Blog |
Digital Video Playout, ott, SVOD, AVOD, D2C, Netflix, Amazon Prime, hulu
What will the OTT market look like in 5 years?
Monday, October 29, 2018

With Netflix gaining so much ground globally, and a growing number of companies trying to get a piece of the pie, what will the OTT market look like in 5 years?

Let's go back in time 5 years to see how much the market has changed since then. In 2013:

  • Netflix starts streaming House of Cards, its first Netflix original
  • Amazon Prime Video (as we currently know it) is just a couple of years old and also starts offering Amazon Originals
  • Hulu hits $1B in revenue for the first time
  • Game of Thrones is in its third season (yes, the one with the "The Rains of Castamere")

Fast-forward to today, where the amount of content available over-the-top is so overwhelming that people can't find the time to watch everything they could possibly enjoy.

And it’s only going to increase.


What will disruption look like?

The main players are spending billions to produce their own content in a battle to get the most viewer attention. Yet, a fair amount of companies are on the sidelines creating (or planning to launch) their own SVOD service.

The thing is, if all new services go SVOD over-the-top, viewers can't subscribe to them all. That creates a really high barrier to entry for startups and traditional broadcasters who want to go direct to consumer with a subscription model.

If the OTT bill starts to look as fat as the cable TV bill, with thousands of channels that viewers will never watch, this opens the door for a disruption to the OTT market, similar to what we saw happening with Netflix and traditional TV.

Startups and traditional broadcasters can take advantage of that disruption to make a dent in the market and position themselves as the next big thing.

But, what will that disruption look like?

First of all, traditional broadcasters that are trying to be the next Netflix of their country are likely to lose that battle. The next Netflix of their country is going to be Netflix, period.

For now, it seems like most broadcasters and content producers believe they will win the battle by simply creating a direct-to-consumer (D2C) service and competing mainly at the content level.

It feels like they’re thinking:

“My content is way better compared to what Netflix or Amazon will ever be able to produce themselves, so, if I open a D2C shop and continue producing my original content, people will gladly pay for my service and I won’t have to worry about anything else ...”

If only!

If everything continues like this, the real picture will be a market flooded with thousands of companies (over)producing “original” content to publish in their direct-to-consumer service and competing for the same viewer’s time and money.

That will only lead those companies into an advertisement battle, making them spend millions in marketing so they can convince the viewers that their content is indeed better.

The battle will not only be to promote their D2C services; it will go down to individual TV shows and films, which means that if they are overcreating content, they will be also overspending, not only for creatives but also for the number of ad campaigns to run.

They may even start directly paying the viewers.

Now, that doesn’t mean that they can't be the disruptors that win the most OTT market share in the next 5 years. Yes, there is hope. They just need to think of a different strategy.


In 5 years, AVOD OTT services can overtake SVOD market share

AVOD services have an advantage over SVOD: viewers are more prone to use them because they prefer free services when they are convenient (as with pirate websites, for example).

Nevertheless, Ad-Tech is going through an identity crisis right now.

There has been a revolution of consumers demanding privacy, fewer ads (or even ad-blocking) and a cheaper (or completely free)  OTT experience.

That situation was what helped services like Netflix and Spotify explode in the first place  But it's also creating an uphill battle for AVOD OTT services.

They can't find a comfortable spot for hypergrowth in the existing market.

This means that the solution is not simply to replicate traditional TV. Pre-, mid-, post-roll is just an imitation of an old model that is falling apart.

The puzzle remains: how to convince brands to give you a lot of money to promote their products without needing too much personal data from your viewers nor interrupting their user experience.

Any company that solves that puzzle will have a colossal opportunity to become number one in the OTT market in just a few years.

Whether because of product placement or crazy technologies like Supponor’s, the viewers will need to feel comfortable enough to give their time (and data) so the company providing the service can profit from it.

Unscripted, user-generated and mobile-only content has a big shot at growing in this space.

Generation Z, which is the main market for this content, is a lot more malleable on how they handle their personal data as well as how they enjoy ads.

