The global over-the-top video content market rose by 37% in 2018, gained momentum in 2019, and isn’t expected to slow down anytime soon. In the US, OTT distribution revenue is expected to grow from $22.9 billion to almost $48 billion by 2023. China is in second place when it comes to OTT market size, followed by the UK and Japan. Revenues of both countries are expected to double in 2023, as more and more streaming services are brought to market.
Below is a chart illustrating the aforementioned figures.
The US has the biggest OTT market, followed by China and the UK.
In 2019, the average OTT user spent around 17.5 hours a week on OTT video services such as Netflix, Hulu, and Amazon Prime. This figure is likely to grow as these services pave the way through traditional media, replacing pay TV as a source of entertainment and advertising.
While the proliferation of streaming video has undoubtedly been positive for consumers around the world, it’s added complexity for both streaming services and operators to reach their audience. No longer do media companies only need to figure out the platforms that their target audiences are spending time with, but on which services on those platforms do they favor and how they’d prefer to consume your content.
For years, I’ve been advocating that the future of TV is direct-to-consumer and I was recently questioned by somebody on it during a virtual industry event.
The person pointed to services such as Amazon Prime Channels, The Roku Channel, Pluto TV insisting that OTT apps were becoming increasingly irrelevant and were being replaced by add-on subscription channels (à la Prime Video Channels) and free-ad supported linear channels.
To which, I responded, “What does Amazon Prime Video (which is the home to Prime Video Channels), The Roku Channel, Pluto TV, and Xumo all have in common?
The answer is that these services are all, in fact, direct-to-consumer TV services.
platforms and services converge
The OTT distribution landscape used to be pretty straightforward: there were either ad-supported services (AVOD) such as YouTube or Crackle or subscription-based services (SVOD) like Netflix offering on-demand videos.
In March 2014, Pluto TV launched its beta web-video guide offering about 100 channels, organized into a TV grid. It quickly became one of the most popular free cable alternatives, defining a new category of streaming services that’s now referred to as free ad-supported TV services, or FASTS. Essentially, FASTs are free versions of pay-TV that combine a mix of TV and digital video programming into linear TV-like channels
The success of Pluto TV led to others jumping into the space including Xumo and Peacock (Comcast), STIRR (Sinclair), The Roku Channel (Roku), IMDb TV (Amazon), Samsung TV Plus (Samsung), LG Channels (LG), WatchFree (Vizio), and Tivo+ (Tivo) among others.
Dish Network debuted Sling TV in January 2015, offering pay-TV services, delivered over the internet rather than cable or satellite. Sling TV became the first “skinny bundle” or “vMVPD” to get widespread notoriety and the service prompted the launch of competitors including AT&T Now, Hulu + Live TV, YouTube TV, Philo, and fuboTV.
All of these flavors of direct-to-consumer services (AVOD, SVOD, vMVPDs, and FASTs) are distributed via apps on platforms such as Roku, Amazon Fire TV, Apple and Android TV and phones, Samsung Smart TV, etc.
the network effect
As these streaming services were changing how we as consumers watch television, behind the scenes, Amazon, Roku, and Apple were building out their hardware, software, and services. Successful technology platforms maintain and reinforce growth. This cycle of self-reinforcing is what’s known as a network effect. It benefits the platform owner and raises a barrier to competition.
In December 2015, Amazon launched its Streaming Partners Program, which is now known as Prime Video Channels. It’s a subscription aggregator or marketplace that brings the concept of an app store to its Amazon Prime Video streaming service allowing consumers to subscribe to multiple streaming services without being required to use each sign-up mechanism or view the content through each service’s app.
Prime Channels has been very lucrative for Amazon and often, more than half of a media companies overall OTT business is routed through the marketplace. For example, nearly 50% of CBS’s subscribers, as well as approximately 62% of HBO Now’s OTT base can be attributed to Prime Video Channels.
Both Roku and Apple have followed Amazon’s lead by creating their own OTT channel aggregators of their own, The Roku Channel and The Apple TV App respectively.
the ott distribution platform landscape today
The waters have most certainly been muddied. Roku operates its own app platform but also runs its own DTC streamer, The Roku Channel, serving ad-supported linear programming from some of the company’s app partners including Newsy (AVOD), Pluto TV (FAST), Xumo (FAST), and fuboTV (vMVPD).
