There is not a single week or day we hear in the news a company announcing to go after the video OTT market space, merging, acquired(ing) etc.
One can wonder in the messy market, why are they going after the video OTT market?, what are the companies going after the video market?, how they position themselves? and finally what could happen next?.
Why the rush in the video OTT market?
Basically for 2 reasons:
1-Users are consuming more and more videos
At least one thing that everybody agrees on, is the fact that online video consumption is exploding and it will continue to rise. With 15bn video-enabled devices are connected to broadband IP (source: Ericsson), globally internet traffic will grow 3x from 2015 to 2020, a compound annual growth rate of 25% and internet and IP video surpassing it at 3x to 4x (source: Cisco)
However, the way users consume video has changed dramatically in the last few years. Now, it is cross devices and mobile (source: Ooyala and adobe).
2- Advertising budgets are flooding into video space
Advertisers have reckoned the rise of digital video as a key medium to reach their targets. As such, ad budgets spending are shifting from traditional TV to internet and mobile video. In a recent study from the leading ad consortium IAB, there was a 28% increase in mobile video ad spend allocation from 2014 to 2016 followed by digital video (source: iab). On the flip side, linear TV ad spending allocation is falling from 36% in 2014 to 29% in 2016.
As user’s behaviors are shifting, it has a big impact on the TV/Video Ad market, creating chaos…. and opportunities.
What are the companies going after the video market?
Before digging into the winners and losers of the video market, it is important to take a snapshot of the video OTT market players with this 2x2 matrix. On the x-axis you have video content format, live or recorded/on demand. On the y-axis you have the video content type, either labelled or not (user generated content/broadcasted).
We can recognize 3 type of players:
- Traditional broadcasters like BBC (UK), ZeeTV (India), NBC (USA), TF1 (France), Prosieben (Germany), mbc (Middle-East) etc.
- Pay-Tv broadcasters like BeIn Sport (Europe and Middle East), Canal+ (France) or Comcast in the USA etc.
- New entrants that can be sub divided into 3 groups:
- Startups like Molotov (France) but also could add Plex, Bitorrent and others
- Internet players: Google/YouTube, Amazon, Facebook, Netflix and others
- Telcos: Telefonica/moviestar (Spain), Globe (Philippines), Astro (Malaysia) and America Movil (Latin America) and many others.
How they position themselves?
If we look at the market dynamics, we observe 3 big shifts:
- Horizontal expansion: Traditional and Pay-Tv broadcasters going after the on demand segment.
Here traditional and Pay-tv firms add on demand all you can eat video service (avod, svod) like NBC, Disney and Fox have created Hulu in the US, ZeeTV has created ditto TV in India, Canal+ launched Canalplay in France, Prosieben with Maxdome in Germany, Sky with nowTV etc. Started some years ago as a replay service is now strengthening its services with VOD for example as a way to stay engaged with broadcasters’ linear audience.
- Vertical expansion: companies that are expanding and differentiating with specialized content catalog offering
In this category you have obviously Netflix. With 81 million members (as of April 2016), present in 190 countries to date, 152 millions of TV shows and movies, Netflix is investing heavily in original content up to 5bn USD spending on content in 2016 (source: Netflix). The firm has declared they have ambitious in many cultural regions like in Latin America but also in India with the financing of Indian original content starting with “sacred games” in partnership with local production and filmmakers according to Variety.
Amazon Prime Video and HBO now are also well positioned in the on demand/labelled market, creating original content. While HBO is competing head to head against Netflix in terms of original content genres and business model (svod), Amazon Prime Video catalog programming tries to be different with a larger emphasis on drama, comedies and TV shows. Amazon Prime Video business model is also very different from other players, as an added service to amazon prime members, it is based on the Amazon platform eco-system built around amazon.com e-commerce website allowing them to charge elsewhere and subsidize Amazon prime video service to increase audience traffic. Twitch is also a good example Amazon servicing gamers who are high profile customer segment for Amazon platform ecosystem offering.
Where local content is king and Netflix not very well positioned (yet!) and infrastructure missing or weak (card payment, broadband mainly), there are pocket of incumbents leading the on demand/labelled market segment like Moviestar from Telefonica, Globe, America Movil or Astro to name a few. The Spanish firm decided to invest 2 series from well known Spanish artists as reported by Variety. In the same fashion Claro Video from America Movil is producing local original content. Astro is well positioned also in the Malaysian local content with 13,000 hours of content for their 69 Astro branded channels (source: Astro annual report 2016). Globe, the leading Philippine Telco is also investing in the area with the creation of Globe Studios and Globe Live which are designed to produce original shows, live events and original content.
