How OTT players can stay relevant & attractive for subscribers amid growing competition

The COVID-19 crisis has boosted consumer reliance on OTT, particularly during the first wave of the virus and the initial world lockdown. Netflix more than doubled its global subscriber base in Q1 of 2020. Comcast reported that streaming hours went up by 40% during lockdown versus only +8% for linear TV6.

Capgemini has released its study, titled ‘OTT Streaming Wars: Raise or Fold’, which seeks to take a closer look at the OTT (r)evolution as the market becomes more crowded and more competitive. The study aims at better understanding how data unleashes differentiation and competitive edge across strategic dimensions such as content sourcing, customer acquisition, customer loyalty and lifetime value, cost optimisation. Capgemini organised one-hour interviews with close to 50 senior media industry executives and experts in various companies. The interviews were run between July and September 2020 and geographically span the globe from APAC to the Americas. The discussions included broadcasters, telcos, right holders, pure players and key vendors.

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Online streaming has ushered in a rapid progression these last 10 years, driven by the Netflix disruption and its explosive growth since 2010, and is increasingly becoming the main choice of video consumption for consumers.

OTT consumption is no longer a platform for the younger generation only. Where those under 35 years used to be the main users of OTT, the service now leads in share of video consumption for those up to 50 years old and is nearly as popular as Pay TV for those over 50 in the US and parts of Europe.

Multiplication of Services Drives Fragmentation

In the span of a year, seven new major OTT players launched in the US market alone, including Apple TV, Disney+, Quibi, Peacock, and HBO Max – and as quickly as it was launched, Quibi has already been shut down. Moreover, as they try to position on the streaming market, some traditional media players have attempted several services launches and branding approaches. HBO for instance, who is betting on its content and premium brand to drive subscribers, has created HBO Now for people who do not subscribe to HBO through a pay TV provider, HBO Go for people who subscribe to HBO through a pay TV provider, and finally HBO Max for everyone, fueling strong confusion around HBO Max’s rollout. Then there is NBCU which has decided to introduce a totally new brand, Peacock, that will co-exist with other segmented services such as NBC Sports. Right holders such as Disney and HBO are pulling out some of their content and putting them exclusively on their own platforms. As a result, users are unable to turn to a single point of service that provides them with all the content they need. All this crowded market, multiplication of brands and new walled gardens, are leading to higher fragmentation and confusion for end users. These will have to set priorities on what their preferences are and what their budgets can accommodate. There will be higher pressures for pricing and delivery of OTT services that take into account an increase of service hopping, accelerating the battle for subscribers.

New Challenges

The fragmentation of the market and the rising competition for subscribers and advertisers is driving new challenges for the whole media and entertainment industry, which include:

Access to content: Content remains king, and access to it has become increasingly complicated as right holders pull out their content to use on their own DTC platforms, and then likely distribute any new productions themselves.

Customer attention: OTT players must overcome a daily fight for subscribers, a congested market and the threat of SVOD saturation by creating a differentiating customer value proposition and a strong brand.

New CX standards: Delivering seamless, multiscreen experiences will become difficult as GAFAN increases CX standards. This becomes even more crucial as the hyperabundance of services risks customer retention, causes subscription hopping and initiates high churn rates.

Monetisation: Profitability for most players is not yet a given, which puts pressure on media companies to adopt strong monetization models. SVOD platforms are challenged by market fragmentation as AVOD and hybrid models are increasing, requiring adoption of new capabilities to differentiate within the market.

Cost efficiency at scale: Delivering a compelling value proposition requires high and reoccurring investments tightening margins for OTT players. The ability to scale platform and operations is key to amortize costs and sustain profitability.

Traditional versus New Giants

Traditional players need to redefine their role and enter the OTT space as a defensive mechanism. These players, as well as Telcos, can count on an existing customer base but need to create an ecosystem to deliver expected and relevant value. Moreover, they need to legitimise their roles of being key OTT providers for households, a challenge Apple has been struggling with for many years, despite its huge financing power.

Apple, and other technology companies such as Google and social media giants like Facebook, must validate their OTT role as they reposition around re-aggregation. With established brands, and understanding of customer needs, both traditional and giant players stand a chance to be relevant and survive.

Advertising-Based Model Accelerates the Industry’s Entry into a New Era

Traditional TV audiences are eroding. The younger generation is flocking to OTT and non-linear channels. Public broadcasting in Europe is also making the move to streaming, and demonstrating success in reaching incremental audiences.