And with the $340 million acquisition of Pluto TV, ViacomCBS now owns its own OTT distribution platform in addition to operating its own streaming services including CBS All Access and Showtime that can be purchased through the Apple TV App rather than needing to download individual apps from the app store.
Speaking of app stores, Comcast runs one of its own via Xfinity and also operates two FASTS including Xumo and Peacock, the latter of which acts as both and OTT distribution platform and streaming service.
vMVPDs also act as subscription aggregators, but a trend I’ll think you’ll start to see it that these platforms will begin to incorporate most FAST content into their channel lineups. The main reason for this will be if a subscriber were to cancel or pause their main subscription, they’d still have access to a slate of free, linear TV in addition to any add-on channels they may have brought through the service. And the reason that’s important is that the vMVPD can still maintain a direct-to-consumer relationship.
If all of this sounds confusing, it because it really is. Distribution platforms have become services and services have become platforms, but the fact remains that the future of TV is still direct-to-consumer,
We recently hosted a webinar for media companies titled “Where Should I Distribute My OTT Content?” As I was speaking to the differences between app stores, FASTS, subscription aggregators, and vMVPDS, I mentioned the need for a graphic that highlighted the multiple and overlapping roles these companies play in the OTT distribution landscape.
Here’s what the OTT distribution landscape looks like today, which we’ll update periodically.
This seachange in the content distribution landscape has created opportunities for both new entrants and traditional media companies. In this article, we’ll provide an overview of some distribution platforms and which OTT distribution strategy would be best.
Distributing OTT Content – Where to Start?
OTT Audience Strategy
One of the first steps in formulating a good OTT strategy is to create and improve your Target Group (TG) profile. A defined TG profile functions as a foundation for media planning later on, and understanding customer behavior will also allow OTT service providers to serve their customers better.
Some questions that can shape your audience strategy and increase scalability potential are:
- How active is your TG generally on cable, streaming, and social media platforms?
- Is there a TG segment with the most revenue potential?
- How will you drive your TG to your content?
- Is there any way you can communicate with your TG? Do they want to be communicated with?
- What type of content does your TG prefer, and why?
- Which video services does your TG use? What gap does your content fill? Is your TG looking for another streaming service?
- Do members of your TG share content?
- How will your TG change in the following years?
OTT Distribution Strategy
Once you’ve created an audience strategy, it’s time to develop a distribution strategy. It’s important to understand that even though OTT content is set to replace traditional media distribution channels, over-the-air broadcasts, movie theatres, and cable networks can aid immensely in promoting your OTT content.
Graph showing how Netflix surpassed US cable subscribers
The chart above shows how Netflix surpassed cable pay-TV subscribers in the US. This shift is mostly attributed to the fact the service meets consumer demand to giving customers authority over what they watch, when they watch it, and how.
It is important to take advantage of every distribution channel at your disposal, delivering content not only through owned-and-operated (O&O), direct-to-consumer apps but also leveraging social media, OTT aggregators, and Free Ad-Supported TV Services (FASTS).
Let’s discuss these distribution channels in more detail.
Subscription Aggregators
Subscription aggregators are third-party OTT platforms that sell video subscription services either as an add-on or as their primary service. Examples include;
- Amazon (via Prime Video Channels)
- Roku (via The Roku Channel)
- Apple (via The Apple TV App)
- Virtual pay-TV operators (Hulu, Sling TV, fuboTV, etc.)
Approximately 80% of OTT content is watched on TV via Connected TV (CTV refers to devices that use a television as a display and can connect to the internet to access content). This shows that the problem was never about TV, but rather cable or satellite offerings that never offered consumers the control they wanted.
OTT service providers can sign deals with aggregators to boost their chances of discovery; however, this raises the question of which OTT aggregator to go with, and whether they should build a direct-to-consumer presence or go with established OTT players such as Amazon.
You have to remember that when partnering with an aggregator, a subscriber is availing the aggregator’s offering, which presents certain risks.
Sure, some loyal customers will follow, but you might end up losing more than half of your following. The investment in building your direct-to-consumer business will be much greater, however it’ll be more rewarding in the long-term. It’s a high-risk, high-reward strategy.