- New entrants invading all market segments with some nuances
It is critical to understand that new entrants’ primarily business is not video. Their main business resides in creating core valuable exchanges and services in their platform (i.e. Google is search, Facebook is social). The rapid rise of video consumption has put video in the spotlight for internet players.
Internet players compete for the attention of their audience primarily.
All internet players have seen video consumption increasing exponentially in their platform. Here are some staggering Facebook statistics over video (source: Facebook as of March 2016):
- On average, there are more than 4 billion video views on Facebook every day, with 75% of those views happening on mobile.
- Facebook users watch 100 million hours of video on mobile everyday
- Facebook daily views have gone from 1 billion early 2015 to 8 billion video views over the year.
While I do not have the details of Twitter, Instagram, Youku, Line or other messaging apps, as a user you must have seen a rise in additional video services and video posts from your circle.
Video is setting as the primarily communication medium overtaking text posts.
As video rising in parallel with user attention, internet players have invested heavily in the video space. They have traditionally been leading the user generated recorded market segment with Google/YouTube and Facebook users sharing video post on their timeline wall. We can add as well Vimeo, Youku, Viki, Dailymotion.
As a second phase, the internet players from the on demand/off labelled market segment have developed, launched or acquired (ing) positions in the live/off labelled sector as a horizontal move. For example, Twitter acquiring Periscope, Facebook launching Facebook live, YouTube with YouTube live.
Sequentially, number of UGC video firms are also exploring the more protected labelled/on demand segment like YouTube Red proposing svod service to access exclusive content from UGC stars (most of them managed by Maker Studios owned by Disney).
The NFL rights acquisition by Twitter shows Internet players have recognized the importance of exclusive content and try to acquire content in order to stay engaged anytime, anywhere, anyhow to increase audience attention time, as a result monetization.
Internet players are not alone trying to grab the new opportunities to monetize content, Telcos are trailing behind.
What will happen next?
The battle is raging in the Video OTT markets with traditional broadcaster and Pay-tv pressurized from all sides. Internet players are aggressively pursuing the opportunity in the Video ad market reconfiguration. But there are not alone, Telcos want to enter and take a piece of the 74,1bn TV/video ad market expected in 2017, with digital video ad spending rising at 28% CAGR 2013–17 and programmatic video ad 150% CAGR in the same period while traditional TV/video ad spend in declining slowly (source: eMarketer, Luma).
When we observe the recent moves from both groups, we observe internet players with technology superpowers going after content and Telcos, with Network/data superpowers going after Technology.
We are at the moment observing a convergence in the Video OTT market between internet players and Telcos
The convergence movement creating a bi-polar groups, on one side internet players led by GAFA and on the other Telco, are reconfiguring the video OTT market for good.
What surface as commonalities between both groups are the scale, network effect, financial and platform superior capacities.
In a world where Telcos and internet players capture most audience attention time and video ad spending share, the foreseeable consequence might be the following:
- Smaller players might be squeezed, acquired and absorbed by bigger players
- Independent broadcaster days are ending soon. Either partner or acquired by any firm from both groups
- Big is getting bigger. It applies for Telcos (i.e. NBC/Comcast) or internet players though consolidation, audience and ad tech acquisitions to strengthen their TV/Video platform attractiveness to advertisers (i.e. NBC UX or Telstra)
- Expect Apple to make a bold move in acquiring content firm(s). Some rumors about Apple discussing with Time Warner. That could boost Apple in the video OTT market with CNN and HBO making the Cupertino firm a leading video OTT market players in all segments.
- Expect leading entertainment players in Media adjacent markets like video gaming or sports betting sites or publishers making moves in the video OTT market. Sony with PlayStation (i.e ps4 vue), Microsoft with Xbox but also Nintendo (with their coming gaming console to be announce end of 2016).
- Expect leading devices manufacturers and OTT software vendors moving in the video OTT market with vertical acquisitions to provide UX, Video back end, tools and services to Telcos and media & entertainment firms (i.e Rovi/TiVo)
Any additional comment or observation about platforms, OTT, UX, disruptive business model, please let me know. Reach me on Zishan Mohammad.
