Over-the-top may lift legacy broadcasters and distributors more than pure plays
TMT Media Predictions 2013
Deloitte predicts that in 2013, in markets where services are available, two of the top three over-the-top (OTT) TV program and movie services are likely to be provided by existing broadcasters and distributors.
OTT services use the Internet to distribute TV and movie content to homes. Any company can provide OTT TV and movie services and many do so, including TV broadcasters, device manufacturers and fast food vendors1. Pure play OTT providers and OTT divisions of larger companies not in the TV industry are likely to enjoy growing market share and take up, but in most markets their active paying subscriber base will probably account for less than ten percent of households. The market will be dominated by existing players.
Combined OTT revenues for existing broadcasters and pure plays are likely to be less than two percent of earnings (from subscriptions and advertising). Free-to-air TV broadcasters are likely to offer OTT for free, while pay TV companies are likely to include OTT access as part of subscription packages. Total global revenues from TV advertising and subscriptions are likely to reach about $400 billion in 20132.
The two factors underlying the popular appeal of legacy broadcasters’ OTT services are brand and content. Most viewers are likely to remain faithful to the broadcasters and programmes they have watched in previous years, so long as those broadcasters continue to provide the type, quality and quantity of programmes that viewers like. Viewers will likely remain averse to new sources of content in 2013, due to the opportunity cost of taking time to watch a program they may not enjoy.
Viewers will mostly use broadcasters’ OTT services to catch-up on programmes they were unable to watch or were unaware of when first broadcast. Viewers will generally watch programmes via OTT very shortly after first transmission: hours for sports and news, up to a day for reality, soap operas and dramas and about a week for documentaries3. The freshness of content is likely to be key to popularity: although some portion of OTT viewing will be ‘long tail’ (shows that are more than a week old). Deloitte estimates that more than 75 percent of programmes will be watched within a week of initial broadcast4.
Another factor expected to drive demand for broadcasters’ OTT services is awareness: the majority of viewers will have been exposed to the broadcasters’ brand for decades: the OTT service is a natural and seamless extension of that brand. Broadcasters are also likely to promote their own OTT brands regularly over the typical 3-5 hours viewing of broadcast or pre-recorded TV that the average citizen with access to television watches daily. Over the course of a week a viewer would likely see dozens of promotions for broadcasters’ OTT services. Pay TV providers and subscription channels are likely to continue to promote their OTT services to improve perceptions of value for their services.
OTT pure plays and divisions of larger companies start from a much smaller audience base than broadcasters. In some cases their brands may be entirely new to the market, niche or in an adjacent or even unrelated space5. OTT pure plays, as recent entrants to the market and with limited access to current programming, may have to rely primarily on archive content. They may lack the call-to-action appeal of broadcasters’ OTT services.
Some customers will willingly subscribe to OTT services based mostly on archive content. For some the ability to access box sets of TV series at a price point that is typically much lower than pay TV may be exactly what and how they want to consume TV programmes. For others, watching every episode of a series sequentially may be akin to consuming dozens of breakfasts in a row.
The consumption of programmes and movies via OTT distribution is likely to remain small in proportion to total consumption6. The vast majority of viewers in 2013, and in subsequent years, are likely to continue to default to broadcast and the TV schedule, before checking what is stored on their Digital Video Recorder (DVR) before finally accessing OTT services.
Deloitte’s expectation is that even in markets with extensive broadband roll-out, on-demand TV and movies will largely represent only a few percentage points of total viewing, whether this is via broadcasters’ pay-TV companies or pure-play OTT provider sites. Further, official on-demand TV and movies sites are likely to represent only a few percentage points of total online video.
The reality of OTT for the majority of households is likely to be as part of the ecosystem of television services provided by either pay-TV companies or free-to-air broadcasters. OTT access has now become a standard and occasional means of accessing TV content. In markets where it is available OTT has become a fundamental TV technology, similar to digital video recorders (DVRs) or electronic program guides (EPGs.) OTT’s principal role is likely to be to enable catch-up, rather than to create a bespoke ‘channel’ of TV content.
