OTT video has sufficiently disrupted the broadcasting and pay-TV industry to the point that it is the key driver behind cross-industry megamergers between broadcast, telecoms and media companies that aim to transform broadcasters into ‘diversified media companies’.
That’s according to the latest State of the Broadcast Industry 2019 Report from Ooyala, which sifts through the trends of the past year, and essentially concludes that “new OTT services aren’t saturating the market, they ARE the market.”
Overall, the report says, while many people still watch traditional free-to-air TV and pay TV, those numbers are declining, especially among younger people who are more likely to cut the cord and watch video on their smartphones or other connected devices:
Subscription and ad-supported OTT services are steadily replacing traditional content delivery and there’s no end to the opportunity to create connections with a global audience. OTT is not traditional TV. It thrives upon consumer choice, often random interaction, the convenience of viewing when, where and on what device a consumer wants to use. It thrives upon its own ability to iterate to respond to the changing conditions of the new TV environment.
Meanwhile, the streaming market is getting more competitive – it’s not just big names like Netflix, but also D2C plays from broadcasters, content creators and live sports. Content owners who have massive content libraries (as in Disney-size) are looking at slicing up those libraries into niche streaming services that could generate more multiple-subscription customers. Then there’s the so-called virtual pay-TV services (vMVPDs) such as YouTube TV, DirecTV Now and Sling TV.
The report says that while there may be a limit to how many SVOD services people are willing to pay for, the industry hasn’t reached that limit yet, and the threshold may actually rise as more channels become available a la carte, and as young consumers (for whom streaming is normal TV) grow older and (ideally) more affluent.
In Asia-Pacific in particular, Ooyala says, regional players like iFlix, HOOQ and Viu will drive OTT growth and carve a sizable niche in the market by leveraging local content and affordable prices, especially in high-growth markets like Indonesia.
Scale and diversity
This shift to OTT streaming has shaken up the broadcast sector not only in terms of increased competition, but also increased demand for content creation, which is why the major streaming services are investing in their own productions – a recent Hub Research report claims that more Americans “found their newest favorite show on Netflix (32%) than on any other specific outlet (26%)”.
According to Ooyala, this is a driving force behind the recent spate of media mergers in the US alone, which saw more than $323 billion of such deals announced in the first half of 2018. The logic is that media companies need scale to compete in the broadcast industry of the future, according to a quote from 21st Century Fox Vice Chair Chase Carey:
“To be successful, you either need scale that enables you to compete with the world you are heading into or really unique franchises that enable you to distinguish and build value off those unique strengths.”
The report also quotes Sinclair Broadcast Group president and CEO Christopher Ripley, who sees it not as a matter of scale so much as the reality that technology has blurred industry lines so much that the notion of broadcast as a standalone industry is woefully out of date:
“We’re competing with the diversified media companies,” Ripley said. “We’re competing with the telecom operators, we’re competing with the Internet companies. We’re all in each other’s spaces. We’re all customers of each other. We’re all competitors with each other.” Sinclair, he said, is moving toward becoming a diversified media company because, “That’s our space. We’re not in the broadcast space.”
As Ripley’s quote suggests, the same could be said for telcos. Ooyala cites the AT&T/Time Warner merger as an example of the game-changing possibilities for telecoms and a possible signpost for where the industry is headed:
AT&T will combine its ability to deliver residential gigabit Internet and 5G wireless with the content power of Time Warner’s properties to create multiple streaming products that — it hopes — will appeal to Millennial audiences. And, in the process, have direct control over a huge piece of its content supply chain.
The 5G factor (one day)
The 5G component of that equation is also crucial to the future of broadcast, Ooyala says, if only because it has the bandwidth to potentially accelerate cord-cutting by enabling better-quality HD video streaming and cutting edge features like AR and eventually VR.
The report notes that 5G on any meaningful scale is still a ways off, and that 5G will have to actually deliver on its promises regarding speeds, latency and performance (which is a “big if”, the report says) to be a game-changer. So 5G’s contribution to the OTT juggernaut is probably still at least several years away – which is as well since, according to delegates I spoke to at a recent 5G summit hosted by AVIA, broadcast players aren’t convinced yet that 5G makes economic sense for anyone.
That said, many operators are upgrading their 4G networks to be powerful enough to handle 5G connections that drop back down a G when the user roams off a 5G cell, so it’s possible that 4G will be able to handle OTT video demand while we’re all waiting for 5G to kick in.
You can download the report here.