The Future of OTT is Free!

Time was, the future of OTT (over-the-top) was understood as the ability for users to watch whatever they wanted, only what they wanted, whenever and on whatever device they wanted.   Oh, and the viewing would mostly be free or much cheaper than cable bundles and feature fewer or no annoying ads.  This idea was born of technology visionaries who weren’t really thinking through user behaviors, let alone realistic business models.  The fact is, audiences are accustomed to having access to a lot of quality video and live TV.  They used to get that from traditional cable bundles, but those have become perceived as too expensive, weak on VOD or as forcing consumers to pay for channels they rarely watched — with “too many ads!”  So, “more for less” sounded good, but maybe it was too good to be true.  Now, reality is starting to sink in.

For a while, the vision seemed to be unfolding as advertised.  New players like Netflix, Hulu and Amazon offered cut-rate SVOD products with rich content, including troves of high-quality, deficit-financed original programming.  Early on, legacy players tested the waters (often half-heartedly) with ad-supported offerings.  “Skinny bundles” anchored by a limited number of traditional networks emerged.  Viewer behaviors began to reach a tipping point in terms of adopting OTT viewing options, sometimes instead of the traditional cable bundles, often on top of.  Media companies like CBS, disappointed by the rate of growth in monetization with pure ad-supported models, began to eye seemingly lucrative subscription OTT business models, and early results were sometimes encouraging.

Now, however, many issues are emerging, to the point where Vanity Fair published an article in December 2018 asking “will the peak TV bubble finally burst in 2019?”  Meaning really, peak subscription OTT.  The emerging landscape is a confusing mess of platforms, players, offerings, user experiences and pricing scenarios.  Many consumers were becoming aware of alternatives to the traditional, expensive cable bundle but could not figure out how to solve the SVOD puzzle of the totality of what they wanted together.  Worse, there is a dawning realization that to really do that could quickly add up to as much as or more expense than a traditional cable bundle, and there would still be gaps — like local TV, news and information, for example.

The Vanity Fair article highlighted the emerging reality of the SVOD gold rush beginning to sour for some of the new players, and the likelihood of this becoming a trend in 2019.  It’s becoming clear that consumer budgets for video entertainment are not unlimited, and that VC and debt-financing for production cannot indefinitely continue.  The prospects are not bright for more and more content disappearing behind pay walls, and raising prices looms as a solution that will sow the seeds of a business model apocalypse.

There are also public policy issues around inequality and access to content yet to really surface lurking down this road.  In an a la carte SVOD OTT world, for example, where non-sports fans can avoid — and avoid paying for — sports, the price of accessing sports content will inevitably go up.  What happens to those who can’t afford to watch premium professional sporting events that once were free (included in the cable bundle)?

So, the current OTT market trajectory is not sustainable.  A shakeout is inevitable, and while pay offerings will not go away, consumers will at the same time demand a “rediscovery” of free, ad-supported offerings.  The good news is that the rising tide of the OTT audience and technologies such as DAI/SSAI to deliver highly targeted, relevant ads to viewers is creating an opening for players, especially local TV broadcasters, to jump in and capitalize and reclaim a pre-eminent role in the TV ecosystem.  We are also finally starting to see advertiser demand for OTT catch up with the opportunity, and they bring premium CPMs for those who are equipped to capture their business.

There is still a question some pose as to whether or not OTT ad inventory is best monetized on a standalone basis, or whether it’s better to sell it as an extension of traditional platform products.  This is partly a function of the way traditional audience measurement solutions work, and as they too struggle to adapt to the complex new landscape.  But it is already becoming clear to those actively engaged in monetizing OTT ad inventory that the ultimate, fully optimized revenue yield will be substantially higher going the pure-play digital route.

The time is now to recognize these macro-trends and fully embrace the free, ad-supported OTT future.  For players such as local broadcasters with strong brands, audience connections and content to fully commit, at scale, to building a real OTT business serving their local communities, the stars are truly aligning for an aggressive push.  OTT is not going away, and audiences will continue to embrace it, so there is a defensive need to do this.  But at Syncbak we are more focused on what we see as the offensive opportunity for local TV to work together to achieve the kind of scale (audiences and revenue) to command a seat at the table with the big players.

About Author

Ron Stitt is a broadcast industry veteran well known for his time spent at Disney/ABC and 21st Century Fox. As Head of Product for SBTV at Syncbak, Ron oversees the strategy and roadmap for the SBTV consumer interface as well as the company’s content.

Appeared first in Media Village

 

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