Distribution & Delivery Global Viewpoint – January 2017

State Of The Broadcast Industry 2017: OTT is the New Normal

“Digital video will overtake television to become the single largest way people spend their free time before the end of this decade.” Robert Kynchl, Chief Business Officer, YouTube.

More than 10 years ago, Sony used a marketing phrase at NAB, it was something like, “Your content, anywhere, anytime, on any device.” Cool, but like most marketing phrases, less connected to reality. The needed pieces of the puzzle were not yet available.

Now, spin forward to 2017, we have arrived. Viewers want exactly that type of service, all under their control. The viewing habits of millennials (19-32) are even influencing other generations of viewers with the result that the broadcast, content maker and delivery industries are trying to recreate the traditional TV viewing experience on every screen an audience might use.

According to the latest research from Ooyala, viewers Today, consumers are demanding video the way they want it: on their time and their terms. And video experiences in whatever form they take, based on whomever is watching, are becoming more and more individualized.

Data from the Ericsson Consumer Lab's TV and Media 2016 report shows that the average consumer worldwide is watching four more hours of mobile video every week than they did four years ago. Meanwhile, their traditional TV viewing time is down by 2.5 hours a week, so overall. The result; viewers are consuming 1.5 hours more video weekly.

A FocusVision 2016 survey suggested that 41% of viewers plan to either reduce their purchase of pay-tv services or to cut the cord completely in 2017. Image: FocusVision

A FocusVision 2016 survey suggested that 41% of viewers plan to either reduce their purchase of pay-tv services or to cut the cord completely in 2017. Image: FocusVision

Viewers are not only using other screens but watching at other times as well. Consumers, particularly younger ones, continue to flee live and scheduled-linear TV, consuming more time-shifted video, a hallmark of the OTT video-on-demand experience. 67% of respondents in a recent NBCUniversal study noted that they no longer needed to watch shows when they first air, and are taking longer to do so these days. And, SVOD penetration is about to overtake DVR penetration in the U.S., untethering audiences further from linear TV.

And, these behavioral changes are happening everywhere: Asia-Pacific audiences now watch nearly as much online video as linear TV daily, spurred by on-demand options.

Look for these new viewing patterns to impact how content companies create, promote, license and monetize their content going forward

A Deloitte survey found that millennials now average 3 OTT subscriptions in the U.S. And, while 61% of millennial U.S. head-of-households are both pay-TV and OTT subscribers, 23% are now only consuming OTT video, according to Parks Associates data; that’s 8 points higher than the national average. Expect to see more unmetered plans, like Australia’s telcos are using to attract consumers, and sponsored data plans, like Tesco Mobile’s in the U.K. As the OTT experience improves, consumers will increasingly want their content ‘to go.’

New Parks Associates research shows that 31% of U.S. broadband households have multiple OTT service subscriptions, which is nearly one-half of the 63% of U.S. broadband households subscribing to at least one OTT service. The most popular combination is Netflix and Amazon Video—12% of all U.S. broadband households have this combination.

New Parks Associates research shows that 31% of U.S. broadband households have multiple OTT service subscriptions, which is nearly one-half of the 63% of U.S. broadband households subscribing to at least one OTT service. The most popular combination is Netflix and Amazon Video—12% of all U.S. broadband households have this combination.

Consumers, especially younger viewers, are increasingly platform-agnostic. To them content selection, cost and convenience are most important. For instance, 41% of U.S. adults said they plan to shave or cut the pay-TV cord in the next year. And this trend extends beyond the U.S.

In Brazil for instance, 16% of pay-TV subscribers are now cutting the cord. Beyond these cord cutters, cord shavers and cord nevers that the broadcast industry is contending with, a new headstrong group has emerged from the rising tide of content choice: the cord cobblers.

“More than 52% of all video views this quarter were on mobile devices... Since Q3 2013, mobile video views have increased more than 233%, outpacing the growing penetration rate of mobile devices globally as viewers spend more time watching video on the small screen.”
Ooyala Global Q3 2016 Global Video Index

Many viewers now build their own customized content packages across streaming services and platforms. These consumers are close cousins with the more broadcast-friendly cord stackers who still have traditional TV packages but combine them with streaming services. A 2016 Streaming Video Satisfaction Study from JD Powers revealed that,60% of streaming video viewers are cord stackers, 23% are cord shavers, 13% are cord cutters, and 4% are cord nevers.

Can’t find it—can’t watch it

Finding value in content remains a key consumer concern, and is now not only driving pay-TV churn but churn from SVOD services as well. A recent survey from Vinicia found that, 39% of respondents said they felt a lack of value in their subscription. Another frustration? Content search. The average person now spends over one year of his or her life looking for something to watch on TV. See previous article, “search for content, featured editorial”.

One thing remains clear: broadcasters and operators have realized that to capture and keep the consumers of today and tomorrow, they need to shake up the old paradigms and go all in with OTT.
Ooyala State of the Broadcast Industry 2017

The impact of audience shifts and OTT delivery is creating a great cataclysm felt across the industry. Pay-TV households have fallen below 100 million in the U.S. while SVOD streaming penetration is now at 48%, up 7 points from a year ago. Pay-TV companies see their subscriber numbers continuing to drop and are trying to slow the exodus by filling the service gaps and by expanding their reach to new audiences.

Nielsen research reported that the average percentage of TV channels viewed is down to single digits, thanks, in part, to digital options. This means more channels will likely be on the chopping block as programming costs rise and viewers drop

OTT is not an elixir

An OTT solution is not yet the magic solution. Skinnier OTT bundles and even à la carte choices are still the end goal for many consumers. Even so Canada’s experiment with OTT deployments to deter cord cutting has fallen flat in large part because U.S. broadcast networks are not included. Research indicates that broadcast channels remain a top consumer priority for OTT packages in the U.S. as well.

“59% of all US households have a SVOD service from the likes of Netflix, Amazon Prime, and/or Hulu, up from 47% in 2014.”
Leichtman Research Group

The takeaway

The Ooyala reports summarizes by saying that the growth and future of broadcast content is undoubtedly via OTT. Whether mass or niche, local or global, singular or hybrid, the report states that OTT will rule with consumers and drive further industry shifts and alliances. As always, data will help make or break services. Look for providers to embrace it wholeheartedly in the year ahead.

Next time, we will look at some of the supporting technology used to develop OTT systems.

For additional background on changing TV audiences, read; “Cord Cutting Continues.”

Editor’s note: This article is based on the Ooyala, “State of the broadcast industry 2017” report, which is available here.