Amid the coronavirus lockdown, OTT services are experiencing boom. But even as more people switch to VOD platforms, there are challenges ahead for the industry, writes IBC365 deputy editor James Pearce.

Disney+ (Ivan Marc)

Disney+: Has stormed into the OTT market with 50+ million subscribers

Source: Ivan Marc

In many ways, the “year of the OTT” is going even better for VOD platforms than anyone could have predicted. 

When IBC365 wrote about the wave of new OTT platforms set to launch between the end of 2019 and the middle of 2020, we asked whether this would be the year of the OTT, where OTT platforms begin to overtake linear viewing in popularity. 

When raising that question, no-one could have predicted a global pandemic that has led much of the world to enter lockdown. In turn, that has led to a significant increase in the demand for content, benefitting new OTTs such as Disney Plus or Apple TV Plus. The former, for example, has already racked up more than 50 million subscribers worldwide just six months after launch. 

According to new figures from Digital TV Research, the OTT market is set to reach US$167 billion in revenue by 2025 - double the revenue of 2019 (US$83 billion) - with an estimated US$16 billion to be added in 2020 alone. 

SVOD will continue to dominate the OTT market with its share of revenue set to stay at around 58%. This translates to a US$50 billion increase in revenue between 2019 and 2025 to a total of $98 billion. 

This makes sense, especially given the predicted downturn in the advertising market that is being predicted because of a recession caused by the coronavirus lockdown. This is likely to hit most ad-funded models and have a major impact on the media and entertainment market, beyond just OTT. 

Yet SVOD faces its own challenges – most notably, the concept of subscription fatigue. Will viewers really be willing to pay for subscriptions to Netflix, Disney+, Amazon Prime Video, plus splash out on a pay TV service such as Sky and premium sports package as well? Add in services like Spotify that are subscription-based but outside of video content, and the question of fatigue becomes more significant. 

Access to all the leading services now costs upwards of £50+ a month. Research suggests that some consumers may be willing to subscribe to up to four or five online video services, if the price is right. A Grabyo report, for example, found that 28% of UK customers currently subscribe to two or more online video services, while 35% do so in the US, and 32% across Europe. 

The consequences of this fragmentation could be severe for the industry. Firstly, it could lead to a rise in piracy. Some 7% of respondents to a survey by price comparison site Broadband Genie said that they would consider using illegal sources instead of paying for content should fragmentation continue to grow. 

It could also see a lot of smaller, niche services locked in a much tougher battle for eyeballs. 

friends 16x9

Friends: Alongside other classics can have a huge sway in which subscription service people pick

At the same time, the bigger players will have to find ways to offer unique content, whether that is clinging on to broadcast rights for their classic TV shows such as Friends or The Office, or creating original, often expensive content.  

For Netflix, which is currently the leading OTT worldwide, it must balance losing those classic rights with the creation of its Originals. The OTT is now one of the biggest commissioners of original content in the world, according to Ampere Analysis with 297 shows commissioned in the last 12 months. 

So what is the solution? Aggregation could be the way forward, but the agreements needed to aggregate content (and the technical prowess to pull off a user-friendly experience) is complex. It’s also commercially challenging – will the big M&E companies really want to undermine the exclusivity of their own services by making content available to rivals or aggregation platforms? 

Yet OTT offers a significant and important route to success. I moderated a webinar last week featuring speakers from Ampere Analysis, BritBox and Applicaster. 

Rahul Patel, analyst at Ampere Analysis, told us that tech companies like Apple and Amazon could be best placed to act as aggregators for content platforms because they already have an engaged marketplace. Amazon Prime Video is already offering this, combining its SVOD services with additional paid-for channels and movie rentals. 

Covid-19 has seen the industry accelerate almost eight years in terms of tech, workflows and content demand, in just eight weeks, according to BritBox’s Reemah Sakaan. Yet as parts of the world leaves lockdown, do we go back to how we used to consume content? Or is this the new normal. 

Whatever happens, 2020 is proving to be the year of the OTT. But plenty of challenges lie ahead.