Blogs

Back

OTT, is it over the top?

  • Netflix spearheading the OTT revolution
  • Is OTT a threat to the traditional cable industry?
  • OTT market getting overcrowded
  • Future of the home entertainment industry

 

In past two decades technology has transformed each and every sector in the world. Moreover, with the enhanced use of smart gadgets and internet penetration, the entertainment and media space too witnessed a radical shift in the delivery of content (movies, audio, etc.) to consumers, this was right to the comfort of their smart devices and led to the evolution of new business models.

The growth in entertainment and media industry was spearheaded by the birth of OTT (Over-the-top) streaming media service providers such as Netflix, Hulu, Amazon Prime, etc. These bypassed the traditional TV media that require telecommunication, cable or broadcast television networks and deliver multimedia content directly to a consumer over the internet (streamed online globally, without a need to download on a hard drive). The OTT players unlike movie theatres (pay per movie) are subscription-based and allow unlimited access to the entire catalogue of videos on a supported device for a periodic fee and contrary to the cable TV allow all time viewing of the content.

Netflix
The company was founded in 1997, at present, the firm is a giant in the online streaming space and has a presence in more than 190 countries. Although, Netflix started the business with DVD sales and rental services and in the last decade saw a tremendous growth, particularly following its entry in the online streaming business (2007).

Furthermore, with dubbing and subtitling of content in foreign languages, Netflix strengthened its roots in the global market and launched its first international service in Canada (2010) since then it has been rapidly expanding in Latin America, the UK, Ireland, Finland, Denmark, Sweden, India and other nations. The international subscriptions grew rapidly and surpassed the domestic subscriptions in Q2 2017.

In addition, Netflix began production of original content and focused on ‘exclusive’ titles from 2013, these were unavailable on other platforms like Amazon Prime or Hulu. This emphasis on original and exclusive content led to a 50% decline in Netflix's catalogue in comparison to 2012. Although currently, Netflix has fewer titles, the company is betting on its exclusive catalogue with shows and movies. Hence, a user will have to shell out $9.99 per month to view the content. According to the statement of Netflix’s CFO, David Wells, the firm is trying to push towards fifty-fifty approach, in terms of the original or exclusive and licensed content. 

Equation with cable operators (multi-video programming distributors [MVPD]) and movie theatres

Netflix was successful in capturing the market from the paid cable business. In Q1 2017, Netflix surpassed cable pay-TV subscribers in the United States.

 

Netflix seems to have filled the gaps in the theatrical distribution model, but the equation is not that simple. According to Tim Richards, CEO of a leading U.K. movie theatre chain Vue Cinemas to CNBC, Netflix is not a competitor to movie theatres rather these theatres faces a competition from sporting events, bowling, nightclubs and other forms of outdoor entertainment. Similarly, watching a film like a ‘massive blockbuster’ or ‘intimate indie’ in a dark and packed theatre creates a unique experience, which is hard to recreate in a living room.

The difference between theatrical distribution and Netflix is not simply about the size of a screen. Theatrical distributors need to promote their films to audiences, whereas Netflix uses its properties for self-promotion. Thus, Netflix relies on a diverse back catalogue rather than one or two massive success stories. Additionally, since the 2000, the viability of theatrical releases for independent films (not associated with big names) has been sinking. Netflix has been acting as a lifeline for these indie moviemakers. Further, with focus on in-house production and non-reliance on solely the third-party content, Netflix is not tearing into these kinds of films and pulling the audience away from cinemas as these were never screened in theatres.

Competition from other streaming services

The rapid growth of Netflix in the past decade has led to various other players entering the space and crowding the online streaming media.

Notably, Hulu and Amazon Video diligently ramped up their streaming efforts in the past years. When the streaming rights for a popular movie or TV show were up for grabs, Netflix was not the only contender. Further, in order to be exclusive, the OTT players started producing original content. This move towards original content will play a significant role in determining the success of existing OTT players.

While, a simultaneous launch in theatres and online is the real sticking point for movie theatre owners and Netflix (traditional movie studios typically allow films to run in theatres anywhere from 90-120 days before screening for at-home viewing). Amazon has mostly adopted the traditional side of the equation by allowing lengthy theatrical runs for original films in order to appease theatre owners while also collecting an extra revenue stream from a split box office receipts. While Hulu allow all cable TV broadcast (the United States) content on its platform with a day’s lag.

Although the OTT players have been successful in beating the cable TV operators, these are now facing the heat from new league of OTT entrants led by cable TV operators (Sling TV, Direct Now, etc.). These virtual MVPD or vMVPD offer the aggregated linear content of cable TV operators (in skinny bundles) along with the non-linear content of OTT players and distribute this over the internet to provide a wholesome experience to consumers and even attract only broadband inclined consumers to the traditional linear content of the cable TV operators. Hence, in the present scenario consumers have a wide choice from original content, this can be viewed on a supported device and payments are made for what they watch (skinny bundles from cable TV). These kinds of OTT entrants have become a threat to the existing OTT players as they combine the best of both worlds (cable TV and OTT). Thus, even Hulu saw a tough competition and came out with its own Hulu Live vMVPD service.

This all boils down to the fact that the online streaming market is rapidly expanding with an increasing penetration of smart devices and fast internet connectivity. The OTT operators initiated a revolution, which was spearheaded by Netflix and hit the traditional cable industry. The cable industry retaliated with its own vMVPD offerings. Hence, as the competition intensifies more focus will be on creating original and exclusive content to retain subscribers. Netflix and Amazon, both are keen on original content and have invested heavily in the acquisition of the same. In addition, content creators such as HBO commenced with its own OTT offerings in the form of HBO GO. Thus, with the overall market expansion, the OTT revolution benefited the OTT players and content creators, while also opening a path for cable TV operators to benefit in the near future.

The market dynamics changed with the emergence of vMVPD and Televisory believe that this will be the future of the home entertainment industry. Therefore, in order to survive either the existing players will have to offer similar services as the vMVPD (like Hulu Live) or they should differentiate their services (Netflix and Amazon currently offer original content). Lastly, Televisory expect a consolidation in the industry in the upcoming years.