This last week, on Nov 2nd, I was invited to participate in a panel regarding OTT services during the NEXT TV summit conference which took place in Miami.
This is a very interesting topic with several competing OTT models, and everyone trying to guess where the future of TV is going. For those of you not that familiar with the TV landscape, here’s a list of the different players and Video On Demand (VOD) models:
- Production companies: the companies who create and own the content (most cases, they are large companies who also own cable channels, but there are also smaller independent producers)
- Programmers: these are the channel owners (e.g. Viacom, Disney, 20th Century Fox, Time Warner). In most cases these channels have sister companies who also produce and own the content.
- MSO’s: these are the distributors (cable companies and satellite, such as Direct TV)
- OTT platforms:
- TV Everywhere – an OTT platform which provides access to users who already are subscribed to an MSO (e.g. HBO GO, ESPN GO).
- SVOD: Subscription based video on demand, e.g. Netflix, Claro Video, etc.).
- TVOD: Transaction video on demand, e.g. Apple TV – you have to pay per movie whether to rent or to buy.
- AVOD: Advertising-supported video on demand (e.g Hulu in the United States, Crackle in USA and Latam).
- Windowing: a strategy which content owners deploy to maximize the profit of each content (e.g. the first window for a movie is the theatrical release, then it becomes available to buy, then to rent on VOD, and then it becomes available to air on national broadcast stations, on Pay TV channels, and eventually on SVOD services)
The following are some of the tension points shaping the future of TV and my own opinion regarding these points:
My Opinion (with a high probability of being wrong)
|Consumers want access to all the content on all their devices at anytime (TV, Smarphone, Tablet, Smart TV and On Demand)
||Today consumers don’t have this, and mainly because of windowing. As many of Netflix users know, Netflix does not have many of the new movies on VOD. Unless piracy become a big problem (which so far has not happened), the industry should keep its windowing policy since it maximizes revenue. Airlines and hotels do it all the time and consumers don’t like it but they have no other options.
Cord-cutting: Consumers eliminate their cable subscription because they can access video content via the internet
So far, cord-cutting has been minimal but it has stopped subscriber growth in the USA. Eventually, as VOD services improve and younger people start forming their own households, more people will stop their cable subscription. However, my guess is that cable penetration will remain high since live sports and news are too critical for consumers and for most households this is not a huge expense.
|The Pay TV Bundle
||With the possibility of accessing VOD content (e.g. TV series with Netflix), and the fact that the bundle is not a good value for a majority of users (this is similar to the Music CD – you had to spend $16 and buy 15 songs when you really wanted 2 singles), 10%-15% of households will eventually end their Pay TV bundle, but their a la carte options will be extremely limited. The Pay TV bundle, supported with an effective windowing strategy, has served the industry very well and I believe this model will continue to be the dominant service plan for most households for at least 10 years.
|MSO’s create the OTT “umbrella” service where users can access all the content
||MSO’s will want to do this to continue to be the central distribution point for consumers, but it will not happen. The “shopping mall” concept of convenience and one-stop shop does not work in the internet where everything is one click or one app away. Consumer will access their favorite channels going directly to the apps of the programmers.
|AVOD services (advertising supported OTTs)
Most OTT plans are in a conundrum because they know that most consumers will not pay for their content (HBO yes, but HGTV, MTV, Bravo, Sci Fi plus 100 other channels, NO). So the alternative is to offer a free service supported by advertising revenue. Well, the largest video platform in the world which is YouTube has had eCPMS in Latin America in the range of $0.50 to $1.50 and they are not increasing. At these rates, you will not be able to generate sufficient revenue to pay off content license fees, streaming costs, and platform costs. The digital advertising market in Latin America has to grow significantly to be able to sustain a service such as HULU. And even HULU is re-launching and prioritizing its subscription service.
Now, do expect to see some advertising in TV Everywhere platforms. As in TV, despite consumers paying a subscription fee, they also withstand 8 to 20 mins of ad time in 1 hour depending on the country. So expect to see more ads as more users start using OTT platforms and the revenue opportunity becomes interesting.
In a nutshell, despite plenty of facts around rapidly changing user behavior and increasing video consumption on OTT platforms, I do envision shifts in revenue and launch of new services, but not great changes to the structure of the TV industry in the next 10 years. I only recently “validated” HBO GO and there is so much content there that I think I won’t watch linear TV for months, but I will still pay my subscription to get access to HBO GO. And even if HBO GO launches a consumer direct offer I won’t be a cord-cutter because the cable subscription is included in my condo fee.
Remember: the TV ecosystem has served the industry very well, and consumers too with a renaissance of great TV series.