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Straight Talk Consumer and Entertainment Services

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Keeping tabs on the rapidly growing and evolving world of OTT video is an increasingly difficult task as new entrants and shifting monetization, distribution, and service models continue to reshape the strategies of market players. Ovum is currently in the process of updating its OTT Video Availability Analyzer, which tracks the availability, monetization models, and main features of OTT video platforms across the world, but in the meantime, here are three key developments that have been impacting stakeholders across the OTT video value chain since our last update.

SLIN market heats up as TV and digital collide

SLIN services, which Ovum defines as subscription-based OTT video services that have some form of linear component (i.e., live sports, live TV channels) continue to impact the OTT video market. 2017 saw digital-first YouTube become a virtual multichannel video programming distributor (vMVPD) through the launch of its live OTT TV service, YouTube TV. This marked an attempt to not just poach TV ad and subscription revenue but also increase its presence on smart TVs – an increasingly important battleground for all video service providers. Meanwhile, the biggest US operators are either already active in, or readying their move into, the space as they look to arrest churn in their traditional pay-TV businesses and make their networks more than just the "dumb pipes" through which other OTT video providers' services are accessed. However, delivering a compelling, competitive, and reliable linear streaming service remains a significant technological challenge. Plus, maximizing the revenue opportunity with SLIN – particularly vMVPD – services will require significant scale and investment in addressable advertising solutions and technology, as…

…ads are still crucial to OTT video monetization

Netflix's rise to global prominence has led many consumers to expect an ad-free experience when paying for OTT video services, but Ovum forecasts that global AVOD revenue will grow at a faster overall rate than SVOD revenue between 2017 and 2022, making it an increasingly important part of the OTT video mix. Multiple OTT video platforms already operate on a hybrid basis, offering a mix of subscription (SVOD, SLIN), ad-supported (AVOD), and – in some cases – even transactional (TVOD) models of monetizing digital video. Subscriptions are often used to offer tiered options for consumers by removing ads from a service, but in some instances, ads are still served to paying subscribers. This is most common in vMVPDs' OTT "skinny bundles" and other SLIN services, which more closely reflect the more traditional ad-supported pay-TV experience and offer opportunities to deliver targeted, high-value addressable "TV" advertising. However, limited scale and lack of control over ad placement (most of which resides with broadcasters and network operators), and pressure to reduce ad loads on traditional TV channels means that a creative approach will be required to turn this into a significant revenue opportunity for OTT video service providers any time soon.

Meanwhile, in emerging markets, supplementing subscription revenue with ads is often necessary to balance the costs of acquiring and licensing premium content with consumers' inability or reluctance to pay significant monthly sums for access to paid OTT video. Although SVOD incumbents Netflix and Amazon already cater for brand integrations in their original content, and Amazon allows its channel partners to offer services on an ad-supported basis, both have so far held off from inserting video ads into their own premium video subscription products. However, spiraling content production and acquisition costs, coupled with an increasingly competitive market landscape, have some in the industry wondering when, not if, these players will be forced to add advertising to their monetization strategies. A measured approach would be crucial here: clumsily inserting ads into paid OTT video services would significantly reduce their appeal to consumers.

Smaller, niche services are at risk in an increasingly crowded market

While Ovum forecasts significant growth in OTT video revenue – globally, combined revenue from SVOD, TVOD, and AVOD will grow by 72% between 2017 and 2022 to a value approaching $100bn – successful entry to the market is by no means guaranteed, even for large players. The past couple of years has seen both the launch and collapse of numerous niche, direct-to-consumer SVOD platforms. NBCUniversal's comedy-focused SVOD Seeso, for example, lasted less than two years before being shut down in 4Q17, while AT&T-backed millennial-focused SVOD Fullscreen suffered the same fate. But competition is fierce not just in the US (where, according to Ovum's OTT Video Subscription Service Provider Forecast: Americas, 2017–22,the top three players accounted for around 75% of paid OTT video subscriptions in 2017) but across the globe. While localized services have numerous advantages over the global giants, smaller, niche services simply must not underestimate the costs and difficulties involved in competing with the biggest international players – not just in terms of content and value proposition, but in terms of investment in marketing, technological development, and platform stability.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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