This article provides an overview of the benefits, opportunities, and challenges presented by the OTT market, and examines the importance of delivering a high-quality user experience in this rapidly-evolving landscape.
If you are part of our broadcasting industry, and probably also if you are not, you must have heard the term OTT all around you – and for a good reason. The television industry is currently undergoing a significant transformation with the rise of OTT streaming services, which allow for the broadcasting of both linear channels (including live feed) and video-on-demand (VOD) content. This shift has created a new market full of opportunities for content creators and distributors alike. For content owners, OTT offers a new way to engage with viewers, collect analytics, and monetize content. For distributors, it presents an opportunity to expand their reach through new market segments and also compete with traditional broadcast networks. This article will explore some of the key benefits and challenges of the OTT market.
First of all, we should understand that OTT services are divided by the various models through which we can monetize the content. The basic models are subscription-based (SVOD), transaction-based (TVOD), and advertising-based (AVOD).
- The SVOD model, which is the most common nowadays (such as Netflix, Amazon Prime, and Disney+), requires viewers to pay a monthly or annual fee to access content, providing a steady and predictable revenue stream.
- The TVOD (such as iTunes, Amazon’s video store, and Sky Box Office) allows viewers to pay for individual pieces of content, usually used for newer or premium content.
- The AVOD model (such as YouTube, Facebook Watch, Peacock, IMDb TV, and Pluto TV) generates revenue by showing ads to viewers during streaming, allowing advertisers to target specific audiences based on demographics and viewing habits. According to a report by Statista, ad-supported streaming services are expected to exceed SVOD services and lead the OTT market through 2023.
It is important to note that several OTT services adopt hybrid models that combine AVOD, SVOD, and TVOD models to capitalize on the advantages of each model, providing viewers with a unique experience and generating a mix of predictable and variable revenue streams (for example YouTube free account which includes ads and works as AVOD, until a user decide to pay the subscription and remove the ads, hence changing to SVOD).
On the viewers’ side, the most significant advantage of OTT is the convenience it offers to the viewers for content consumption. OTT streaming services allow viewers to watch their favorite shows and movies on any device (smart TVs, smartphones, tablets, laptops, gaming consoles, etc.), anywhere and anytime they choose.
The OTT (Over-The-Top) video market has seen a steady increase in users, with advanced features such as watch lists, AI recommendations, and offline viewing contributing to its growth. As of 2022, there were 3.26 billion OTT users, projected to rise to 3.51 billion in 2023 and 4.22 billion by 2027. User penetration is expected to grow from 45.7% in 2023 to 53.0% by 2027. Additionally, the average revenue per user (ARPU) is estimated at US$90.14 in 2023. The OTT video market’s revenue is forecasted to reach US$316.10 billion in 2023, with US$205.10 billion from advertising, and increase to US$462.90 billion by 2027. This growth represents a Compound Annual Growth Rate (CAGR) of 10.01% from 2023 to 2027, highlighting the significant potential of the OTT market.
Moving to the content owners and distributors, there are several advantages to operating an OTT platform, the major ones are:
- Monetization options: as further described above, OTT platforms offer a range of monetization models, including subscriptions, advertising, and pay-per-view. There is no one right answer to fit it all, and this allows each content owner and platform to choose the model that works best for their business, content, and audience. Regardless of who you are and what content you have, the new OTT market offers opportunities to generate new streams of revenue.
2. Global reach: An OTT platform allows the content owner to reach viewers anywhere in the world, allowing content owners to expand their reach beyond traditional cable and satellite distribution. All that the end user requires is a smart device and an internet connection, this makes it easier to tap into international markets and expand your viewer base.
3. Engagement and direct relationship with viewers: OTT platforms offer a direct relationship between the service and its viewers. This means that the platform can gather data on viewers and use it to tailor content, personalize recommendations, and create targeted advertising. Moreover, technological developments today constantly create new ways for the platform to engage with its audience, including content ratings, interactive movies, in-app merchandise marketplace, comments, on-screen surveys, games, and much more.
4. Flexibility and control: OTT platforms provide content owners with greater control over their content, scheduling, and marketing, compared to traditional TV networks. This level of control enables them to experiment with various business models, content strategies, and marketing tactics, resulting in greater flexibility to adapt to the changing industry landscape. OTT platforms can easily test new ideas and features and make quick adjustments based on audience feedback. This flexibility allows for a more dynamic approach to content distribution, which can lead to more significant audience engagement and growth. Additionally, unlike a traditional TV channel, operating OTT platforms provide the ability to continually manage previous content by deciding which content will be available when it will be available, and for how long, as well as enabling the promotion of specific content at will and publishing promos of new content in advance.
5. Cost-effective: Compared to launching a traditional TV network or cable channel, creating an OTT platform can be a much more cost-effective option. Today there are many service providers and developers worldwide which offer various solutions and turnkey products, at a wide range of prices, which will allow every content owner to manage their own OTT platform or include their content in an existing platform. Therefore, the costs associated with setting up and maintaining an OTT platform are typically lower than those associated with traditional broadcasting. Furthermore, OTT platforms provide economical solutions for viewers as well. With a wide range of content available at their fingertips, viewers can access it without having to pay for expensive cable or satellite subscriptions. This affordability makes OTT platforms an attractive option for content creators looking to reach a wider audience while keeping costs in check and for viewers looking for high-quality content without breaking the bank.
6. Data and analytics: OTT platforms provide content owners with access to data, analytics, and valuable insights into their audience, including viewing habits and demographics, which can be used to inform future content production and distribution decisions and develop targeted marketing strategies. By analyzing user data, content owners can gain a deeper understanding of which types of content are most popular with their audience, what times of day viewers are tuning in, and how long they are staying engaged. These data-driven decisions can optimize content and create a more personalized viewing experience for the audience. With the ability to access and analyze data, content owners have a unique advantage in the highly competitive OTT market. For example, while traditional TV networks would produce a pilot episode and use rating data to determine the next steps of such shows (which might result in the cancellation of great shows before they had a chance to find their audience), OTT streaming services can in a much shorter time, gather data and use it to determine whether or not to produce more episodes, and even at what day and time it should be aired.
The OTT (Over-The-Top) market, while offering benefits, also poses significant challenges for content owners and distributors. The primary issue is the increasing number of OTT services, leading to market fragmentation and heightened competition. This scenario requires content providers to deliver unique, high-quality content as viewers become more selective. Moreover, a high-quality user experience is crucial for the success of OTT platforms, encompassing ease of use, fast streaming, and access to premium content. Content owners and distributors also need to invest in technology and infrastructure to ensure a seamless experience. Additionally, they face the complexity of navigating diverse licensing agreements and intellectual property laws across different countries. These challenges necessitate adaptability and a proactive approach from content owners and distributors in the OTT market.
“As legal counsel, for me, it is always exciting to collaborate with your client (or in this case here in iKOMG) on various projects, explore a new field, and learn about new developments and technologies. As an example, the booming market of over-the-top (OTT) streaming services presents an exciting opportunity to engage in a growing industry full of potential for innovation and expansion.”Roei lavy
What does the future of TV look like?
In conclusion, the rise of OTT streaming services is creating a new and rapidly evolving market full of opportunities and challenges for content owners and distributors. In order to succeed in this competitive market, content owners and distributors must be adaptable and proactive in their approach to the market. However, by utilizing the benefits, convenience, and data-driven approach of OTT services, content owners can produce High-quality content that impacts and engages with the viewers, ultimately allowing distributors to expand their reach, compete with traditional broadcast networks, create new streams of revenue and increase your current revenue stream and business growth.
