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OTT Market AnalysisEmerging patterns and opportunitiesRohan Panjiar

Digital Video has Reached Maturity

Broadband-only Homes Growing and Adopting OTT ServicesGrowth of broadband only homes9% of U.S. population in 201315% of U.S. population in 2017Approximately 17 million broadband-only homes63% of U.S. broadband households subscribe to at least one OTT service31% of U.S. broadband homes have multiple OTT service subscriptions

Practical Factors Driving Growth of OTT MarketGrowth in smartphone users and mobile internet usageIncrease in broadband penetrationGrowth of broadband only homesIncrease in digital ad spendConsumer perception that content libraries are expanding and affordability versus Pay TV subscription

OTT is now being considered as a more practical choice. This practicality can fuel the need for supplementary AVOD services that offer content that SVOD services dont

OTT Market Landscape Germinating Multiple Business ModelsOTT market is growing 20% annuallyPay TV revenues only growing 2% annuallyAVODFree to air, advertiser supportedPremium video contentDigital content created by digital creatorsTVODDigital rentals and purchasesApple iTunes store SVODMonthly fee for access to content libraryNetflix, Amazon Prime VideoDVMPDSubscription services that replicate traditional cable bundle in a digital contextSling TV, Playstation Vue, DirecTV Now

Growth being Captured by AVOD and SVODAVOD and SVOD have disrupted the industryNew content models (short form + long form original content)New windowing modelsInnovative pricing models Have captured 80% of global OTT revenuesDMVPD and TVOD have had a muted impact

SVOD Services Growth ProjectionNetflix: 120 million usersAmazon Prime: 76.2 million usersHulu: 30 million users

Crowded space with well-entrenched competitorsHave cash flow to invest heavily in original programming that gives them a competitive advantage

Original Content Driving OTT GrowthPrimary growth driver for Netflix, Amazon & HuluHas allowed HBO and Showtime to also make a mark in the OTT marketCritical to demonstrate value to the consumer to continue paying monthly subscription feeNetflix subscriber trends (churn and additions) correlate with shows getting phased out/launched

AVOD Riding on Growth of Online Video AdvertisingBoston Consulting Group projects that global online advertising expenditures are expected to increase 34.5% from $15.3 billion in 2015 to $34.5 billion in 2018 Lack of premium video inventory for advertisersYouTube still dominated by creator contentHulu has pivoted away from AVODDigital video ad spend share of total digital ad spend is growing 14.3% of total digital spend in 201615.1% in 2017Ad revenues for AVOD market growing impressively$1.1 billion in 2010$5.65 billion in 2015

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Advertising Buying Trends: Programmatic Growing but Direct Sales DominantProgrammatic growing but still a very small shareAutomated Transaction Models grew (+64% YOY) Low percentage of overall premium video ad sales in the U.S. (11.4%)Factors behind this: -Strong direct sales across the premium video economyRestrictions on targeting and tracking in certain environments like OTTRisk factors related to managing user experience from Automated Transaction ModelsLong form content dominant driver of ad views41% share of ad views (FreeWheel report Q3 2016)

Advertising Consumer Receptiveness: Differs from Display Digital AdvertisingOnline video viewers less receptive than live TV viewers19% of online video viewers responded favourably to ads compared to 27% for live TV viewersProbably biased by the fact that online video was on-demand while TV is more linear, lean-back

More open to interest-based ads as opposed to re-targeting41%of people responded favorably to ads tailored to their interestsOnly 25% liked ads that tracked their browsing history like a retargeted promo

Stats based on study by Millward Brown

Facebooks Shift from Live Video to Long-form Video ContentChange in algorithm to give preference to long-form videos with higher completion rateTesting mid-roll adsTesting new video-only tabRumored to be in talks with studios and producers about licensing exclusive shows to FacebookConnected TV apps for Apple TV and ChromecastFacebook is more interested in the YouTube model of collecting tons of quick video clips than investing in long-form shows or films like NetflixLooking to build a wide range of content by paying content creators and sharing revenueUltimate aim to attract episodic content similar to YouTube where creators regularly post videos

DirecTV Now more of a DMVPDTo stem subscriber losses for DirecTV pay TV serviceAdded 200,000 subscribers in first month of operationsBuoyed by introductory price offer of $35 per month Unlikely to cannibalize growth of SVOD or AVOD services given the differing value propositionsDirecTV Now: cheaper alternative to Pay TVSVOD: Access to exclusive content for low pricesAVOD: Access to wide content library for no cost, supplementary to SVOD

Amazon, NetflixOriginal contentAccess to TV content/wide content libraryPaidFreeDirecTV NowSkinny BundlesYouTubePluto TVHulu

Connected TV Devices Growth ProjectionsChromecast is dominant: 30.6 million usersAmazon Fire TV is the fastest growing device Apple TV: 20.5 million usersLow predicted growth due toHigh device costLack of original programming

Connected TV Usage Growth Driven by Younger HomesMillennials form a dominant part of broadband only homesThis trend of heavy usage of streaming devices will likely increase

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Roku and Fire TV Ideal Platforms to Focus OnDespite its lead in terms of number of users, Chromecast usage pales in comparison to RokuRoku along with the Amazon Fire TV seem to be the connected TV devices to focus on in 2017 given their usage and growth respectively

Streaming Activity Pattern on Connected TV Mirrors Linear TV WatchingPeaks during primetimeIndicative that connected TV user is strikingly similar to linear Pay TV user in terms of consumption patterns

OTT Consumption Increasingly Driven by Connected TV DevicesWe are clearly seeing OTT video moving to the television OTT users watch OTT services on their TV screens between 17-20 days per month, much more than platforms such as a PC, smartphone, or tablet.Snappington of Parks Associates

Widening Gap in TV Consumption Amongst Age GroupsDeloitte forecasts that 18-24 year olds in the US will be watching less than 2 hours of traditional TV by 2020Continuing decrease in TV consumption amongst 18-24 year olds:Watched 58% as much live and time-shifted TV as those over 65 years of age in 2008Down to 36% in 2015

Future Growth in Multiple SVOD SubscriptionsDigital TV Research has forecasted that the average U.S. SVOD user will pay for 1.33 subscriptionsImplies multiple SVOD subscription

12 % of broadband-only households subscribe to Netflix and Amazon Prime

SVOD Broadband-only Homes Consume More Devices, PlatformsMore affluent customersNearly half of homes with SVOD access have a yearly household income of more than $75,000

Heavier users of technologyU.S. households with SVOD subscriptions spend nearly 50 minutes more per day using TV-connected technology than does the typical U.S. householdAverage 10 more minutes daily watching time-shifted TV and double that in terms of time spent using a multimedia device (such as Apple TV and Roku) than a typical TV home

Clearly they have an appetite to consumer more content, devices and platforms

Key TakeoutTwo key growth driversOriginal contentFree access to content library that supplements SVOD servicesConnected TV devices growing particularly in millennial homes, mirror behavior of traditional TV viewerRelative dearth of premium video inventory for advertisersYouTube and Facebook video platforms increasingly embracing long-form video content to capture these ad dollarsFacebook live broadcastsYouTube skinny bundleEmerging picture of broadband-only homes depicts multiple subscriptions, devices, platformsOpportunity for a service that is free and provides access to TV content and a wide content library