OTT Models Set to Change Amid Huge Growth

Driven by mobile device growth and the rise of connected TV options, the over-the-top (OTT) video market is expected to quadruple in revenue to reach $32 billion by 2017 – an attractive opportunity for the savvy pay-TV operator looking to cash in with transactional add-ons to existing subscription service, as it turns out.  

ABI Research expects subscription OTT offerings like Netflix to give way to OTT transactional rentals by as early as 2014. And for cable, satellite and IPTV (News - Alert) providers, finding new ways to better engage consumers through OTT experiences will therefore prove increasingly important as consumers adopt new viewing behaviors.

OTT revenue should reach $8.2 billion in 2012, ABI has revealed, led by Netflix, which claims just over a 50-percent market share despite highly publicized missteps during the company's separation between streaming and physical media rentals. The company secured the top spot in ABI Research's (News - Alert) United States OTT Competitive Assessment, which evaluates U.S. OTT vendors via various factors, including market share, device reach and business model, divided between two main axes of "innovation" and "implementation."

Amazon and Apple (News - Alert) captured the overall second and third positions in the U.S. OTT vendor matrix, with Apple edging Amazon for implementation and Amazon ahead for innovation between the two.

In addition to market share, the number of mobile devices supported weighed heavily in both the implementation and innovation scores, according to senior analyst Michael Inouye.  

“Apple's iTunes scored well for its ability to leverage the cohesive Apple ecosystem,” he noted.

Operators like Cablevision scored lower in part due to device support and lack of differentiators. But despite such traditional pay-TV players scoring low in the matrix, many of them are gearing up to launch their own OTT plays, turning the cord-cutting threat on its ear.

"Pay-TV operators are expected to launch new OTT services to target lower price points as well as customers beyond their geographical footprint,” said ABI practice director, Sam Rosen. “Early hybrid offerings include early work from Synacor and Charter Communications (News - Alert) that allows consumers to search for content from the pay-TV operator and key OTT providers from the same portal. Consumers simply want access to content, regardless of who is providing it, so innovative solutions like this will help the OTT market and bring additional exposure to the multiscreen market, which is still in its early stages."

Thanks to the hybrid opportunity, Microsoft (News - Alert) has landed in the “one to watch” category. The Xbox platform overall best depicts the growing importance of the hybridization between OTT and pay-TV services, making Xbox Live a platform to keep an eye on, the analysts said.

“Connected CE and mobile devices continue to push consumer behavior towards newer forms of media distribution like OTT and multiscreen services,” said Rosen. “Pay-TV services will continue to thrive, by implementing multiscreen services and supporting OTT content. In the end we expect an amalgamation of services that complement each other for many consumers.”

Also, in time, advertising like OTT rentals is expected to pick up momentum as ad dollars increasingly shift to the OTT market. Connected CE and mobile/portable devices, in particular, present additional consumer touchpoints and enable more creative ways to connect or interact with consumers, the firm noted. 

That’s particularly true as mobile devices capture more attention as many consumers claim to multitask while watching TV.

“While many consumers today claim to use mobile and portable devices while watching TV, most of us are in actuality poor at multitasking,” said Inouye. “In many cases, this means consumers are more acutely aware about the content on their portable device than the TV. While second-screen advertising is not necessarily OTT content , it does speak to the importance of targeting these connected devices that extend the reach of content beyond the TV.”