Despite virtually all of the technological building blocks being in place, leading industry participants are cautious about the growth prospects for premium over-the-top (OTT) services says a research paper from MTM.
In its Prospects for Premium OTT in Western Europe paper— sponsored by Ooyala and Vindicia and involving 30 leading OTT providers and suppliers in the UK, Dutch and German markets — MTM found that industry participants are strongly optimistic about the overall growth prospects for the premium OTT market in key European territories. In the UK, providers expect the market to be worth around £390 million in 2017, up from £110-130 million in 2013, while the Dutch market was expected to grow even more strongly, from €15-20 million in 2013 to €190 million in 2017. In Germany, however, industry participants anticipate slower growth, from €30-35 million in 2013 to around €115 million in 2017.
The analyst said that key market enablers, such as high levels of broadband penetration, access to connected devices, a willingness and ability to pay for content online, and supportive regulatory environments, were largely in place across most of the region. Moreover it noted that technology costs for OTT providers have fallen significantly, enabling a wide range of providers to enter the market, although delivering services in a fragmented device environment can still be challenging.
Yet even though premium OTT appeared poised for rapid growth across the region, MTM warned that barriers to entry remain high. For example content licensing costs are increasing fast and subscriber acquisition requires significant investment. As a result, said MTM, scale is crucial and incumbency is powerful with only large, established enterprises able to support sustained investment, likely to be able to launch and grow successful large-scale services. It added that leading industry participants expect no more than a handful of major mass-market premium OTT services to gain significant scale in each market.
MTM said that exclusivity of content has become the primary battleground for mass-market services, but rights costs will continue to inflate, as OTT businesses such as Netflix and Amazon invest in long-term, exclusive licensing deals, as well as commissioning their own productions. Aggregation will remain critical, with only a few individual studios able to offer wide enough offerings to attract large numbers of subscribers. It also observed that at the other end of the market, supplies of high value, high volume specialist content are scarce, making it difficult to build subscription businesses. Many content offerings are better suited to transactional or ad-supported models.
By contrast, MTM suggested that opportunities for specialist or niche premium offerings are becoming far more accessible, especially to providers with low-cost access to high quality, unique or exclusive video content and a clearly defined, addressable customer base. It believes that many of the most successful subscription offerings are likely to be targeted at well-defined fan bases or bundled with existing membership or loyalty programmes.
However the research also revealed a general acknowledgement that the availability of free content will be an important limit factor to the growth of premium OTT services – and that some types of high value, low volume premium content, will be better suited to transactional services, adopting either rental or retail models.
MTM expects the prospects for premium OTT in key European markets will depend upon the particular characteristics of each local market, notably including the size and wealth of the territory and its ability to support strong domestic TV businesses capable of developing and delivering competitive OTT offerings. It stressed that European consumers have clearly demonstrated an appetite for premium TV and film offerings, delivered on-demand to the device of their choice – and, in many markets, European businesses are poised and well-positioned to respond.
"The next three years will be a real turning point for the premium OTT market," said Gene Hoffman, chief executive officer and chairman at Vindicia commenting on the survey. "Broadband penetration levels are rising, connected devices are becoming increasingly accessible and favourable regulations are being introduced, which is paving the way for OTT providers. The emergence of leading players, such as Netflix, is also fuelling competition and investment in premium OTT business models, while at the same time driving consumer awareness and adoption."
"OTT providers and new entrants face daunting challenges, however with the right approach and level of investment, the rewards will be substantial," added Ooyala president and chief executive officer Jay Fulcher. "Technology itself is becoming less and less of a barrier and as time goes on, we will start to see providers throw large amounts of money at OTT in a bid to differentiate themselves from the competition. Because of this, consumers will have higher expectations when it comes to user experience and quality of service, which will put significant pressure on providers to discover the most cutting edge technology. In effect, demand and innovation will go hand in hand."
