This paper is an empirical analysis of emerging business models in the Over The Top (OTT) video content distribution sector. From an industrial organization perspective, it identifies six critical attributes of an OTT content distribution platform: ownership, programming source, vertical integration with content producers, platform/multiplatform compatibility, service type, and revenue model. Using SNL Kagan’s global database of 800 OTT distribution networks, it finds that certain combinations of these characteristics are more prevalent than others, and are more competitively sustainable within specific types of media ecosystems. The paper concludes that these ‘archetypes’ are likely to be the survivors within specific ecosystems as the OTT content distribution system continues to converge onto dominant business models.
The increasing bandwidth of broadband networks has created opportunities for OTT services to enter and erode traditional broadcasting markets. A full 25% of U.S. homes don’t subscribe to a pay-TV service any more (GfK, 2016). This trend is especially strong among the younger generation (18-34), who are much more likely to opt for alternative video delivery services. As the cord-cutting/cord-never phenomenon accelerates, the future seems bright for OTT video providers. Yet, Netflix is largely an exception in the global OTT market, where most new entrants are struggling to find traction (Agnese, 2016), and even for Netflix, subscriber growth might have already plateaued (Newman, 2016), and revenues are no longer growing exponentially (Kim, 2016).
In the absence of a truly outstanding business model, providers are experimenting with a wide variety of platforms, content sources, revenue models and multiscreen strategies. Ad-supported models like YouTube have far greater “audience enjoyment minutes” than any OTT provider; Amazon Prime Video has invested aggressively in original content (Castillo, 2016). Facebook’s video distribution is growing and Apple is planning to add video to its music service. Traditional video providers have added more features to their service package to compete with OTT: for example, CBS is now distributing original TV series exclusively over SVOD networks. Satellite TV operators are transforming themselves into internet MVPDs, such as Viasat to Viaplay, and DISH to Sling. Platforms for the distribution of content are proliferating: personal video recorders, transaction VoD, and subscription VoD, and set top boxes are deploying many new capabilities such as Roku TV that can pause and catch up live broadcasts.
Thus, despite the promise of OTT services and the threat they apparently pose to traditional broadcasters, there is no single dominant business model in the OTT video distribution sector. Instead, a wide diversity of options exist within each attribute of an OTT platform: for example, platform capability (PC/Mac, smartphone, tablet, connected TV, game console, Internet streaming players, pay TV set-top box), revenue models (free/ad-supported, transactional, subscription, app fee, premium content cost), etc.
Therefore, the objective of this paper is to investigate the OTT market from an industrial organization perspective, following the lead of Qin and Wei (2014). But unlike Qin and Wei, the paper examines not the performance of the OTT sector as an outcome of its structure and conduct, but the attributes of the OTT business models. It seeks to identify whether there are correlations between the six attributes of an OTT content distribution platform — ownership, programming source, vertical integration with content producers, platform/multiplatform compatibility, service type, and revenue model — and if yes, whether such dominant combinations of attributes constitute emerging archetypes or models for the OTT video business. Furthermore, the paper examines whether certain contributions of attributes (OTT models) are more prevalent in specific types of media systems (such as public TV dominated versus private competitive markets).
The primary data for this analysis is SNL Kagan’s Global OTT provider database, that lists 800 OTT providers from 71 different countries, and several of their attributes including platform capabilities, revenue models and programming sources. Additional information is drawn from industry reports and trade press articles. In addition, country information is coded in from sources such as the European Audiovisual Observatory, OECD, and United Nations agencies. The conclusions of the paper will be of interest to not only OTT providers, but also to media regulators and legislators.
References
Agnese, S. (2016, Nov. 22). Netflix’s Current Business Model is Not Sustainable. Ovum. Accessed at https://www.ovum.com/research/netflixs-current-business-model-is-not-sustainable/
Castillo, M. (2016, Oct. 17). Netflix plans to spend $6 billion on new shows, blowing away all but one of its rivals. Accessed at http://www.cnbc.com/2016/10/17/netflixs-6-billion-content-budget-in-2017-makes-it-one-of-the-top-spenders.html
GfK (2016). One-Quarter of US Households Live Without Cable, Satellite TV Reception – New GfK Study. Press release. accessed at http://www.gfk.com/en-us/insights/press-release/one-quarter-of-us-households-live-without-cable-satellite-tv-reception-new-gfk-study/
Kim, D. (2016). The future outlook of Netflix -- the financial perspective. Information and Communication Policy, 28(22), 1-19. Accessed at http://www.kisdi.re.kr/kisdi/fp/kr/publication/selectResearch.do?cmd=fpSelectResearch&sMenuType=2&curPage=5&searchKey=TITLE&searchValue=&sSDate=&sEDate=&controlNo=14011&langdiv=1 (Korean)
Newman, L. H. (2016, July 18). Wall Street is worried that Netflix has reached its saturation point. Slate.com. Accessed at http://www.slate.com/blogs/moneybox/2016/07/18/netflix_earnings_beat_expectations_but_the_stock_is_still_tanking.html
Qin, Q., & Wei, P. (2014). The Structure-Conduct-Performance Analysis of OTT Media. Advances in Management and Applied Economics, 4(5), 29.
