The Growth of OTT Video Streaming and Its Impact on the Pay-TV Industry
With the continued global growth of internet users, improvements in speed, and the addition of technologies like adaptive bitrate streaming, conditions for the advancement of the over the top (OTT) video streaming service providers like Netflix and Hulu have never been better.
Netflix, the company that broke the mold and is still dominating the industry started out by shipping rental DVDs to their customers, basically like a mail order Blockbuster. After a major shift in their business model in 2007 with the introduction of subscription-based streaming services, Netflix has refined its product and algorithms for over a decade, dominating the phenomenal growth of OTT.
The growth of OTT video streaming is a major force in the disruptive digital landscape, doing what Uber and Airbnb did to the taxi and hotel industries. Ten years ago Netflix had 12 million subscribers. Today, Netflix has 140 million subscribers and is growing by around eight million a quarter. The only thing slowing down Netflix’s runaway success is deep-pocketed competitors who have noticed the growth of OTT streaming, recognizing that it’s the future of video services delivery and doing everything they can to compete head-on.
How Much Has the OTT Marketing Grown?
- Globally, online streaming service subscriptions have grown from 150 million in 2014 to over 600 million in 2019. Subscribers are expected to grow to 1.1 billion by 2021.
- Global growth of OTT revenue will rise from $69 billion in 2018 to $129 billion by 2023.
- Market penetration in the US is over 70%, with the average user subscribing to 3.4 streaming video services.
- There are over 300 streaming service providers worldwide, with more than 200 in the US alone.
The reason for the phenomenal growth of OTT in less than a decade is twofold: First, there is increased accessibility created by greater broadband rollout, improved internet speeds, and high performing, video-capable devices. Second, the advances of the streaming services have hugely improved the customer user experience (UX). OTTs now offer better content recommendations using improved customer data analysis (which started in 2006 when Netflix offered its famous $1 million prize to developers).
How the Growth of OTT Video Streaming Has Impacted the Broadcast Industry
Understandably, with the huge growth of OTT video streaming, the competitive dynamics have changed greatly. The most obvious losers are traditional broadcasters and cable TV operators whose subscribers are deserting because of high prices and lack of comparable choices. This phenomenon known as “cord-cutting” has led to drastic shifts in the broadcasting market. Nearly half of US 22-45-year-olds don’t watch traditional TV at all and it’s estimated that 22 million households will quit satellite and cable TV providers by the end of 2019.
Cord-cutting is also influencing where marketers spend their ad dollars. Traditional TVs’ total share of ad spend is expected to decrease dramatically by almost 20% over the next few years from 36% in 2016 to 29% in 2021.
These trends decrease the capacity of the traditional video content powerhouses to dominate the creative landscape. This was exemplified by director Martin Scorsese with his $200 million movie, “The Irishman.” According to Scorsese, “Places we would have gone to for funding in the past were no longer viable. Then we started talking to Netflix.”
Being relatively powerless to stop the tectonic shifts in video services delivery and home entertainment, the traditional TV and film giants are seeking to join Netflix and Amazon and the growth of OTT streaming services. NBCUniversal, Disney, and Warner Media have introduced or announced their own streaming services, increasing the competition and prices for legacy shows (such as NBCUniversal paying $100 million/year for The Office).
The Current State of the OTT Streaming Market
The growth of OTT technology has led to the introduction of more streaming services. While this has caused the prices of some services to increase (during high levels of competition), it may not be the best business move. For a competitive edge, an alternative strategy is improving the monetization of video content.
One way is by utilizing artificial intelligence (AI) to enhance the customer experience. By using AI to determine what customers actually want to watch, companies can earn more revenue and improve the bottomline. Netflix has saved $1 billion a year with AI technologies.
Focus on Content Protection
Another important monetization strategy is stemming the flow of lost revenue. One of the biggest OTT revenue leakages occurs through piracy and the illegal re-distribution of video content. It’s estimated that piracy will cost content rights holders over $50 billion a year by 2022, which could crush the dreams of success for many nascent streaming services.
The answer is improved content protection with digital rights management (DRM) solutions and anti-piracy services. If piracy continues to be an option for many around the world, the revenue growth of OTT will plateau, stifling innovation and creativity and reducing the motivation and financial justification for digital rights holders to continue producing top-notch, compelling content.
Intertrust is one of the world’s top innovators in DRM and content security technology and can assist OTT operators with solutions that protect both content and service revenue.
About Bo Ferm
Bo Ferm is a Product Marketing consultant for Media Solutions at Intertrust Technologies. He is a versatile technology professional with 30+ years of successful B2B positions in Europe, North America and South East Asia. He has worked extensively with pay-TV technologies, with the past 12 years dedicated to content security in various forms.