Building and managing subscription OTT products

Key lessons from broadcasters and their technology providers

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Summary

Premium Over-the-Top (OTT) offerings – subscription film and TV services delivered over the internet to connected devices – are proliferating, as TV businesses, tech firms, rights holders and other industry participants look to capitalise on growing consumer demand for low-cost, all-you-can eat premium video services. The market is widely expected to grow, but developing, launching and operating a direct-to-consumer OTT service can be challenging. Many industry participants believe the underlying solutions are still immature, requiring complex build programmes and multiple vendors, and managing subscriber relationships remains difficult.

Technology Pathfinders is a new networking group for broadcast executives interested in exploring innovations and future trends in operations and technology. On the 1st November, we brought together key industry players for a closer examination of subscription OTT in the UK, facilitating a discussion about what we’ve learned so far and how online video is likely to evolve over the next five years.

The panel for the event included: Phebe Hunnicutt, Vice President of Branded on Demand (SVOD) at NBCUniversal Media; Richard Young, SVP Content and Business Development at Magine TV; Kerensa Samanidis, Head of Digital Products at the BFI; Dean Haddock, Director of Broadcast Services at Babcock, and Rags Gupta, General Manager, EMEA at Ooyala.

During the panel discussion, several key questions were explored, including:

  1. How do you convince users to pay for your service?
  2. What are the main technical and operational challenges to moving online?
  3. How many people does it take to operate and maintain an SVOD service?
  4. How hard is it to integrate broadcast and OTT workflows?

Please read on for a roundup of the most interesting opinions and discussion points. The event was held under the Chatham House Rule, which means we cannot directly attribute quotes to speakers or attendees. Technology Pathfinders would like to acknowledge and thank the sponsors of the event, Babcock and Ooyala, for their support.

2

Setting the scene – What’s the current state of the premium OTT market?

The discussion highlighted the polarisation that has taken place in the market; as subscription OTT continues to mature in the UK, the market has split into major services (e.g. Netflix and Amazon Prime) that compete based on popular content, and niche services (e.g. BFI Player and Showtime) that capture small but dedicated audiences.

“There’s a bit of a land grab going on at the moment.”

Competition is heating up across the market, and the major services continue to invest in attempts to differentiate themselves in genre and format. Netflix’s evolution towards premium TV drama was noted by the panel, as well Amazon Prime’s, focus on feature films. The panellists reflected that, in the past, major OTT services launched with significant investment, but without clear direction in terms of target audience and key requirements, and these big players are now attempting to better understand their audiences through consumer analytics and establish their position in the market. As one panellist put it, successful companies are clear about what they’re trying to do; the ones who aren’t risk losing a lot of money.”

1On the niche side of the market, the panellists agreed that increased competition is pushing smaller OTT services to add new content to their existing catalogues in an attempt to extend their reach beyond traditional core audiences. One panellists added that the vertical niche services are trying to appeal to interests outside of the focus of the big services, for example documentaries or other specific content. For these smaller players, OTT has the potential to generate significant revenue from older, less popular content, which consumers traditionally shunned through pay-per-view.

Smaller OTT services benefit from relatively fast service launches due to the lower complexity of their propositions – with fewer rights agreements and less demand from their dedicated audiences for multiplatform distribution or live content. Many niche providers capitalise on the ‘stickiness’ of their subscriber base by prioritising the OTT launch and then slowly evolving the offering over time, rather than having to begin with a market-winner. One panellist emphasised this point: when [OTT service] launched, [they] didn’t know what launching meant or what the package would be. In fact, it took [them] two years to figure out what the offering was.”

All the panellists agreed that, underlying the OTT market, there is one particular pain point that especially applies to major service providers: the high price of failure. With the success of OTT offerings being driven by social media and hype, users are currently in the driving seat and have low tolerance for issues of poor quality or stagnant catalogues.

Questions to panel

1. How do you convince users to pay for your service?

The panel discussion reflected on past mistakes made by major OTT providers who did not put the consumer at the centre of their propositions. With large investments being made in OTT, the ability to identify key consumer requirements and highlight them in the proposition is crucial to acquire and retain subscribers. One example of a clear value proposition is NBCU’s hayu OTT service, which delivers programming within hours of the US releases times – a key interest identified for their consumers.

“If you have no competitive advantage, you’re in no-man’s land.”4

The panellists agreed that focusing on content and communicating a clear proposition through a strong marketing campaign were the most important ingredients for success in OTT. However, it was recognised that, in most cases, niche services require far less investment in marketing to attract a core audience. One panellist commented that effective marketing campaigns “emphasise the breadth of the catalogue as a key acquisition strategy”. Social media integration was also noted as an invaluable component of any marketing campaign, with some OTT services generating branded clips from popular TV shows that users can post and share online.

The panellists felt that a critical element for customer acquisition was lowering the barriers for sign-up and churn. Today’s OTT consumers want a service to be easy to sign up to and easy to leave, and with industry leaders like Netflix holding to the no frills mantra, creating an OTT service that provides this simplicity has become a key factor in customer acquisition.

2. What are the main technical and operational challenges to moving online?

The panel reflected that OTT services can take many forms, each with varying levels of complexity and required investment. While “me-too” OTT services consisting of VOD-only libraries and no live content can be relatively low-effort, low-investment (under six figures) to launch, more sophisticated solutions with robust integration between an online platform and broadcaster can be much more complicated and costly. Overall, the panellists agreed that there is no one-size-fits-all solution to OTT.

