Where Netflix, YouTube and HBO Now fit in the OTT industry

Netflix living room couple

What are the main types of online video/OTT providers? What are the most prevalent revenue models in OTT? And where do providers like Netflix fit in the online media and entertainment landscape?

Every day, media and entertainment companies are pouring more attention and money into over-the-top video solutions. Whether they're offering an online home for their previously broadcast content, creating brand-new content for an exclusively online audience, or discovering ways to feature their series and movies on both linear television and online video, the number and type of services available to consumers is dizzying.

So, where do providers fit in the big picture that OTT has become? Is Crackle the same thing as Netflix? Is Yahoo Screen a viable competitor to Hulu? In this quick look at the online video industry we organize these video content providers into groups that hopefully will give a sense of the different business models at play.

Most providers could safely be organized into groups, or pillars, that hold up the overall platform that is OTT entertainment. A few, like multichannel networks, straddle the divide between business models and platforms, and some, like Vimeo, provide both subscription and ad-supported services. How do each of these tiers approach the online video market? And what are the strengths and weaknesses of each approach?

Let's take a look at each group, based on their primary business model:

 

SVOD (subscription video on demand)

Top players: Netflix, Amazon, Hulu

New entrants: HBO Now, CuriosityStream, CBS All Access

Strengths: The most appealing to consumers with an all-you-can-eat video buffet available at very reasonable prices, averaging about $9 per month. Subscription video on demand services, led by Netflix, sunk physical media stalwart Blockbuster Video and take up a huge chunk of Internet bandwidth. More than 41 percent of U.S. homes now access an SVOD service, a Nielsen report says. And among respondents in a recent Digitalsmiths survey, just over 53 percent spend between $6 and $11 per month on SVOD services.

Weaknesses: The massive popularity of SVOD has content owners hiking up the prices to license digital content, eroding profits. And despite signing on tens of millions of subscribers, some analysts worry that Netflix, in particular, may simply run out of subscribers to sign up. While that's not the only reason Netflix has expanded beyond the U.S., it does put a damper on the money to be had in SVOD--despite predictions by analyst firms like Juniper Research that SVOD revenues will reach $31.6 billion by 2019.

 

Ad-supported on-demand

Top digital properties by viewers, Dec. 2014
Source: comScore
 

Top players: YouTube, AOL On, Yahoo Screen

The B-team: Crackle, PopcornFlix, FilmOnX

Strengths: With TV advertising dollars increasingly shifting over to digital advertising, ad-supported online video, from OTT juggernaut YouTube to content services like PopcornFlix, has a huge potential opportunity ahead of it. Within a decade--some say within five years--online video advertising revenues may skyrocket to match or surpass TV ad revenues. A year ago, that possibility was almost inconceivable.

Weaknesses: Online video advertising, like online display advertising, is hobbled by fraud issues. Brands don't have tremendous confidence that their video ads will be shown where and when they want them to be. It's still far too easy to record a fraudulent view or click on many digital ads. And as automated, or "programmatic," ad buying and selling grows in popularity, so does the risk of a brand's ads showing up on sites where it doesn't want to be seen--like pirated video sites.

 

User-generated content (including live streaming)

Top players: YouTube, Twitch, Facebook, Vimeo

The B-team: Dailymotion, Twitter

New entrants: Vessel, Periscope, Meerkat

In-betweeners: Maker Studios, AwesomenessTV, Mitu, other YouTube-based MCNs

Strengths: Viva la user revolucion! Since YouTube first launched on April 10, 2005, making it easy and fun for average Internet users to upload their videos to the waiting public, user-generated content has been a dominant and driving force for online video. It's spawned an entirely new category of media and entertainment: multichannel networks (MCNs) like Mitu, Maker Studios and AwesomenessTV. It's helped independent filmmakers find homes for their movies on niche services like Vimeo and Vessel.

Weaknesses: For all its popularity, companies are still trying to figure out how to make money with this thing. We're not talking about "okay" money generated from ad views and clicks. Companies like Disney, Dreamworks Animation and Otter Media, which invested nearly $1 billion, $117 million and $250 million, respectively, in MCNs Maker Studios, AwesomenessTV and Fullscreen, are looking for insanity-level profits. YouTube is also no longer a completely safe bet: Facebook is leveraging its social media dominance to attract creators and advertisers to its video platform, for example. And new live-streaming apps Meerkat and Periscope could upend the user-generated segment, too.

 

TVOD (transactional video on demand)

 

Consumer VOD purchases per month. (Source: Digitalsmiths)

Top players: iTunes, Google Play, M-GO, Amazon Instant Video, VUDU, CinemaNow

Competing players: Cable/IPTV/satellite providers

Strengths: Transactional video on demand is all about immediacy: Consumers can often access movies and TV series much sooner after their general release, and they usually have the option of either renting or buying content. Some providers like iTunes and Google Play sell downloadable content, while others like M-GO offer cloud-based content.

If the TVOD service is a member of the Ultraviolet consortium, viewers have added assurance that their purchased digital content will always be available on that cloud-based provider in a "digital locker" even if they stop using a particular service, or if a TVOD service goes under--as a few, like Target Ticket, already have.

