June 21st, 2016

over-the-top-TVToday, more 78 percent of U.S. consumers subscribe to at least one OTT service. Over the top TV’s disruptive potential is becoming more apparent as players in telecom, cable, media and broadcasting attempt to capture new markets of users and expand their services to meet current demand.

In a report by PwC, the revenue for OTT/streaming video on demand was $6.4 billion in 2015; it is projected to reach $10.4 billion by 2020. The same study found that TV and video revenue in the United States will rise from $119.8 billion in 2015 to $122.1 billion in 2020. As an industry, over the top TV will have a compound annual growth rate of 0.4 percent.

The New OTT TV Business Model

OTT TV presents a new business model that some businesses are seeing as disruptive, others as an opportunity. As TV changes to meet the needs of a 21st century audience, growing or scaling as an OTT service provider involves increasing the number of viewer subscriptions, and leveraging the data obtained by real usage metrics in order to show targeted advertising.

Of these two revenue sources, viewer subscriptions have been shown to be more cost effective over advertising. The business model has shifted from the content production mill that was linear broadcasting to a more customized two-way-relationship based on strengthening customer relationships. This requires an advanced level of customer knowledge, offering services in a way similar to how Netflix serves up a customized home page based on the previous content a viewer has watched. As consumers are learning which video on demand platforms are right for them, businesses have had to learn how to better coordinate complex maneuvers among staff members.

Engaging Content Is Still King

Producing the right content becomes more valuable each day. OTT providers need to attract and retain more discerning Millennial viewers, which are finicky when it comes to choosing a show to “binge” on. Research from Parks Associates found that nearly 25 percent of Millennial broadband homes have cut the cord in favor of OTT. Millennials’ consumer profile is hard to define, yet these viewers, which make up a majority of the VoD market, are dissuaded by low quality-content. Contemporary viewers often want to go beyond the show. Bonus features like behind-the-scenes videos, galleries and articles provide increased engagement. We think these features provide a new layer of customer satisfaction that will soon become standard.

Everyone Benefits From OTT Service

The way companies bundle, sell, bill, and collect payments from their IPTV, VoD and OTT TV services requires much more internal coordination due to the difficulty of the task. Compared to traditional media just a few decades ago, modern providers have a lot more on their plate.

All things considered, the subscription model provides a win-win for both consumers and media businesses. OTT service is powering the third era of TV, where the consumer is in charge. Traffic volumes will grow this year, especially as more Millennials are consuming media on the go. Businesses benefit because subscriptions and targeted advertising offer a steady stream of income so long as viewers are kept happy. Big data provides new levels of insight into audience viewing metrics, giving media companies smarter ways to package content.

All in all, it’s an exciting time to be an OTT TV provider.

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