With nearly two-thirds of American viewers now using a subscription video on demand (SVOD) service, the market is primed for a different way to watch TV. The impact and opportunities are immense, especially as broadcasters create auxiliary applications for ATSC 3.0 services.
As the recent IBM Cloud Video report “Everybody Wants to Rule the Streaming World” emphasized, SVOD has “reshaped the way we enjoy television.” It notes that rather than spurring cord-cutting, SVOD options such as Netflix and Amazon Prime have added “to the smorgasbord of video content we already enjoy.”
NEW CONSUMER BEHAVIOR
The study from IBM’s ClearLeap unit is one of several research evaluations during the past few months that affirm that viewers have embraced SVOD and over-the-top (OTT) streaming video programs. Even with perceived problems such as high costs and sometimes-inferior video quality, the ClearLeap study explains that SVOD has “sparked new consumer behaviors,” such as bingeing, which will affect future video distribution strategies.
The implication: infrastructure needs to be built to handle these viewing preferences.
“SVOD services have been adopted by U.S. consumers faster than any other pay media service,” ClearLeap said. Even more important than the 63 percent of consumers who “spend a significant amount of viewing time with them... nearly half of those with SVOD and pay television watch their streaming services as much as, or more than, cable.”
ClearLeap’s report, based on more than 1,000 consumer interviews, acknowledged that Netflix is overwhelmingly responsible for the intense SVOD viewing. But the study pointed to the growth of other existing services, especially Amazon Prime and Hulu, and it augurs opportunities for future newcomers to enter this realm.
Fig. 1 (Photo credit: IBM Cloud Video)
Like other studies, the ClearLeap evaluation put extensive emphasis on the importance of mobile video in the SVOD/OTT agenda. But it also reported that 55 percent of respondents say they primarily use a smart TV, Roku, Apple TV, game console or other connected TV device to watch their favorite streaming service (Fig. 1).
There are also predictable findings about the age distinction: 16 percent of millennials and 18 percent of 30–44 year olds favor smartphone viewing. Seniors, not very much.
Among the most fascinating findings in the ClearLeap report is an evaluation of the problems that turn off viewers and would prompt them to quit using an SVOD service. Again, this is valuable planning information for future programmers and technology providers, as well as a lesson already known by today’s SVOD leaders.
In response to the question of “What would make you cancel an SVOD subscription,” the top answers were: too many ads (27 percent), high price (25 percent), too few shows (20 percent) and technical problems (17 percent).
On that last point, 15 percent cited inadequate video quality and 12 percent reported problems with the audio being out of synchronization with the video image (Fig. 2).
Almost half of SVOD viewers complained about frequent buffering problems.
Fig. 2 (Photo credit: IBM Cloud Video)
As the ClearLeap report explained, “These technical problems can occur anywhere in the network,” notably under-provisioning of bandwidth by Internet service providers. Again, that looks like a competitive lesson for over-the-air transmission of IP content. In a related issue, about 30 percent of millennials surveyed called mobile data caps their most serious concern about wireless access.
“As live streaming grows in importance and prevalence, content providers must have the technology to handle massive spikes in viewer traffic at any given time to prevent site crashes and streaming disruptions,” the ClearLeap report concluded. “Data can help SVOD services better understand viewing habits and plan for peak demand.”
SUPPORTING OPINIONS ABOUT SVOD AND OTT ABOUND
ClearLeap is not alone in its optimism about the appeal of SVOD and related OTT ventures via wired and wireless transmission. Limelight Networks, in its “State of Online Video” report, observed that about 80 percent of millennials subscribe to at least one OTT service, and 39 percent of them watch at least seven hours of online video per week—significantly more than people in other demographics.
Limelight’s study also observed that young viewers are upping their online viewing patterns. Barely 16 percent watch only 1 to 2 hours per week, while the number consuming more hours has steadily increased. It also noted that millennials were “significantly more amenable” to terminating a pay-TV subscription if they could access the content they want online directly from the content owner (23.7 percent compared with 16.6 percent for the rest of the population).
And again, Limelight found that the smartphone is the favorite device that millennials use to watch most online video, followed by computers or laptops. Viewing via a TV connected to a streaming device is the device of last resort.
“Our research continues to show increasing adoption of OTT content, especially among younger consumers,” said Nigel Burmeister, Limelight’s vice president of global marketing. “Traditional providers and delivery models are increasingly at risk of being left behind as consumers become more savvy.”
Separately, Ooyala’s “State of the Media Industry 2016,” published in early summer, concluded that the lessons learned by “the TV industry... in its move to digital” are the basis for continuing appreciation that “differentiated content... is key to building a strong brand in the cluttered digital ecosystem.” Ooyala’s latest report is a follow-up to its “State of the Broadcast Industry 2016” in which Ooyala called 2016 the year in which OTT becomes the “gateway to broadcast’s future.”