“You have to get it right the first time and get the users on your side straight away.”

The panellists discussed that, in recent years, OTT players have tended to underestimate the costs and challenges faced in acquiring and retaining customers. One key challenge is the ability to create a successful OTT proposition that maintains its functionality as subscriber numbers and requirements change and the service evolves. As one panellist put it, “[successful players] need an operation that is constantly AB testing and applying growth frameworks to continually evolve the proposition”.

3Each OTT solution, especially the more sophisticated ones, consist of many moving parts (e.g. metadata management, CDN ingestion, etc.), all of which must be aligned and fully-integrated. If this alignment isn’t seamless, consumers now have the ability to spread service complaints like wildfire, through social media and other online reviewing, and seriously affect the success of a proposition.

In response to these risks, some providers have opted for managed OTT platforms, with OTT solution providers such as Ooyala and Babcock offering end-to-end solutions to companies who want to take their content online. These OTT solution providers offer a range of services to manage integration and streamline work flows, and can help companies to manage the risk of an OTT proposition using predictive analytics and consumer tracking to help assess churn.

The panel emphasised that, whatever OTT model is chosen, building and evolving the service requires a 5 to 10-year investment. Furthermore, as the service expands across multiple technology platforms and territories, quality of service becomes increasingly difficult to ensure.

3. How many people does it take to operate and maintain an OTT service?

The resources required to power an OTT platform depends greatly on the size of the proposition. Built from scratch, a large platform can require upwards of 200 people across multiple territories, with about 10% of staff engaged in in-life product management and day-to-day monitoring. However, relatively simple OTT services with less live content and more VOD, such as Mubi, can be managed with minimal dedicated resources, with a dedicated team of only 5–10 people.6

“If you don’t have anyone around when the users are tweeting, things can spiral out of control.”

The panel discussed that, as OTT is far more scalable than traditional TV, even major services like Netflix don’t require operational staff in each country where they have a presence. However, an important point for new OTT providers when it comes to resourcing is to understand potential issues that require immediate resolution, such as bad publicity on social media. One panellist summarised this view: if you don’t have anyone around when the users are tweeting, things can spiral out of control.

4. How hard is to integrate broadcast and OTT workflows?

The panel also emphasised the importance of aligning expectations across an organisation, or between an organisation and an OTT solution provider, when building an OTT service. The decision between owning the OTT service or having a managed service is largely based on cost. The former option, where the OTT provider builds and maintains its own apps, programming code and integration, can become expensive. Matching all of the OTT service components and identifying gaps across the system to ensure that it works seamlessly is particularly costly, and often companies, even those launching major services, aren’t setup to handle the magnitude of the task. The panel reinforced the notion that there can be a lot of anger from consumers if an OTT provider fails to offer a high-quality viewing experience”.

Predictions for the future

The event closed by asking the panel to discuss predictions for how the UK OTT market will evolve over the next 3 to 5 years. There was a general consensus that the OTT market will continue to grow in the UK, surpassing industry forecasts to reach over £2bn in gross revenue by 2022. Furthermore, it was widely agreed that the Winner-Take-All situation will continue, with one or two major OTT services maintaining a dominant position in the market. One panellist commented that “only providers with real brands and differentiated content will survive”.

“It’s going to be a blood bath. A lot of people are going to make mistakes.”

The majority of event participants predicted Netflix’s content spend to exceed £6.5bn by 2022, increasing from £4bn in 2016, as the dominant player focuses on premium content to maintain a top position in the industry. One panellist commented on the general move of OTT players towards favouring their own content over third parties: inevitably services will look to have their own content to maximise profits, just as Netflix had a huge Hollywood catalogue and now favours original content.

5Participants agreed that, as major OTT services continue to grow, Pay-TV operators will innovate in the space, potentially leading consumers to switch from traditional TV packages to OTT-only packages. In this area of innovation, it was posited by some panellists that interoperability will be a key driver of consumer decisions. When even participants were asked, a majority believed that the UK weekly reach of subscription OTT services with 16-24s would exceed 85% by 2022, growing from 57% in 2016. This underscored the increasing demand for OTT services across multiple platforms, which Millennials may see as a crucial differentiator.

Niche services were predicted to remain viable by holding onto their core audiences and exploring new revenue streams, such as becoming add-ons to larger services. Significantly, it was concluded by all parties that churn in the niche OTT segment will likely increase as more players attempt to enter the market. One panellist commented that there will be a lot of failed OTT services [in the next 3 to 5 years], but there will always be room for niche players.

The participants felt that investment in OTT will increase in the coming years. However, since only the most successful services will be profitable, this will lead to a number of failed services and potentially consolidation across the market. The consensus was that major services need to differentiate to compete, focusing on a strong brand and high-quality, differentiated content to survive in an increasingly competitive market.

Event organisers

ooyala logoOoyala operates one of the world’s largest premium video platforms and a leading ad-serving solution. Ooyala’s industry-leading end-to-end solutions help large-scale broadcasters, operators, media companies, enterprises and brands build more engaged and more profitable audiences. To learn more visit www.ooyala.com

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As the trusted media partner to the world’s leading broadcasters and content owners, Babcock provides the complete range of fully-managed solutions to deliver channels and content to global audiences across any platform. Our dedicated team of experts work closely with customers and industry specialists to tailor solutions for maximum efficiency. To learn more visit www.babcockinternational.com

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