Ooyala: Pay-TV fighting for its future
January 6, 2016
Ooyala’s State of the Broadcast Industry Whitepaper reports that 2015 was the year that premium OTT video content moved decisively to centre stage. The shift from traditional TV continues and shift-deniers have been pushed to the curb. Broadcasters and operators have accepted OTT as a fait accompli, and the repercussions are affecting all areas of the business.
Meanwhile, consumers continue to demand change across the whole of their viewing experience ― from the content they watch, to the devices they use to watch it and the methods they choose to pay for it.
Ooyala’s 2nd annual report looks at the end-of-year broadcast landscape and what lies ahead for 2016.
CONSUMERS
Consumer viewing habits that have been changing since the start of the decade were cemented in place in 2015. Consumers are watching in the home or out of it and technology is delivering content everywhere. They’re watching live and on-demand and programmers are serving it up their way. Viewers are voting to pay for it with money or with time spent viewing ads and providers are responding with more choices. Most notably, whether viewers are cutting the cord or doubling down on screens, the industry is becoming closer to consumers than ever.
Location, Location, Location
Content viewing has become a whatever, wherever, whenever experience. Traditional scheduled TV watching is no longer the norm (at just over 45 per cent of adult viewers). Instead, OTT video accessible anytime and anywhere is now the mainstream. Ironically, TV Everywhere (TVE) is often now just TV Next To The TV ― watched on mobile and connected TV (CTV) devices within the home. Viewers are diverging while platforms are converging. That poses daunting challenges for the industry as it looks for new ways to meet consumer desires.
Where viewers live is also having a major impact on how they choose to watch. SVoD growth in both emerging and established regions is influenced by a multitude of market-specific factors: they include maturity of the broadband infrastructure, pay TV and smartphone penetration, regulatory environments, free and low-cost TV options, piracy issues, shared credentials and greater access to payment methods. Expansion in major global markets like Japan, Brazil and Mexico is not going unnoticed. Companies like Liberty Global are seeking to find new customers and grow their footprint beyond areas with saturated screens. and more on mobile-first video options (both subscription and ad-supported) that are geared towards younger adults.
Mobile Majority
Not surprisingly, consumers around the globe are watching more on mobile screens than ever. The shift is partly because viewers prefer individually-tailored content experiences, but also due to the increase in quality content available and created just for those screens. The end of TV as the first screen is nigh. The appetite for longer-form content on mobile devices is also growing. 30 per cent of North American smartphone owners now watch full-length TV shows on their smartphones, and 20 per cent watch full-length movies. Other global regions are also on par with those figures. Mobile apps, with their stronger user experience, are now preferred over mobile browsers. Add more advanced smartphones to the mix, and mobile video ad spend will continue to grow, slowly catching up to reflect the real percentage of mobile viewers. Content providers like Verizon and AT&T are also in hot pursuit, focusing more and more on mobile-first video options (both subscription and ad-supported) that are geared towards younger adults.
New Viewers
In 2015, Millennials became the largest segment of the U.S. population; with over 75 million members, they’ve surpassed the Baby Boomers. 18-24 year- olds in this group are fleeing traditional TV in record numbers; during the early weeks of the fall 2015 season, for instance, Millennials showed a 16 per cent decrease in traditional TV viewing. Studies have shown that Millennials increasingly prefer time-shifted TV on online platforms. They also make use of search and recommendations more than their older counterparts do.
Significantly for providers reports say that a quarter of Millennials without children currently don’t have cable. Convenience, lower costs, connectivity and content options continue to be among key drivers towards online video and away from pay TV. Those with children are more likely to be tied to the cord, but they are are also apt to eventually cut, shave or cheat it ― and they’re raising a new generation that likely won’t have it at all. Cord-cutter parents beget cord-never kids. Result: look for more standalone OTT and mobile SVoD services for pre-schoolers like Noggin and Disney Life in the U.K., building early relationships with audiences who may never have a TV, let alone cable.
Meanwhile, the influence of digitally-dominant multicultural audiences continues to rise. Studies have shown that multicultural TV users favor OTT viewing and are high users of subscription video (whether it’s cable, pay, OTT or SVoD). Hispanics in particular like OTT-friendly binge-viewing and are highly social, so online services like Univision’s MCN are targeting them with content they can happily share within their social media circles. Even older audiences―TV’s core traditional viewers―are adopting online video more and more these days. Look for more providers to offer flexible content options for these forward-thinking consumers. Age is just a state of mind―and that mind is increasingly thinking about OTT video.
INDUSTRY
2015 was a landmark year in the broadcast business, with a flurry of deals among the old and new guards. OTT arrived as the superstar it has always promised to be. Controversial guidelines emerged on how ISPs can play fairly with content providers in the Internet sandbox. And the industry continued to explore how content will be packaged and consumed going forward to best serve global audiences and deliver higher profits.
