The last year has seen an acceleration in the transition to OTT as viewers cut the cord and embrace streaming. According to data from The Trade Desk, which was shared in Nadine Krafitz’s excellent State of Video Advertising article for this publication, 27% of all consumers, including 36% of 18 – 34 year olds, will drop cable in 2021. This adds to the 11% of viewers who did the same in 2020 (18% among the younger demographic).
You may be forgiven for thinking that cord-cutting has resulted in an increase in viewing time of VOD content at the expense of live, but this isn’t actually the case. According to recent data from YouGov, viewers in the U.S. spend 4 hours more watching live TV per week compared to VOD or catch up.
This is good news for OTT providers because the live streaming experience is set to undergo a transformation due to the flexibility offered by online video delivery, as opposed to the traditional way of delivering TV. In this article I’ll explain some of the opportunities that are being opened up by OTT, what they mean for the future of TV, and what we need to do as an industry to take advantage of them.
The move from Traditional TV to OTT
For those who are familiar with the terminology, I should point out that by “traditional TV” I am referring to linear videodelivery via cable, satellite, aerial, and all other forms of TV that is delivered using a CAPEX business model, with a relatively large upfront investment, as opposed to OPEX, where you costs can scale with usage.
This difference in business models is crucial to understanding how the TV experience will play out in the coming years. In terms of what this means for the future of TV, I expect the channels with big audiences to remain being delivered by traditional methods while those with smaller audiences will move to OTT. If you look at the EPG on your TV, there are 100s of channels and each of them is delivered via a traditional CAPEX approach, which relies on expensive infrastructure with set costs to build and maintain, regardless if there is a single viewer or a million viewers on a channel. There is an opportunity for providers of niche channels to create significant savings, and for other OTT providers to start offering channels and capitalize on the increased viewing time that live streaming offers.
I see four main ways in which OTT delivery will really benefit broadcasters.
1. Traditional linear TV
There is a fixed cost to setting up and maintaining a traditional TV channel. Broadcasters need to reach a certain threshold of viewers to justify the set-up cost, but once they pass that threshold the economics work in a CAPEX model’s favor. However, for smaller audiences OTT definitely makes more sense as set-up costs are lower and providers only pay for what they use. Therefore, I think we’ll see the biggest channels remain using traditional delivery but the more niche/boutique ones move to OTT delivery.
2. Traditional TV with restart
There is an expectation for broadcasters to provide enhanced viewer functionality such as live restart. However, this is not something that traditional TV can provide. Therefore, it is necessary for broadcasters to employ a hybrid approach, starting with traditional then switching to OTT for rewind or time-shifted viewing. In this case the use of OTT delivery will increase.
3. Traditional with restart and personalized ad insertion
Another drawback of traditional TV delivery is that it doesn’t support ad insertion at a very targeted level. So broadcasters with traditional channels will also need to switch to HTTP delivery when there is an ad break if they want to drive higher ad revenues. This will drive the cost up on both counts.
4. Creating new channels from VOD assets
This is where OTT really comes into its own. Streaming providers can create new channels automatically from their libraries of VOD assets without the prohibitive set-up costs of traditional TV. I think we’ll see more niche channels and pop-up channels as a result, meaning even more viewers will be live streaming via HTTP. The audience for OTT will grow, albeit spread across more channels.
The OTT opportunity
There are many opportunities for audiences and providers as a result of the move to online, particularly when it comes to niche content and curated channels. OTT has the potential to create a lot of flexibility for broadcasters, and this can only be good news for viewers, too.
Here are some of the most popular use cases I see emerging as a result:
Away from the big players in the so-called streaming wars, niche content offerings will be a key differentiator for many OTT providers. We will see a significant growth in the number of live channels on offer. Aside from those already on the EPG, it will also be far easier to create live channels from VOD libraries in order to encourage longer viewing sessions (and more ad breaks, if desired). These could be based on a particular theme, for example.
Curated live streams from VOD content
A big challenge in the streaming wars that everyone from Netflix to local apps are grappling with is churn. Providers can avoid the no-man’s land that is viewers searching round huge content libraries for something to watch (and getting frustrated!), by serving relevant content to them automatically when the show they tuned into watch has ended.
Flexible ad breaks
Data from Statista shows that on average there were 16 minutes of ad breaks per hour on primetime networks in Q1 2019. By presenting VOD content as a live channel, providers have an opportunity to generate longer viewing sessions and an extra hour of ad spots per viewer per week.
Or, you can look at this another way: without the constraints of pre-determined ad breaks, OTT providers can place targeted ads where they want and manage the number of ads a viewer sees to improve the viewer experience (driving longer session times and, ultimately, an increase in ad breaks).
How to realize the opportunity: get the video files right
Underlying so much of what I’ve discussed here is the video file. Everything that comes later depends on video assets being prepared in a way that makes them highly dynamic and meets industry standards. Once this is done then it’s much easier to work with other technologies such as dynamic ad insertion (DAI) or content management systems (CMS) further downstream.
Video assets must be prepared in advance with the necessary event and advertising markers so that they can be dynamically stitched together later on in the most efficient way. If not, then encoding, storage and transfer costs for the various use cases that OTT enables would quickly become too expensive to build a successful business model.
This is a really exciting time to be working in OTT video. Only time will tell how TV viewing will evolve as viewers shift from traditional TV delivery to online. But there are many opportunities for audiences to engage with the content they love in new ways, and for OTT providers to create a niche for themselves and differentiate from the crowd of the streaming wars. The future of TV is changing and I can’t wait to tune in.
This article was published on Streaming Media.