Jeffrey Katzenberg's NewTV project, if proven right, can quickly grow to be one of the main players in the OTT space in the next 5 years.


Oversupply will open the gate for new huge revenue streams

Remember what I said above about a marketing battle of D2C services?

Well, oversupply creates great opportunities for aggregators and recommender services like PlayPilotJustWatch, and ReelGood that intend to take away the hassle of having to go through several websites/apps to know what to watch next.

But startups are not the only ones tackling this opportunity. Smart speakers are at the forefront of the solution. Amazon, Google, and Apple are getting the upper hand as the ones to recommend TV shows and films whenever someone has time to spare and don’t know what to watch.

And wherever there is a successful recommendation service, there is an opportunity for a massive business to flourish (think search engines in 1998, for example).


'Niche' won't be considered a synonym of 'small'

What happens when a market has an overabundance of supply?

It starts to get fragmented or specialized if you will, which means opportunities for niche services to have a comfortable and profitable business.

One thing we have learned from meme culture is that there are infinite things people find relatable, regardless of their origins, culture or even personal preferences.

This connection is the one that “niche” sports are taking advantage of to build their OTT audiences.

The low barriers to entry to go global instantly are allowing these niche sport leagues to aggregate millions of people that share a common passion for the same sport.

For example, Karate Combat is a year-old league that builds off the existing base of karate participants and fans around the world, who number in the tens of millions.  

They created a new kind of competition format specifically intended for OTT. The league allows full-contact fighting and sets the match in a pit (rather than a traditional fighting ring) for better camera angles.

It also replaces the traditional focus on having a big in-person audience (which is expensive) and instead sets the fights in exotic locations (like the World Trade Center).

Karate is not the only sport that is starting to take off over-the-top. Volleyball has also great potential.

The International Volleyball Federation (FIVB) has the ambitious target of becoming a tier-one Olympic sport by 2020, and they’re planning to do it through an aggressive digital transformation that will gather their millions of fans around the world.


What 2023 will look like

In 5 years, we will likely see niche sports platforms growing even bigger than what some D2C services are today. And a whole new category that is likely to be on the top of sports entertainment is eSports.

For now, it is considered as another “sports” category, but 5 years from now it will likely be its own mega-industry opening the doors for companies to innovate and grow.

And these are the most obvious ones!

There is plenty of areas of interest that millions of people share across geographical areas. For example, kids content is one genre that can keep retention rates really high.

Contrary to adults who are always looking for the next big thing to binge-watch, kids enjoy watching the same content over and over again.

That has an immense impact on the need to gather large amounts of new content that can trip up other OTT players.

Less content means no need for gargantuan budgets to keep the service afloat while still having an extremely loyal viewer base.

Parents are often willing to pay a monthly fee to entertain and educate their kids as long as the content is adapted to what they believe is appropriate.

For instance, Hopster is doing an amazing job: they grew their own D2C service and it has been so successful that Comcast picked up their content to stream it in their Xfinity X1 service. And it’s likely that in 5 years they will be a global leading brand for kids content.
 

TL;DR

Companies trying to go with a “me-too” Netflix SVOD service will likely find themselves spending a lot of advertisement money to see decent revenue coming over the top.

Nevertheless, there are other ways these companies can be wildly successful in 5 years.

AVOD, aggregation/recommendation services, and niche D2C platforms will likely thrive as they find their place in the market, and create even bigger revenues streams compared to the current winners in SVOD (Netflix and Amazon).

David Gordillo
David is a seasoned sales and business development leader, helping OOYALA’s prospects uncover business opportunities to create new and profitable revenue streams.
 
His background as an Engineer (PhD) provided him with strong analytical skills and ability to handle large data sets for effective decision-making and spotting new business opportunities.
 
His career started up creating and optimizing algorithms for complex CFD simulation in super computers.
 
His has authored several books (novels) and peer-reviewed publications in international journals.
 
You can follow on Twitter dvdgrdll and on Linkedin