We all know that online video traffic is on the rise; the latest Ericsson Mobility report predicts that video will make up 70% of mobile traffic by 2021. Consumers’ expectations are also evolving; we now want the same quality of service provided by linear television and we want it on every device, anytime and anywhere.
This is all well and good but as an industry, we need to ask ourselves a tough question: is OTT ever going to make money? And if it is, who will profit from it?
Because despite this exponential growth and consumer uptake, very few providers have solved the challenge of monetization. Netflix is often portrayed as the rare golden child of OTT, combining a successful content line up with quality of experience and monetization. The company announced better than expected third quarter earnings yesterday, adding 3.57 million new streaming subscribers, including 3.2 million internationally. Pay-TV revenues are projected to grow to $37.9 billion by 2021; a 12% increase from $33.9 billion in 2015. Clearly the potential for growth is there.
Sports is the largest category when it comes to rights and pay TV and there’s no evidence that this viewing of live sports will decrease – if anything, it will continue to increase – through wider distribution on all platforms and devices and the advent of richer and more engaging viewing experiences.
Major League Baseball Advanced Media (MLBAM) is a good example of an organization that is already doing this. Their OTT service provides a far superior consumer experience; delivering statistics and information about the game and the players means viewers can get a new appreciation of the game. The power of online video and new devices has enabled different experiences, providing the opportunity for monetization that we’ve not seen before. Real time access to information, predictable analytics, new camera angles, and even the ability to rewatch the match on your home console are all achievable realities. I have to confess, before I used the service, I thought that baseball, maybe with the exception of curling, was one of the most boring sports in the world.
A number of organizations have announced new OTT services dedicated to sports. Perform Group recently launched DAZN, an OTT sports subscription service in Germany, Austria and Switzerland. Discovery has snapped up broadcast and distribution rights for the Olympics in Europe for four games starting in 2018; it also announced earlier this year investment in RugbyPass, a digital content platform that reaches rugby fans across 23 Asian markets. The company’s Chief Executive, David Zaslav, has mooted plans to roll out a direct-to-consumer streaming service through Discovery-controlled Eurosport, with the aim of becoming the ‘Netflix of Sports’.
In terms of “typical” VOD, there are two models: Advertising Video on Demand (AVOD) and the pay TV subscription service model (SVOD). With SVOD, usability is key, and how a viewer finds and consumes content will be decisive in increasing success and profit. According to Ericsson’s ConsumerLab TV and Media study, 50% of all viewing will be on demand in the future. Offline viewing will also be important as it will cater for situations where streaming media is not an option, or for those in areas where bandwidth is poor. In addition, contextual parameters around content discovery will be important. Now, consumers won’t only be recommended content based on what their friends watch, or what they’ve watched previously. Instead, other factors including mood and current affairs will be considered when making the best recommendations for the consumer.
The AVOD model is most in need of innovation. Today this model is not generating sufficient profit, even though volumes are growing exponentially. YouTube states that it has more than one billion users – but it is far from being profitable.
I’ve spoken with several industry execs and many believe that the current model just will not generate enough profit, let alone replace regular normal linear advertising, unless there is a significant change in the business model and the CPM fees.
But I think that a shift in the value of the inventory will not happen just because viewing increases. We can reduce cost of delivery, but that doesn’t compensate for the cost of content which in most areas is increasing.
So what needs to be done? My belief is that we need to work with new models that are driven by innovation and technology. For instance, you could use in-app purchases and product placement methods to drive higher fees for broadcasters or content providers. You could synchronize the main TV screen with a mobile device, and complement the main advert with a secondary advert, or corresponding information on a connected device. You could use advanced metadata to get much more specific on the content you are watching, and combined with user information, tastes and profiling, create a more advanced targeting of adverts.
This isn’t a new idea but it’s a good idea and an idea that I think will eventually work. We now have the technology to be able to do this; the issue is that we have to find a way for buyers and sellers of targeted advertising to find each other. One possibility is to create a free automatic marketplace where adverts are dynamically priced and placed based on profiling and analytics. Collaboration between broadcasters, content owners and advertisers can make this a commercial reality.
In conclusion, we are facing a huge technological shift. Consumers have truly adopted online video consumption. The first screen is the mobile screen and digitalization provides a tremendous opportunity for current and new entrants to grow their business using tools and services.
We must encourage creative risk-taking with revised commercial models in order to reap the potential benefits of OTT popularity.
Joachim Bergman, Head of Operations, Broadcast and Media Services