However, standalone SVOD business models are not sustainable for everyone. In order to support the investment intense content business, platforms need to reach the right threshold of scale for their subscriber bases, which is a huge challenge in a fragmented space. Furthermore, with the multiplication of SVOD services, viewers are becoming overwhelmed with too many choices and not willing to pay for multiple subscription fees. If subscribers flee, who will support the investment?

Eyes and Ad Dollars Shift from Linear to On-demand

As consumption and attention shift away from traditional television, enter advertisers, who are looking for new ways to reach their audiences through OTT.  As a result of this new and burgeoning platform, OTT ad spending is also growing. Pixilate reports a whopping 330% rise in worldwide programmatic OTT/CTV ad transactions in 2019.

For broadcasters, building a unified distribution of traditional television, and ad-based OTT, became a real differentiator to provide incremental reach for TV ad-campaigns, while maintaining the scale of their audiences and the viability of their business model.

A Compelling Value Proposition for Brands

Beyond reaching an incremental audience, ad-based OTT services offer advertisers more attractive and targeted audiences with better attribution and measurement capabilities.

Moreover, ad-based OTT services are reinventing the viewing ad-experience to a more premium and less intrusive one, in comparison to other digital services such as YouTube.

This brings high value for brands, but it can also test viewers’ tolerance of more advertising.

What will make an OTT successful?

Content is King, but Data emerges as key success factor. Data underlies all and challenges the core business of media and entertainment companies.

Capgemini’s research reveals that content, by far, is considered as the key differentiator and at the core of the value proposition for most OTT, followed by user experience and brand. Besides content, brand, and customer experience, a fourth key pillar for differentiation emerges: Data and analytics.

Using data as a strategic asset is a key lever for creating differentiated content, brand, and user experience, and is also a vital enabler of market differentiation and profitability.

Content: Continuous provision of consumers with relevant content – Go for jewels & award winners vs large buffet of average quality (as done by Netflix) Key challenge is to decide in what to invest, depending on strategy & target audience.

Brand: Having a trusted brand with high target group awareness that stands out – Driver to acquire customers & ensure attention in cluttered market A totally unknown brand entering the market today will have major difficulties, therefore acquisitions and partnerships (for example, AT&T acquiring Warner/HBO) are on the rise.

User experience: Creating an engaging and frictionless user experience – Standards set by Netflix, seen as must have by consumers. #1 differentiator for bundling services as ‘guidance’ is core of value proposition. Must be created as holistic customer journey. Lever to engage customers and compete on war for attention with players like Fortnite or TikTok.

Data & Analytics: Capabilities to collect & assess system, user & market data – Key lever for creating differentiating content, brand, user experience and vital enabler of market differentiation and profitability, using data as strategic asset.

Raise the stake or fold

The Direction Is Set Towards a Data-Powered Media & Entertainment Industry. With OTT and streaming services, the media and entertainment industry has truly entered the age of data. The growth of digital media consumption, the launch of direct-to-consumer services and the advancement of advertising-based business models have made data strategically vital.

The development of these models is increasingly making companies data dependent, with the realization that customer and operational data can bring business value at every step of the creative and distribution processes.

The direction of being data dependent is set by the social media and technology giants who have put data, analytics and AI at the core of their business and operational models. Facebook and Google are the main players today, equally competitive in end-user attention and advertising dollars attractiveness.

Acceleration Is Required To Stay Relevant and Attractive For Subscribers, Content Providers Or Advertisers. In an algorithm-driven competition, failing to extend reach and to deeply personalize the entertainment experience, will threaten long-term survival. Media & Entertainment companies need consequently to assess their competitive positions, revisit strategic capabilities and protect content and client assets. It is equally true as companies are more and more vertically integrated (ownership of production and distribution).The direction is set.

Becoming “data-powered” requires the understanding of leaders’ best practices and to address 3 dimensions simultaneously:

1. Put data at the heart of the media company strategy together with Content, UX and Branding
2. Enhance Value Propositions and Experiences for both customers and advertisers leveraging data
3. Adopt ‘data-in-motion’ operating models, capabilities and architectures

Becoming Data-Powered Ultimately Reinforces The Local And Societal Mission And Role Of Media Companies. The age of data creates challenges for the Media & Entertainment industry as they need to learn and balance creativity, tech and data from production to distribution or monetisation.

At the same time, it creates unique opportunities to differentiate the role of medias in contrast to the global algorithm “dictate” of social media. Media & Entertainment companies must become more intelligent, trustable and relevant by leveraging both data and people to safeguard media creativity, independence and diversity.

The future is now.