Pay TV Fights for Its Future
Viewers may increasingly become highly-engaged, super-consumers of multi-screen content and premium features. But with the aforementioned generational shifts and behaviours, they are more likely to be broadband and digital screen-only consumers―like the ones who are starting to embrace good ole’ over-the-air (OTA) again for broadcast channels and live events. In fact, among the roughly 16 million homes without pay TV, 45 per cent now use OTA for at least a portion of their TV viewing. Pay TV providers are scrambling to serve both ends with new offerings to thwart the rise of OTT competitors― those same competitors that the networks helped create via SVoD licensing deals and de facto promoting of ad- free or ad-light environments. (It seemed like a good idea at the time!) Look for networks to do more windowing of content (as AMC prefers to do) to reduce cannibalisation. With streaming service penetration rising, broadcasters are re-evaluating and fighting back against SVOD’s impact on consumer migration.
That migration has spurred cord-cutting’s rise to 6 per cent of the population in the U.S., where the phenomenon is most often seen. 2015 was the first year that saw U.S. pay TV providers experience a net loss in subscribers during Q1, which is traditionally a strong period for them. TVE, which was created to stop this flight, has still not reached its potential. Providers are working to raise TVE awareness and usage, cut friction through streamlined authentication (including home-based), and improve personalisation and discovery among the multitude of TVE apps available. The industry has further responded by forming marriages of convenience with OTT services like Hulu to expand audiences and revenues. If you can’t beat ‘em, join ‘em.
Providers like Verizon and AOL, AT&T and DirecTV agree. In 2015, Charter picked up where Comcast left off with Time Warner, and France’s Altice continued a global shopping spree, acquiring Cablevision and Sudden Link. International markets continue to be prime growth opportunities: Liberty Global is looking beyond Europe, buying Britain Cable & Wireless to expand further into Latin America and the Caribbean. Even the broadcast networks are in the shopping mood, particularly for digital investments that can pay off with increased ad dollars targeting younger viewers. (Just ask NBC and A&E.) Other mergers abound; look for more strategic pairings to fill up gaps in service offerings, produce and distribute content more efficiently, and expand technological capabilities.
While the FCC’s net neutrality ruling that ISPs are common carriers still faces challenges, the 2016 U.S. broadcaster spectrum incentive auction will also spur more wireless activity, growth and partnerships. This will involve companies beyond Comcast and Verizon (whether separately or together), thus offering more options for consumers and content providers. Incredibly, U.S. cable companies could even start to compete nationally. That’s thanks to the proliferation of OTT services they’re looking at now, which reach beyond mere cable franchise agreements. As the traditional pay TV bundle continues to morph, look for some smaller-tier cable networks to be left out in the cold as operators decide the price/value equation is unbalanced. But those smaller networks may find shelter in the OTT space.
OTT Offers an Opportunity To Thrive
Everybody who’s anybody in the broadcast business has OTT at the top of their to-do lists these days… if they haven’t already checked it off. It’s not only top companies like Dish with Sling TV, Sony with PlayStation Vue, Alibaba with TBO and Youku, Showtime with Hulu, and YouTube with its Red subscription-only service who are executing new deployments, partnerships and monetisation models. Smaller networks, which may ultimately need OTT to survive, are joining in.
Recent research indicates that 15-20 prominent niche services will rise by 2018 to eat into share now held by Netflix, and the premium OTT market as a whole will total $8-10 billion by that time. According to the Ooyala Q3 2015 Global Video Index, traditional linear channels will remain for the foreseeable future, but will be further cast aside by a multitude of other options, including broadcast OTT channels, operator OTT services, catch-up TV like the BBC iPlayer and Televisa’s VEO, and multi-channel networks (MCNs). Netflix is itself the 3rd largest broadcaster now, capturing nearly 30 per cent of total viewing in the U.S.
Consumers are still deciding how many of these offerings they’re willing to take on, manage and pay for going forward. OTT churn is rising as viewers experiment. Amazon is stepping up to help consumers and other OTT content providers figure it out through their new Streaming Partners Programme. This aggregation, which includes central back-end management and a discovery engine for unearthing additional content, is not unexpected. Look for other major OTT services to consider acquiring smaller players and expanding into specific verticals and non-content services. Specialist services may think about re-aggregating into larger mass ones, and consumers will seek help in finding and coordinating it all.
Early OTT and SVoD pioneers―both mass and niche― have done much more than just land and plant a flag; they have also expanded their content menus. CBS All-Access is making Trekkies happy with an upcoming original series built from the Star Trek franchise. The channel is now also offering live streams from local affiliates. Newer niche entrants like NBC’s SeeSo are also stepping up to super-serve passionate audiences. HBO has seen OTT success and found younger viewers independent of pay TV– in the U.S. with HBO Now and internationally with HBO Nordics. Look for content providers to find more ways to harness iconic brands, top talent, originals, back catalogs and data, and use them to complement (for now) their core pay TV channels and build out their OTT offerings globally. The TV-web lines continue to blur as we march ever closer to a screen-agnostic or OTT-only future.
