By: Chris Wagner
The OTT Services Industry is now facing intense competition. According to Parks Associates research, there were over 226 OTT service providers in the United States at the beginning of 2019. New OTT providers are offering lower prices, Internet TV customer churn is over 18%, and streaming TV viewers expect key features. OTT providers can compete by choosing the right mix of content, features, and services key customers want while growing new revenues.
This article was created from a Internet TV Plus podcast interview. To hear and/or get access to content referenced in this interview article, visit – http://bit.ly/iptv-ott-services
What are the Key Components of a Successful OTT Service?
Content is definitely King in today’s world. Having content that consumers want to interact with reinforces your brand and gets people excited whether it’s live or on demand content.
Business models that determine how OTT service providers make money in streaming content are important. Companies like Netflix and others having a monthly subscription service is one model. You may offer transactional viewing experiences like the Apple TV business model. For the pay per view (PPV) model, you typically buy movie viewing rights which gives you an amount of time such as 24 hours to watch it.
Another key component is ad driven streaming services. The content is free to view but the content owner wants you to watch an ad either at the beginning and/or during the middle. It’s like YouTube channels. You’re asked to watch an ad before a video starts or maybe you’ve watched a bunch of videos and there’s an ad that pops up in the middle.
The quality of how you stream that content on any device is really important. There’s lots of data that shows consumers become disinterested in OTT service very quickly if the quality of your video isn’t good. So video quality is a key component.
You have to be able to support all the devices that your customers typically use. The average consumer now has over four connected devices. That includes smartphones, tablets, desktops, and connected devices like Apple TV and all other media players. You have to support the connected devices that your consumers are using.
The content distribution business model is a key OTT service success component. The Internet is worldwide so global distribution certainly should be an ingredient if you can manage it. If you have the rights being able to deliver Internet video anywhere in the world, this allows you to make more money.
Viewer data analytics is critical to understanding and optimizing your content and services to your customers. What people watch and what devices they prefer to watch content on, and how you collect that data. I call it “Watch Data” and you can use it to drive more engagement with the viewer.
What are Key Types of Business Models for OTT Service Providers?
The key services for OTT providers include subscription video on demand (SVOD), transaction video on demand (TVOD), and advertising video on demand (AVOD).
There are a lot of ways to make offers to a consumer. Subscription video on demand (SVOD) is probably the most prevalent. You can package your content for monthly payment. You may be able to get some customers to sign up for a full year you give them a discount (a second package).
Transaction on demand (TVOD) is a content rental model. An example is Apple TV where you pay a fee such as 99 cents which gives you 24 hours to watch a movie. You pay to watch an episode or maybe you buy a season of the TV show for X amount of money and you get the ability to watch all the episodes in that season.
The newest model which is taking on a really good traction right now is advertising video on demand (AVOD). The video is provided free but viewers have to watch an ad either at the beginning of the video or during the video streaming.
Viacom just acquired Pluto TV for about 300 million dollars and Pluto TV provides free streaming video with ads. NBC is coming out with a new wave of AVOD services.
Research tells you that the average consumer is only going to sign up for two or three of these subscription streaming services for most service providers. If they’re only going to sign up for two or three OTT services, having an AVOD strategy in addition to subscriptions allows you to get more revenue based on people viewing your video streaming and ads running against it. AVOD also can give your viewers an opportunity to look at your library of content before deciding to pay a monthly or annual subscription fee.
Having a mix of SVOD, TVOD, and AVOD services gives you different marketing approaches and allows you to create offers across the three different business models. OTT service providers may start by providing some free content with ads but give viewers a premium option to sign up for a subscription service so the ads go away. This is the way Pandora Internet radio works.
What are Some Ways to Determine Service Pricing?
Service pricing strategy depends on content scarcity, competition, service types, territories, and marketplace.
If there is a lot of availability and competition for your content library, it tends to put pressure on a lower price offering. Netflix and Amazon Prime as an example strongly compete for viewers and low price tends to be a key element in keeping their customers from churning. If you are offering a subscription service, research shows consumers will only subscribe to 2-3 OTT services.
Look at ESPN plus as an example. They’re marketing their product for $4.99 a month. In the world of sports, there are several services that you can sign up for. It’s a competitive market so it puts pressure on price.
The broader your content library is, you have more pressure on price so your service rates need to be lower in order to attract and keep subscribers. The opposite of that would be content exclusivity. If you have content that’s exclusive, you may have a niche market for that content because it’s not available anywhere else.
As an example, the Ivy League network has live sports across all the Ivy League schools. They’re not going to have big numbers of subscribers but there’s nowhere else to watch a football match between Harvard and Yale. They’re actually able to get higher price points because of the scarcity of that content even though the audience sizes are smaller.
