Premium OTT revenues will more than double by 2018, Ooyala-Vindicia report says

Revenues for "premium" OTT services, which include subscription video on demand (SVOD) from a variety of providers--ranging from OTT giant Netflix (NASDAQ: NFLX), to a la carte service HBO Now, to niche provider WWE Network--are set to more than double in just a few years from 2014's high of $4 billion to between $8 billion and $12 billion in 2018, according to a new report. But rising competition will make for a wild ride.

The study, conducted by London-based research firm MTM and commissioned by Ooyala and Vindicia, points to a few key factors for the predicted growth. One, the infrastructure needed to deliver premium OTT is largely in place. Two, the proliferation of cloud services and availability of off-the-shelf components means that expensive technology barriers to developing a large-scale, subscription-based OTT service have come down. Three, the willingness and ability of U.S. consumers to pay for content are helping to support premium OTT growth.

But it's not all peaches and cream for this particular OTT market segment. A number of challenges are already evident in the space as more companies jump in to the mix. Chief among them? Making sure there's plenty of content to go around.

"Content is really going to be a main differentiator between the services," Paula Minardi, digital marketing manager for Ooyala, told FierceOnlineVideo. "Content costs are going to rise over the next couple of years because there's so many more people coming into the market with competition. And also, the existing content libraries that are the most attractive have already been licensed and are locked up into long-term deals."

For example, larger SVOD providers (classified by the report as "mass-market" providers) are seeing their licensed content spend continue to increase. Netflix spent less than $2 billion on content in 2012, but will spend well over $3 billion in 2015. Amazon will spend more than $1.5 billion on content in 2015, according to the report, and Hulu's content expenditure will come close to that as well.

Another big issue--especially for niche providers such as CuriosityStream, Major League Baseball and other SVOD services--is building one's brand to be recognizable and even sought after. "Niche services will continue to proliferate," Minardi said, noting that streaming services targeting kids, sports, specialist film & TV, ethnic services, even personality-based offerings will be popular genres. The report estimated that 15 to 20 niche providers will be on the market by 2018, acquiring about 20 million or more paying subscribers.

Standing out among that wild scrum will take some work, Minardi noted. "I think that's going to be somewhat of a barrier to having a lot of services keep rising--just being able to build a brand. I think that, looking at the old cable models, you start your service using acquired libraries, just get it up and running, and then you build your brand with original content. So I think we're seeing that happening as well with the OTT market."

MTM conducted its research with 45 executives from companies with a stake in the OTT game, including media and entertainment-centered companies like Fox, Miramax and Lionsgate; streaming services like Crunchyroll, Pluto.TV and Shout! Factory; cable networks like Starz and Hallmark Channel; multichannel networks including Maker Studios and MiTu; and pay-TV providers including DirecTV (NASDAQ: DTV) and Verizon (NYSE: VZ), among others.

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