In the United States, demand for over-the-top (OTT) video is at an all-time high with no signs of slowing down. In a culture that values and expects the delivery of massive amounts of content at anytime, anywhere and on any device, the demand for OTT content will continue to expand for the foreseeable future. In fact, industry experts predict that OTT video will and ultimately become a mainstream method for viewing video content. The “TV Anywhere” dynamic is a current expectation regardless of age or geography.
For example, in a recent study conducted by MTM, an independent London-based research and strategy group, domestic (US) premium OTT revenues are expected to grow from $4bn in 2014 to between $8-12bn in 2018. Niche services, complementing more generalist pay-tv or OTT offerings, are also expected to proliferate with up to 15-20 new specialist OTT providers acquiring 100,000 or more paying subscribers by 2018, with even more attracting smaller number of subscribers.
Over the Top Meets 4K
As OTT video consumption ramps up, consumer behavior and technology will continue to expand and evolve accordingly. In order to keep pace with and more importantly, optimize the ever-expanding OTT universe, the industry must anticipate market changes, overcome the technical challenges and create flexible business models that monetize new opportunities that assure both a quality experience for the subscriber and profitability for the operator.
As expected, the emergence of OTT in Europe is following a similar path to the US experience and despite regulatory issues and technology challenges, the European OTT market is also expected to grow
exponentially and present great business opportunities over the course of the next few years in particular.
However, in order for Europe to experience the same success as the US OTT market, it is critical to understand subscribers’ high-speed data usage behaviors. As evidenced in the US, a granular understanding will allow providers to make optimal business decisions about their future broadband offerings.
THE US EXPERIENCE
According to the MTM study, the US premium OTT market has seen strong growth over the past years, largely driven by Netflix, YouTube, Amazon and Hulu. In 2014, the market was worth $4bn, having grown at a CAGR of 36% between 2011 and 2014. By the close of 2014, 40.3% of US TV households were subscribing to at least one premium OTT service. However, SVOD revenues, around $4bn, comprised only a relatively small share of the wider TV and video market estimated at approximately $185bn in 2014.
The rapid growth of premium OTT services in the US market has been due to a number of factors, including wide availability of broadband infrastructure; consumer demand and willingness to pay for content; scale and wealth of the US market; the fact that the US is a leader in media, entertainment and technology; and Netflix’s domestic success, which stimulates overall interest and investment in the OTT market.
Successful operators, programmers, service providers and broadcasters in the United States who recognize the revenue potential of these market changes and OTT growth have adjusted their business models accordingly. However, in order to monetize these new opportunities, several factors must first be addressed in order to ensure this transformative success. To begin, consumer’s new viewing habits and high-speed data demands present not only technical issues such as network congestion but also pricing/budget challenges and customer satisfaction concerns. Therefore, many Independent broadband providers have begun offering cost-effective solutions that respond to consumers’ evolving streaming behaviors, offer friendly data usage plans and flexible pricing models and yet do not require large capital investment into the network infrastructure.