The Ooyala report also emphasized the “mobile first” imperative for digital distribution.
Now this is where the research and the forecasting get tricky and intertwined. Much of the research incorporates both SVOD and other online video consumption, including short-form content (think YouTube or Periscope) as well as program-length content. And all of this research is based in part on the assumption that viewers won’t necessarily know the difference or care about the originating source—so long as they can find what they want to see.
For example, a July report from the Zenith, an agency of the global marketing firm Publicis Media, insisted that mobile access has replaced fixed devices as the dominant platform for receiving online video. This study found that consumers spend an average of 19.7 minutes daily viewing online videos on smartphones and tablets compared to 16 minutes on fixed devices, which includes smart TVs and desktop computers.
“This represents a 39-percent leap for mobile over last year’s figures, when 14.2 minutes were spent viewing mobile video,” the report concluded. It said that “fixed” video consumption will be static this year, thanks to a rise in viewing via smart TVs, which offset declines in desktop viewing. Zenith expects that mobile video consumption will grow 33 percent in 2017 and 27 percent in 2018, to reach 33.4 minutes a day.
“Mobile devices will account for 64 percent of all online video consumption in 2018,” said Zenith, suggesting that the growth will trigger a boom in online video ad spending, which it expects to go up by about 20 percent per year.
Several of the upbeat reports scale the growth of the industry. For example, Digital TV Research, in its “Global OTT TV & Video Forecasts” envisions that by 2021, such ventures in 100 countries will generate $64.8 billion, up from $4.47 billion in 2010 and $29.4 billion last year. The company predicts that despite impressive growth in Asia, the United States will remain “the dominant territory for online TV and video revenues—rising by $8.2 billion to $22.8 billion between 2015 and 2021.”
DTR’s forecast put strong emphasis on the growth of advertising VOD (that is, ad-supported services). It predicted that by 2020 AVOD revenues globally will amount to $15.4 billion, compared to $14.6 billion for SVOD by that time. The research firm forecasts 383 million SVOD subscriptions by 2021, up from 21 million in 2010 and 163 million at the end of last year.
GROWING PAINS: SPLINTERED MARKETS, REGULATORY HURDLES
Although the SVOD and OTT markets have evolved largely without regulatory restrictions —if you don’t count that “minor” barrier of network neutrality that can affect their carriage relationships—the freedom from policymakers is not assured. (And of course, the net neutrality legal dispute is still in play.)
Anticipating potential growing pains, the newly formed “TV Neutrality Alliance” wants to make sure that online video distributors (OVD), such as the Telletopia Foundation, which created the group, has access to broadcast TV programming under the same rules as multichannel video program distributors (MVPDs, such as cable and direct-satellite operators).
At the same time, the new alliance wants to assure that OVDs with multichannel content but no broadcast station signals—such as Amazon, Netflix, YouTube and others—will not face existing MVPD regulations about retransmission consent and payments.
“Our proposed modification to the MVPD definition is intended to spur innovation for new broadcast-TV OVDs without creating unnecessary regulatory burdens for on-demand and original content OVDs,” said Michael Librizzi, cofounder and CFO of Telletopia.
Like any emerging interest group, the TNA claims that its goal is to unlock “the true potential of Internet-based broadcast” and believes its approach will create “a more open competitive environment.”
These regulatory options add to the complexity and uncertainly of the emerging SVOD/OTT/online video markets. And that’s not all.
“We are entering a new phase in the evolution of OTT video,” said Colin Dixon of nScreen Media, a California research firm. In a late July research note, he identified four signs that the OTT video economy is “splintering,” which he said “threatens to slow or even derail the explosive growth” of recent years.
Dixon cited “Content Disaggregation,” such as the CW TV network’s broken relationship with Hulu so that it can distribute its hit shows exclusively through its own OTT platform and its library titles through Netflix, plus “proprietary ecosystems.” He argued that “app proliferation” is a “mess” for consumers, since they have to accumulate “more and more apps on their devices” in order to watch shows from different sources. And he believes that “lack of data standards” threatens the “lifeblood of the video business.”
“There are no universally accepted standards in any of these areas for the gathering, format, storage or interchange of the data,” Dixon said. “It is hoarded to gain competitive advantage, put into proprietary formats to gain financial advantage, and selectively mined to gain a marketing advantage.
“In the long-run, this splintering of the industry can only have one result,” Dixon continued. “It creates a nightmare for consumers as they try and figure out when and where the content they want can be found. And we all know what happens when things get complicated for consumers. They sit on their hands.”
Gary Arlen is president of Arlen Communications LLC, a research and consulting firm. He can be reached at email@example.com.