Mobile OTT is the next iteration in the space. Services like Verizon’s ad-based Go90, Comcast Watchable and T Mobile’s BingeOn (with free data for select SVoD provider binging) are making the most of mobile viewing trends and data network capabilities. Look for them to continue seeking new partnerships and carriage agreements, and building compelling service and content packages, going forward.
Bundling Gets Creative
Networks, pay TV providers, and mobile carriers are all looking at strategic ways they can make the most of their content and infrastructure to create compelling consumer service offerings―particularly for Millennials. AT&T partnered with Hulu for mobile and Internet customers, and Time Warner has a new Internet TV service. Cablevision in the U.S. has a cord-cutter package linking broadband, OTA digital antenna and in some areas, wifi phone service—but no base video networks. The slimmed-down Verizon Fios Custom TV bundle starts to give a glimpse at what a pay TV à la carte world might look like, and networks like ESPN and Fox haven’t been happy about it. And, Comcast’s “mobile-first IPTV service,” Stream TV, which focuses on broadband-only customers without impacting their XFINITY data plans, has been rolling out in select markets. Look for even more services to come.
Other regions are in the game as well. Live-streaming ITV Hub and the Freeview Play connected TV service are some of the U.K.’s new offerings in the space. All this activity makes it clear that the expansion of mobile and broadband network data capacity and connected screens is going to be critical for future revenues and growth throughout the sector.
Sports Rule & Genres Rise
Sports (particularly live sports) continues to be the most expensive and most sought-after TV content around the globe. (Just ask Discovery Eurosports and NBC.)
That’s a key reason consumers stick with and come back to pay TV, and also why ESPN has resisted launching its own OTT service. Sports is a driver for TVE, and 4K and mobile continue to be drivers for sports. In the U.K. and Ireland for example, Ooyala has found that more than 45 per cent of sports viewing occurs on smartphones and tablets.
Everyone is trying to get in on the game. Operators have emphasised sports in new offerings―Verizon Go90 for example, has NBA content. Yahoo streamed the first regular-season NFL game to over 15 million viewers. CBS All Access could eventually carry the NFL; it has already streamed some live NFL games to mobile devices. But Netflix is interested in live sports only if they can own and build the event themselves.
Ooyala recently looked at sports streaming habits across top U.S. sports markets to examine regional differences and help providers with their content targeting strategy. Going forward, look for sports content providers to focus on insights like these and on rights deals that can work across platforms. Also, look for providers to continue prioritising video performance quality and speed, which according to eMarketer research is particularly important for sports fans who don’t want to miss a play. Additionally, according to SNL Kagan, nearly 90 per cent of OTT sports subscribers also pay for a multichannel TV service, enabling avid sports fans see all of their team’s games despite factors like game blackouts and travel.
Niche OTT content is also growing among other fanbases. AMC is scaring up thrills with Shudder, while Netflix is looking at news, Bollywood and anime content. Children’s content remains key for SVoD players, broadcasters like the BBC with its kids iPlayer, and premium content providers like HBO. It’s also attractive to parents looking for year-round content and ad-free environments. Celebrities are also looking to control their own destinies through owned apps and live streaming video, which can provide them with direct audience relationships, greater earnings and easy social sharing. Look for all of these areas to expand, as live content across genres, platforms and the globe is the next big thing.
Live Expands & International Gains
Live linear TV delivered via OTT is becoming a core need for providers who want to remain competitive and grow. This is particularly true as sports and news remain key content categories. Globo understands this; it recently became the first Brazilian broadcaster to offer live and VoD content in an SVoD service. Amazon is thinking about live, too. So are networks like Nat Geo, and Comcast through its XFINITY Share app.
Social media companies like Facebook are embracing live streaming video as well, bringing more competition to the space. 2015 saw the explosion of live streaming video from the likes of Periscope (Apple’s app of the year) and Snapchat, which got nearly 25 million views for a live 24-hour snowstorm video before it disappeared, as Snapchat videos are wont to do. Look for live streaming to heat up as a real-time connector of people around the globe.
OTT services are also rolling out internationally with local content. These include France’s freemium service, Molotov, which provides live streaming and a large selection of French and international channels. Netflix continues to prioritise local content internationally, with plans to be in 200 countries by the end of 2016. The company is trying to differentiate itself in Asian markets like Japan, where audiences are used to free TV options. Starz Play Arabia launched in the Middle East and Africa, with some of the channel’s top programming and local partner content, too. Look for China as a market to watch, as providers set their sights on the enormous opportunities there. Live and local programming is sure to appeal not only to providers and audiences worldwide, but to advertisers as well.