World TV and video market: is OTT players’ global domination inexorable?

According to Florence Le Borgne, the OTT market will represent 14.5% of the total audiovisual media market in 2018 – a market that could reach 115.7 billion euros by 2022. So not only a real source of growth for the sector as a whole, but also a real threat for veteran players.

Q: Who is taking the lead?

Recent headlines have included Apple’s likely launch of a subscription service in the United States in the first half of 2019, before gradually expanding into some 100 countries. The service is expected to allow Apple device owners to have free access to original content developed by Apple (and in which the tech giant will be investing 1 billion USD a year) and to subscribe to third-party services, like HBO and Starz.

A few weeks earlier, we had confirmation that US cable giant Comcast was taking over Britain’s Sky, a pay-TV leader in Europe. In addition to the economies of scale and synergies that are expected to result, the merger could also enable the two partners to collaborate on the large-scale rollout of their strategy for converting pay-TV subscribers to OTT video subscribers. From a concrete perspective, this could lead to the large-scale launch of an OTT version of Sky services in Europe, providing access to original content from Sky and Comcast (which also owns NBC Universal) and to third-party services such as Netflix for video and Pandora for music.

Both of these announcements are symptomatic of American players’ international expansion drive, both as a way to offset the impact of the saturation, if not decline, of their national market, and to face up to OTT’s increasing weight in TV consumption, and so in the strategies of the sector’s players.

They also reveal two other phenomena:

• The growing role that devices are playing (Apple’s original content is expected to be available only to Apple brand device owners, while Sky is focusing a great deal on technological innovation);
• The multi-content approach (Apple will be offering, music, video on demand, TV channels and audiobooks, added to which the company is apparently looking to launch a newspaper and magazine service. The inclusion of Pandora in the Comcast product line may well foreshadow a similar strategy from Sky).

Q: What is behind this new state of affairs?

This swift evolution of the status quo is being spurred in particular by the tremendous freedom that mobile devices – and especially smartphones – have given users, coupled with affordable and widely available very high-speed internet access. With a single device that slips into our pocket, we have virtually permanent and ubiquitous access to video, text and audio, where only 15 years ago we needed separate devices for each type of media, and without the ability to consume most of it outside the home. Native internet companies were more naturally able to develop services tailored to these new screens, and the business models to match, than veteran TV industry players who, like record labels 20 years ago, are feeling the full blow of this digital revolution.

It should also be said that the companies attracting the most attention – notably Apple, Amazon and Google – have both content and devices to offer, which is not the case of TV networks or of Netflix, despite its being currently viewed by TV networks as their chief rival. Which is no small difference. On the one hand we have players for whom content is essentially a lost leader for selling devices and/or collecting personal data and, on the other, we have players for whom content is the only source of income.

Q: What will happen over the next five years?

The future of course looks brightest for OTT players. Which does not mean that linear TV will disappear during that time, nor that the media companies that own these channels will close up shop. All are by now aware of the need to undertake their digital transformation, and to develop a powerful OTT strategy. But not all are likely to succeed. Things are changing rapidly, and there is no guarantee of these veteran corporations’ ability to evolve at least at the same pace, to fully reinvent themselves. But they are entering this new battlefield with some serious assets:

• Strong brand recognition in their core market;
• Detailed knowledge of their local audience;
• A great store of high quality local content.

They now need to prove their ability to deliver innovative content, tailored to new screens and to a viewership whose demands have changed. And to design business models that no doubt combine ad revenue derived more from targeted adverts and direct payment from consumers, either subscription or unit sales. Plus, perhaps the greatest challenge of all, the ability to transform the image of these old brands that today are associated with yesterday’s world of television, into something much more current and forward-looking.

Between now and 2022, we forecast that the global linear TV market will grow by an average 0.8% a year, compared to an average 14.2% for OTT services – which is nonetheless lower than it has been in recent years. These averages can be deceptive however. The linear TV market in North America has already begun its decline, and will remain on downwards slope through the coming years. Europe is expected to still have some room to grow, albeit at a rate that is below the global average. Only TV markets in Asia-Pacific, Latin America and Africa-the Middle East still have real growth potential. In Europe and especially North America, it is OTT’s development that will sustain the TV and video market’s overall growth.

The main question now is how much of this growth veteran TV industry players will be able to grab.