Some OTT aggregators include:
Amazon Prime Video Channels
Amazon’s Prime Video Channels is a program launched in 2015 by Amazon to allow TV networks and video publishers to benefit from its influential position in the OTT distribution industry. The service streams OTT content to Amazon Prime customers at a cost much less than O&O; however, that is not to say the cost is insignificant.
The program now features over 160 channels within the US and 260 worldwide, hosting OTT content for big players such as HBO, CBS, Showtime, and a few others. Apart from that, a report by the Diffusion Group suggested that more than 50% of all D2C subscriptions are made through Amazon Prime Channels.
The Roku Channel
The Roku Channel is the company’s own streaming hub dedicated to delivering free, ad-supported TV, movies, sports, and news. It also offers a wide selection of premium channels (a la Amazon Prime Channels).
The platform has been regarded as the “Facebook of TV.” Where it used to be a devices retailer and OTT aggregator, it has grown to be a significant player in the advertising industry. Roku recently announced its (third) quarterly revenue to be a whopping $179.3 million, most of which was from advertising alone. The core contribution to this 79% year-over-year growth was The Roku Channel.
Apple TV App
“Your favorite shows, in one place, on all your screens” – the idea behind Apple’s TV App.
“Your favorite shows, in one place, on all your screens” is the value proposition for Apple’s OTT aggregator, “ The Apple TV App”. The company spent $6 billion on original programming and its own premium channel, “Apple TV+” to lure consumers into its content hub.
In addition to content creation, If you’re planning on launching a direct-to-consumer OTT streaming service, you are going to make additional investments in customer acquisition and retention. Partnering with OTT aggregators can help offset those costs.
Pros of working with OTT Aggregators
Although it might not have the long-term benefits of a DTC strategy, working with an OTT aggregator does have its perks and benefits, one of the most prevalent being a quick and easy way into the market.
You can double the number of subscribers with them, benefitting from their market penetration at a fraction of the cost. DTC providers face the challenge of managing marketing, distribution, and customer support costs, which OTT aggregators can help get rid of.
Cons
It’s not always a give-and-take relationship, thus there are some drawbacks of partnering with OTT aggregators.
**No Customer Information **You don’t get any customer information. You simply have to rely on what the aggregator tells you. For example, the movie Contagion has seen a spike in viewership because of the recent Corona Virus outbreak. The movie is only available via subscription to Cinemax’s subscription premium channel available through OTT Aggregators like the Apple TV App.
What Cinemax should be doing is flagging new subscribers signing up for a free trial solely to watch Contagion who have no interest in sticking around after their 7-day free trial. They should then send those customers emails, notifications, or alerts highlighting Cinemax’s value proposition. Otherwise, it may be one subscriber in, one subscriber out as this cohort most likely wants to watch a single movie with no interest in sticking around past the free trial.
This strategy would work well for an O&O app, however, Cinemax doesn’t have a direct-to-consumer offering. You can only get the service via a pay TV affiliate or OTT aggregator.
Affiliates shield their content partners from customer information, which means Cinemax has no way to market to these customers, This would have been extremely valuable.
Competing Against Digital Platforms You’re not only competing against other networks anymore. Instead, you are competing against the aggregator that is taking a sizeable chunk of your ad or subscription revenue, effectively putting you into frenemy territory.
Competing Against Yourself In a rather surprising turn of events, you start competing against yourself here. No matter what you do, you risk hurting yourself, competing for the most important factor in any business; control. As you try to stand on your own feet, the level of control the aggregator has over you makes it more and more difficult.
Takeaway
Yes, working with an OTT aggregator helps can help short-circuit your OTT strategy, but tread carefully when considering this your long-term solution. The goal shouldn’t be to rely on aggregators forever but to stay long enough to build your own brands and OTT apps.
FASTS (Free Ad-Supported TV Services)
Stands for Free Ad-Supported TV Services and these platforms combine a mix of TV and digital content into an electronic programming guide (EPG), similar to the type of experience you’d find on pay TV.
Some popular FASTS services include;
Pluto TV
Owned by ViacomCBS, Pluto TV launched in 2014 and is currently one of the largest FASTs with a reported 22 million active users in the United States.