What are Key Sources of Content for OTT Service Providers?
OTT service providers can create their own original content or they can license it. Key content sources for OTT service providers include event and brand owners, distributors, and studios.
Event and brand owners can license their content. If you take a company like PokerGO as an example, they have a licensing strategy to find and license all of the live poker events around the world. The poker industry has a pretty big demographic. People who like to play poker want to get all of their content in one spot. PokerGO is an example of an OTT service. If you’re a poker enthusiast, you can sign up and watch live poker, all aggregated into one place, so licensing from a content owner is a key area.
Distributors, and networks such as American Movie Classics, Scripps, and Viacom, are all companies that license content to OTT providers.
Studios that originate a lot of content also want to distribute to their viewers directly through OTT providers.
What’s interesting about OTT content is you don’t have to be a big guy to either license or originate it. You can take niche industries like a World Surf League which is great for surfing enthusiasts. They control all of their own rights for live events. They also license some of those live events to companies like Facebook.
What are Key OTT Content Licensing Terms?
There’s a couple of ways to license content for OTT systems. You can buy it outright, you can buy rights for a period of time, or you can setup a revenue sharing distribution agreement..
For buying all the rights, you write a check for X amount of money for Y amount of years and you own the right to use that content. You can certainly think about that in the sports space. The NFL in the U.S. is probably one of the biggest license stores of their content. NBC, ESPN, and CBS all license the rights to NFL games for a period of time and they pay the NFL money for X amount of years to own those rights.
While the NFL is a big option, there are many opportunities for smaller content providers in certain niche areas. It could be hunting and fishing, outdoors, or things that have more narrow markets.
Licensing distribution deals can be setup using a revenue share business model. The OTT provider gets subscribers and there is a service revenue sharing agreement. For example, if an OTT subscriber is paying ten dollars a month, the OTT provider may share 20% of that subscription revenue with the content producer or rights owner.
What are Key Content Delivery Quality Requirements?
So what’s interesting about delivering video there’s three legs to the video distribution stool. You have to collect the video into a central place. You need to deliver it through these big content delivery networks such as Limelight, Akami, or others. The video also has to play on the consumer device through their Internet service provider and Internet access speed can vary – sometimes fast & sometimes slow. You need all three things to work together to have good video quality.
You need to be able to monitor where the bottlenecks are so that you can speed up video delivery. You can ensure that the quality of the video was good and you can monitor that in real time. So if there are any issues you can immediately stay focused on it.
Make sure you know the quality takes advantage of the available broadband so it always looks good and makes sure that you can watch it and you can deliver it and you can direct that video across the three legs of the stool.
What are Key Types of Devices for OTT Services?
The average consumer has four or more connected viewing devices including Smartphones, Tablets, Smart TVs, gaming consoles, and others. The key types of devices you need to support depends on the types of viewers you have and where your viewers are watching. If they are home and watching streaming video on a big screen, research shows that engagement time for large screen viewing is three times longer than viewing on a mobile device.
What’s really interesting for OTT companies is the value they get if they can get their viewers to watch their content on more than one of these screens. The data shows that the more screens that viewers watch, the retention rates and subscriber lifetime value go up significantly. So there’s real ROIC for key service providers to get on as many of these connected devices as possible because their subscribers will stay longer and they’ll pay more.
How to Reduce the Costs of Supporting OTT Viewing Devices?
There’s a cost to setting up and maintaining apps for OTT devices. If you’re the OTT provider and you’re working with a streaming platform, you want to support your service on all devices. Unfortunately, there is a cost to develop and maintain apps for devices and it can be expensive. You may need to trade off on how many devices you support.
Apps are software programs that operate on specific types of devices and operating systems (Android, IoS). When you build apps there is a cost to develop those apps because most devices have features and functions that are unique to those devices. Take the Apple iPhone as an example. On iPhones, the swipe of your finger or the way you move around apps, consumers expect TV apps to operate in a similar way. Much like Netflix has done with their interface, when you sign onto your Netflix account, you expect to find and watch movies in a similar way whether you’re on your phone, your P.C. you or your Samsung television.
One way to reduce app development and support costs is to develop a browser based portal or a web service app that looks and operates the same across all devices. This can significantly lower your development and maintenance expenses. However, data shows that users tend not to like that approach. They’re used to the way certain devices work and the features of those devices the behaviors of those devices.
So your choices are to build apps for specific devices or to build more of a uniform web app. But in either case you have to have an app and an interface that connects to the consumer.
What are Key Factors for OTT Streaming Distribution?.
One of the biggest costs for an OTT service provider comes from content delivery networks (CDNs). OTT service providers have to be able to strike the right business arrangement with CDNs and those deals should take into account growth. So as you have a bigger audience and as more people watch over longer periods of time then you should get some discounts.