Weaknesses: Consumers have never really cozied up to TVOD the way they should have, and that has really impacted this segment. A Mediabug study in 2014 of UK online consumers found that only 21 percent of them have ever paid to rent a movie or TV show online, and just 24 percent had a download-to-own library of content. And a PricewaterhouseCoopers study forecasts that while "global electronic home video revenue" will grow at a CAGR of 19.9 percent between 2013 and 2018, streaming services will see the fastest growth rate, 28.1 percent, reaching $22.7 billion by 2018.

When older movies are readily available to stream on either subscription or ad-supported services, viewers have less reason to buy them. And while newer movies may be attractive to buyers, TVOD's biggest competitors--SVOD providers--are actively working to close various release windows and sign exclusivity deals (like Hulu grabbing OTT rights to a Walking Dead spinoff that has yet to even air) so their customers don't have to wait so long. A recent DigitalSmiths study found that among pay-TV subscribers, just under 25 percent purchased VOD movies from their providers, while just over 23 percent of consumers surveyed use online TVOD services like iTunes or Amazon. With low consumer confidence, a business model that often conflicts with providers' other models, and stiff competition, TVOD providers are biting the dust early and often. Remember Target Ticket? Redbox Instant? Samsung Video & Media Hub? Microsoft Xbox Entertainment Studios? They won't be back.

 

Linear OTT (including virtual MVPDs)

Top players: Sling TV, PlayStation Vue

The B-team: FilmOnX

New entrant: YipTV

Rumored entrants: Apple TV, Comcast

Strengths: With a growing cord-cutter demographic and an all-digital ecosystem shifting into place, content owners, broadcasters and distributors are coming around to the idea that online is the place to be. Dish Network-owned Sling TV proved the use case for virtual MVPDs, launching first with a bare-bones 16 channels and a $20 monthly subscription price.

Update: On May 7, YipTV launched nationwide, bringing 50 initial licensed linear channels to multilingual--mostly Hispanic--audiences and illustrating how quickly the virtual MVPD segment of the online video industry is changing.

And FilmOnX sent an update to FierceOnlineVideo, noting that in addition to streaming 600-plus TV channels (in an aggregator setup of openly available, already-streamed linear channels similar to RabbitTV), the company is "back to producing 3-6 hours of live television per day" and its main channel, FOTV, is carried by Dish Network.

Weaknesses: Again, content licensing could be a sticking point for new virtual MVPDs. It's rumored that ESPN is charging SlingTV as much as $6 per subscriber, eating up a huge chunk of the base subscription rate. And it's certainly not out of the question for existing broadcasters and distributors to simply launch their own services, with either a subscription or ad-supported model. CBS already has a linear component to its CBS All Access service, offering subscribers the ability to watch their local affiliates in certain markets. Further, subscribers have fewer options than they do with TV Everywhere, for example--they can't record linear OTT programming, and shows aren't always available on-demand after they're broadcast. That has skeptics scoffing.

Basically, the killer app, or ultimate business model, for linear OTT hasn't arrived, and even low prices may not be the best differentiator. As one journalist put it, "What if saving money isn't the main reason that I and so many others are going without cable?"

 

TV Everywhere

Top players: Major broadcasters like ABC, CBS and Fox; cable/satellite/IPTV operators; networks like HBO, AMC

 

Just over 25 percent of subscribers surveyed have downloaded a TVE app. (Source: Digitalsmiths)

Note: Wait, you say--TV Everywhere is not OTT! We're including it because there seems to be some confusion out there between TVE and services like CBS All Access or Sling TV. Basically, consumers can't subscribe just to TVE in the way they can subscribe to SVOD or linear OTT services: They must have a pay-TV subscription to access TVE.

Strengths: Unlike virtual MVPDs, which face an uphill licensing battle on top of the usual growing pains of new businesses, TV Everywhere has had more than half a decade to develop. And while some subscribers have complained about the slowness of TVE rollouts, every major cable operator now offers TVE as part of their subscription services. While TV Everywhere is not OTT video, it's a strong competitor to linear OTT companies, which do not yet have the depth of content offerings that many TVE products have already established. TVE's biggest strengths lie in pay-TV's leverage in content negotiations, an established subscriber base, easier authentication than with some OTT services, and a high quality of service thanks to most operators' established infrastructure.

Weaknesses: Surprisingly, customer perception of their pay-TV provider and awareness its services could be the make-or-break factors for TVE. Certainly, pay-TV operators have struggled to build awareness and usage of TVE. The Q4 2014 survey by Digitalsmiths found that just 25.2 percent of subscribers have their provider's TVE app on their mobile device, and 6.6 percent don't even know about TVE. Even more damning, just 10.7 percent use TVE services daily; most use it less than once a week. That's slightly better than the same period in 2013, but not by much.

Further, many disgruntled subscribers don't seem to care that TVE is available to them. In a new survey by Limelight Networks, 16.05 percent of participants indicated that they would consider cutting their pay-TV subscription if they could directly subscribe to the channels they want. Rising prices are another factor. The fact that TVE services are compatible with far fewer devices than OTT streaming services can be a serious disappointment to customers as well.

Pay-TV operators are responding to the OTT threat by offering slimmed-down channel packages with corresponding TVE service. But if viewers are serious about having specific content choices, better control of entertainment costs, and the ability to access their content on any device, TVE's current services won't keep them.

Where Netflix, YouTube and HBO Now fit in the OTT industry
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