Xumo
Another service, Xumo launched as a joint venture in 2011 between Viant Tech and Panasonic. In 2020, it was acquired by Comcast. Xumo currently has 11 million active users.
Other FASTS include Samsung TV Plus, IMDb TV, STIRR, and Distro TV, among others. I should also call out that The Roku Channel serves as both a FAST and an OTT aggregator.
YouTube – An OTT Distributor in the Disguise of a Semi-Social Media Platform
YouTube has been a famous video hosting service, even as other OTT platforms continue to grow rapidly. A prime example of that is how many leading OTT services providers are using YouTube to engage audiences.
This is because of the platform’s massive scale. In 2019, Youtube generated $15 billion in revenue. For comparison, Netflix generated $20 billion for the year.
Many marketing strategies for OTT include extensive use of YouTube in their campaigns to boost viewership.
Cons of Distributing on YouTube
YouTube has given many content creators and owners a free way of distributing videos. Not only is it easy to set up and use, but it also has a far-reaching viewership, unlike any other platform. However, it doesn’t come without its own drawbacks.
- Content creators are paid based on the number of views their video has. Not every view generates revenue, and even those views that do generate revenue aren’t completely yours. You get a fixed percentage every time an ad is shown (AVOD).
- Since the platform is web-based, audiences are mostly using Adblock. Roughly 26% of users block advertisements via Adblock, effectively reducing the revenue generated.
- Using YouTube extensively can lead to you relying on it extensively – which can be a rather bad idea in the long run. Since using the platform is so easy, content owners usually forget that they have to shift as well. YouTube should only be used as a marketing platform, which becomes increasingly difficult as time passes.
YouTube’s live streaming service, YouTube TV, boasts 2 million subscribers and recently announced the addition of premium add-ons such as HBO max Cinemax. This effectively puts YouTube in the OTT aggregator business.
Owned-and-Operated Apps
Direct-to-consumer apps are the holy grail of your OTT distribution strategy. For content owners with a sizeable video library, it’s not a matter of if, but when you should create a streaming service. However, to be successful and get customers engaging with your brand, you need to excel at content, user experience, and growth marketing. Btw, we wrote a guide on how to create a streaming service if the concept’s new to you or you want a refresher.
Below are some core components that you need to build your own OTT app.
- Find your Niche
- Plan your Content
- Consider Revenue Models
- Choose a Video Hosting Solution
- Determine Supported Devices and Platforms
- Build an OTT App with a Focus on UX
Pros O&O Apps
When it comes to owning your own OTT platform, there are numerous benefits that you can enjoy, such as;
- Get direct access to consumers and usage data
- Form a strong bond with customers
- No revenue sharing
- Maximum scalability
- Standalone brand awareness – you’re working for your brand and not an aggregator’s
Things to Consider
However, where an O&O OTT distribution plan gives you numerous benefits, there are also some potential drawbacks you may want to consider.
If your app uses an in-app billing functionality, you are still going to have to pay a ‘platform tax’ to the provider. For example, for each new customer sign-up through in-app billing, you may have to pay the platform upwards, a share of the revenue. For example, Netflix paid out $256 million to Apple in 2018 alone.
If you’re using ads as a source of revenue, you may also be required to revenue share with each platform.
As OTT platforms, the main ones in the United States (Roku, Apple TV, Amazon Fire TV) become their own content hubs, it may become more difficult to market your direct-to-consumer service on the platforms, as each of these companies will increasingly put their hubs at the forefront of the user experience.
Summary
Choosing the best OTT distribution mix can be somewhat of a trial and error process. Should you prove out your OTT strategy with third-parties and build out a direct-to-consumer offering once you can stand on your own or should you leverage OTT aggregators and FASTS to fuel your DTC acquisition strategy?
With the proper market knowledge and good content, you can create an omnichannel OTT distribution strategy that maximizes the value received from each platform.
When it comes to market knowledge, we can help you fill any gaps you may have in your research. For over 15 years, we’ve been helping large media companies including Hulu, Sony, and HBO deliver their OTT solutions to market.
If you are looking to push your video business further and need advice on how you maximize your OTT distribution strategy and design and build your direct-to-consumer video apps, get in touch with our experts today!
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