in the Internet of today and future. Below are some facts on where online video is expected to go from here

  • It would take an individual over 5 million years to watch the amount of video that will cross global IP networks each month in 2018. By 2018, every second, nearly a million minutes of video content will cross the network.
  • IP video traffic will account 79 percent of all consumer Internet traffic in 2018, up from 66 percent in 2013
  • Consumer VoD traffic will double by 2018. The Video on demand traffic will be equivalent to 6 billion DVDs per month by 2018
  • Content delivery network traffic will deliver over half of all internet video traffic by 2018. By 2018, 67 percent of all Internet video traffic will cross content delivery networks, up from 53 percent in 2013.
  • Globally, Internet video traffic will grow 4-fold from 2013 to 2018, at a CAGR of 30%.
  • Globally, Internet video traffic will reach 76.6 Exabytes per month in 2018, up from 20.8 Exabytes per month in 2013.

5 Reasons why OTT is Coming of Age 

While pay-TV revenue grew less than 3% in 2014, OTT is on a phenomenon growth path with no signs of slowing down. OTT pay-TV revenues are surging ahead and are expected to grow by 26% in 2015 and  at 24% CAGR through 2019.  A forecast by Ovum predicts OTT user base may reach 100 million this year itself with a trend suggesting almost 200 million subscribers by 2020. And the best part, major SVOD services have not even ventured into the largest connected markets with another billion connected users – namely China and India. For OTT player, world is the market and building a global brand an instinct worth pursuing.

#Reason 1 –   Consumers want IT more than ever

SVOD subscriber and Household penetrationNetflix gained over 5 million paid subscribers in the first quarter of 2015 and now has a total base of 60 million, 10 years back Netflix total base was just 4.2 million. Simple math, Netflix is adding more number of users in a quarter than it had just 10 years back. It is already the largest paid video service provider with approximately 41 million US subscribers, Hulu comes distant second with 9 million subscribers. In comparison Comcast the largest cable provider stands midway at 21 million and if regulator approves TWC and Charter merger, the combined entity will serve 24 million customers. In last quarter alone, Netflix streamed 10 billion hours of video. Is there a need to look further that consumers love SVOD, specially Netflix ?

The three C’s of Convenience, Content & Control with added benefit of economics make SVOD a compelling service to pay for.  In most developed markets, a large part of non scheduled TV entertainment is shifting from Disc, DVR and downloads to premium SVOD streaming. The SVOD growth strongly indicates that long form professionally produced content for OTT has made significant acceptance in consumer homes.

#Reason 2 –  Better Devices and Enhanced Experience  

With more than half a billion connected TV devices worldwide, including smart TVs, network-enabled blu-ray players, games consoles and digital media streamers, TV is now more connected than ever. US has 50% homes with connected TV capability up from 44% in 2013, and 24% in 2011. Connected media adaptors like Roku, Apple TV or Chromecast have witnessed fantastic growth in last few years fueled by its low cost and excellent feature set making more homes enjoy online TV experience. Newer compression formats like HEVC and VP9 are expected to play crucial role in improved QOE by getting higher resolution content like 4K and more importantly HD content with significant bandwidth savings.

Quality does matters when it comes to paid content and future of OTT will not disappointed on this part. OTT video presents the opportunity to bring higher resolution content earlier than most broadcast networks. While technology cycles are far longer for traditional TV providers who are still upgrading to base HD, OTT has leaped ahead with True HD, UHD and 4K services. OTT providers are clearly early adopters and the frontrunner in high quality content regime. Netflix and YouTube launched 4K services a while back and most other players are not behind. A recent Cisco study projects Ultra HD will be 7.5% of Internet video traffic in 2018, up from 0.1% in 2013, a CAGR of 250.0%. On similar note HD will also grow to 46.1% of Internet video traffic in 2018, up from 24.0% in 2013  at a CAGR of 47.8% while  SD will decline to 46.4% of Internet video traffic in 2018, compared to 75.9% in 2013.

# Reason 3 –   Richer Content – Opening of premium content vaults

Absence of premium content was once a major challenge which most OTT players struggled in the past, not anymore!. The reality of TV consumption is forcing open premium content vaults and protectionism is giving way to innovation and partnership. Original Programming which was once exclusive province of pay-TV constellation is not the case anymore. Major SVOD services are hotbed for best produced originals gaining immense popularity. With Binge viewing become more common form of leisure TV viewing, the loaded OTT content libraries have come as a great asset. A recent report by Deloitte reveals younger millennials and young adults are more interested in binge viewing compared to live viewing. Our changing lifestyles does support this finding :-).

#Reason 4 –  Competition driving OTT as a must have strategy

Customer have started to expect OTT like experience from their pay TV services. A more intuitive user interface, faster search, content recommendations with support across connected devices including mobile are some of them. Infact access over mobile is growing much fast and soon expected to overtake desktop based consumption.

YOY Revenue growth OTT vs Pay-TVThe success of SVOD players has in part shaken up the controlled traditional media landscape, and network players are challenged to change and expand their online presence. Major Pay-TV operators recognize the power of Online and are earlier launching lite versions of their lineups or placing existing OTT players like Netflix and Hulu on their platforms. Programming network are also reaching directly or through partnership to have rich online window for their content. A partnership which can bring benefits all players. Benefit of higher customer retention, addition of new subscribers, greater personalization and increased ARPU. Comcast, DISH, Cablevision , AT&T are some early adopters but others are expected to follow soon. Played by market dynamics it is a matter of 12-18 months when Apps across connected devices will be the face of most major networks for online consumers.

Statistics further shows that US pay TV penetration rates have flattened or best growing at only 2-3% CAGR. Most players are struggling with increased churn, reduced video customers and difficulty in maintaining ARPU. A simple reason being limited growth options in traditional Pay TV market which has hit saturation levels. Getting Online is hence not a differentiator anymore, it is a must have survival path to keep engaged existing and new consumers.

#Reason 5 –   Technology, Analytics and and Advertising Revenues

A large part of M&E industry runs on advertising dollars and OTT video has the unique advantage of collecting consumer data at great length. With OTT video consumption rising, there lies an enormous hidden value from targeted ads. deployment. But the challenge which networks and advertisers is absence of unified measuring which makes buying and selling of advertising for OTT TV programming an uphill task. But as standardization settles in this part of advertising domain, there are rich dividends to be made by fully monetizing the true value of OTT TV programming. A recent report from TDG also predicts OTT TV advertising to nearly four-fold between 2015 and 2020 to USD 40 Billion.


We are on the cusp of the next major evolutionary phase in visual entertainment. While growth in traditional TV industry continues to falter, online video offers direction for a brighter future. The challenges, as well as the opportunities in Media industry have never been greater. The democratization of content cycle from creation, aggregation and distribution is also bringing far greater M&A’s and nurturing of new business models. The golden age of Television had arrived few years ago and that of TV streaming is just round the corner. Until next time……

About - Digital Media Technology Consultant. I have passion for TV technology, digital convergence and changing face of Media and Entertainment industry.

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