OTT is important, but not core. If OTT services were to be suspended for a week, people would still watch television. What is core is content, and whichever entity has access to the most popular content is likely to have the most popular OTT site.
The OTT service itself is likely to remain a sub-brand and not a separate brand, of free-to-air or pay-TV providers. It is more likely to succeed as a sub-brand, rather than a new identity which viewers are unfamiliar with.
Deloitte expects that in 2013 all OTT players are likely to continue to grow, at least in usage terms, but there is likely to be significant press coverage of the progress of pure play OTT companies and OTT divisions of larger companies that are not broadcasters or content producers. Broadcasters and pay TV companies should analyze and contextualize these headlines and react commensurately.
OTT providers should note that the quality of a consumer’s broadband service will have a key impact on quality of service. OTT pure plays and divisions of larger companies need to balance whether to invest or use services that offer guaranteed quality of service, e.g. sufficient, protected bandwidth into a home to ensure uninterrupted viewing. But in some markets local regulations may prohibit certain types of traffic to be prioritized in this way. If traffic cannot be prioritized adequately, OTT services could suffer interruption. When this happens, broadcasters and pay TV companies must have fall backs – such as standard broadcast and DVRs. OTT pure plays would not be able to offer that service.
In the medium term, as televisions become larger and have higher resolutions, HD transmission may be required to ensure sufficient picture quality. In some markets bandwidth may be insufficient to support HD. And in the longer term, as 4K transmissions – which offer four times the resolution of current HD – become mainstream, faster broadband networks will be required.
Another medium term consideration is the convergence of DVRs and on-demand. As hard disk storage becomes steadily cheaper, DVRs can become de facto content storage nodes. Initially a multi-terabyte DVR with multiple tuners may record the five main channels’ prime-time broadcasts. If someone in the household misses a program, playback could be from the DVR, rather than via the Internet. In this scenario, pure-play OTT providers may face additional barriers to entry into the mainstream television ecosystem.
1 For example, in the UK one of the companies offering an OTT service is a leading pizza delivery company. Source: Pizza chain launches VOD service in U.K., Variety Insight, 30 October 2012. See: http://www.variety.com/article/VR1118061416
2 Deloitte estimate based on Ofcom number for 2011 of $370 billion. Source: Global TV revenue climbs, C21 Media, 14 December 2011. See: http://www.c21media.net/archives/74097
3 Usage of digital video recorders (DVRs) and on demand services are often similar. Deloitte has undertaken research on the time period in which programs recorded to DVRs are watched. In the UK about 70 percent of pre-recorded reality TV, sports, news and current affairs and soap operas are watched within a day of first broadcast; between 82 percent and 88 percent of these programs are watched within two days of first broadcast; between 95 percent and 100 percent are watched within a week. Source: Deloitte LLP (UK) and GfK, June 2012
4 The most-watched programs on the BBC’s iPlayer are recently broadcast programs. Source: Monthly Performance Pack, Page 13, BBC, October 2012. See: http://downloads.bbc.co.uk/mediacentre/iplayer/iplayer-performance-oct12.pdf
5 For example in the UK, one on demand service called SeeSaw was launched by a national TV infrastructure company. While this company provides services to much of the country, it is not a consumer brand, and hence had to create a new brand for its business to consumers. Source: SeeSaw chief executive looks forward to launch, The Telegraph, 14 February 2010. See: http://www.telegraph.co.uk/technology/news/7223006/SeeSaw-chief-executive-looks-forward-to-launch.html
6 The BBC’s iPlayer service had 165 million requests for TV programs in October 2012 – a record, and a 23 percent increase on the 134 million requests in the previous October. This represents less than three programs per month for every potential user of the service. Source: Monthly Performance Pack, Page 4, BBC, October 2012. See: http://downloads.bbc.co.uk/mediacentre/iplayer/iplayer-performance-oct12.pdf