The OTT Playbook, Part II: Keys to Building Momentum

A Parks Associates Whitepaper Developed for 2 All rights reserved | www.parksassociates.com | © Parks Associates Keys to BuildingMomentum The OTT II: Playbook, Part An ExplosionofNew Entrants However, isevident ofOTT theleapinnumber services across globalmarkets. or announcingplansto dosolater thisyear. today eitheroffering services active, withover 65videoservices The U.S. isparticularly market as Netflixhave aggressively continuedtheirglobalmarch, expandinginto territories. new At thesametime, existingplayers videoservices. companieshaveSeveral such introduced OTT new 2015 hasproven to theyear be ofOTT video. online world? to succeedinthe andbuildthemomentumnecessary marketplace inacrowded survive How cancompaniesintroducing services new competition for revenues. userattention andmarket lately. optionsfor The consumersmeansgreater increased numberofvideoservice game videoservices isgettinginto theover-the-top(OTT) seemsthateveryone It

New Developments in Interactive OTT Services

• In November 2014, Rogers Communications and Shaw Communications jointly launched shomi, a Canadian subscription video on-demand (SVOD) OTT video service offering a mix of U.S.- and Canadian- produced content. One month later, Bell Canada launched its own OTT SVOD service, CraveTV.

• In December, U.S. satellite pay-TV provider DIRECTV launched Yaveo, a Spanish-language OTT video service.

• January 2015 was a particularly active month for OTT in Australia. Pay-TV provider FOXTEL and content producer Seven West Media introduced Presto TV, a subscription OTT video service for television programming. Only day later, Australian joint venture StreamCo unveiled its Stan SVOD streaming service. Both were eager to enter the Australian market prior to Netflix, which officially launched in Australia in March 2015.

• Also in January, Star India released a beta version of Hotstar, an ad-supported video streaming service that provides access to TV programming, sports, and movies on connected devices, including 2G, 3G, and 4G mobile phones.

• Global retailer Carrefour launched a new OTT video service in France in January, Nolim Films. This transactional video on-demand (TVOD) service allows consumers to rent or purchase digital copies of films and includes integration with the UltraViolet digital locker platform.

• In February 2015, a second U.S. satellite pay-TV provider, DISH Network, introduced Sling TV. The service provides subscribers with access to over 20 linear cable network channels, online DVR functionality, and options for upgrades to additional channel packages.

• March 2015 saw the introduction of PlayStation Vue by Sony. Subscribers to the service can access dozens of linear cable TV channels via the PlayStation 3 or PlayStation 4 game consoles.

• Also in March 2015, cable network Nickelodeon premiered Noggin, a mobile-oriented subscription video service designed for children. CONtv, an OTT video service catering to comic book convention fans, also joined the U.S. market.

• In April, HBO opened its long-anticipated OTT service HBO Now with subscription access to a library of to Building Momentum Part II: Keys Playbook, The OTT HBO-produced content.

In addition to these active services, players across markets have stated their plans to introduce OTT video services.

SingTel, Sony, and Warner Bros. announced plans to create a new service, HOOQ, for the Asian market, including the Philippines, India, and Thailand.

Online retailer Overstock.com claimed that it would launch a video service in the U.S. market in 2015. InfiniTV is set to launch later this year in Brazil, with both subscription and transactional options.

Samsung launched an OTT service in Brazil, Moony, that provides free and subscription- 3 based access to linear TV channels. 4 All rights reserved | www.parksassociates.com | © Parks Associates representing over 20%oftheplanet’s population. watch ofconnecteddevices, onlinevideoonavariety Today, approximately 1.6billionpeopleworldwide actively access onlinevideo. inglobalmarkets haspavedservices theway for viewers to The increasing penetration ofbroadband andmobiledata That numberwillswell to over 1.3billionvideoviewers by 2019. An estimated programming 900 million access and movies online today.TV reach consumers. providershas provided channelforvideoservice to anew The proliferation ofconnected devices andassociated appstores Global Forecast:Global Viewers ofOnline Programming/MoviesTV Millions of Video Viewers 1400 1100 800 2014 2015 2016 2017 2018 © Parks Associates 2019

What Matters to OTT Video Consumers

Consumers favor OTT services with certain characteristics that make these services better positioned against competitors and a better fit with current usage habits.

THE FIRST PRIORITY IS CONTENT.

Content-related factors are the top drivers of Netflix and Hulu Plus subscriptions. Over 70% of service subscribers state that they have these services due to specific titles available through the service, and over one-third of consumers do so in order to access original content. The size of the video library and the amount of recent content are also important factors.

Top Three Reasons for Subscribing to Video Service Service Subscribers in U.S. Broadband Households

Net ix Amazon Prime Hulu Plus 90%

45% Ranking Factor Among the Top 3 Ranking Among the Top Factor

0% to Building Momentum Part II: Keys Playbook, The OTT Specic Titles Original Exclusive Size of Video Quantity of Personalized Bundled with Available Programming Programming Library Recent Content Recommendations other Subscription Service

SERVICE AVAILABILITY IS ALSO AN IMPORTANT CONSIDERATION.

While in-home viewing of content with a mobile device is common, most consumers want to watch on the largest screen available. Generally, television-based viewing is preferred to viewing on a computer, which is itself more popular than tablet-based viewing. Despite the large screen sizes of the latest smartphones, the percentage of TV program and movie viewing on a tablet is greater than the percentage viewing on a smartphone.

5 6 All rights reserved | www.parksassociates.com | © Parks Associates VIDEOINDEX — OOYALA’S 2014Q4 ACCORDING TO length ormore. consumed of10minutes in smallest amount ofcontent hasthethe smartphone Among thefour platforms, MULTIPLE PLATFORMS. CONSUMERS AN SERVICE OTT EXPECT TO BE AVAILABLE ON different videocontent. platforms connected to accessOTT wantto ofconsumerswhowatch devices beableto videoonconnected usefour ormoreAlmost one-half 4+ devices4+ Number ofAppealingNumber Devices to Watch 25% 50% 0% U.S. On-Demand ContentOn-Demand Broadband Households AND VIDEO LENGTH SHARE OFTIME WATCHED BY DEVICE Q4 2014 DESKTOP 10-30 MINUTES 3 devices HN TABLET PHONE 1 device1 30-60 MINUTES © Parks Associates 2 devices 60 MINUTESORMORE CTV Upon market entry, new OTT services face a race for content and a race to reach consumers on all of their connected devices.

However, with so many players joining the market, interesting content and widespread availability alone may not be enough to guarantee survival.

Surviving OTT Competition

The previous edition of The OTT Playbook outlined several success factors for OTT video services – reaching critical mass, compelling content, appealing and sustainable business models, and an engaging and effective user experience.

While all of these factors remain important for launching a service, the ability to become and remain relevant in a crowded marketplace requires more. Players must be able to look beyond their own services and establish strategies to achieve success in the context of heightened competition. In this sense, OTT The OTT Playbook, Part II: Keys to Building Momentum Part II: Keys Playbook, The OTT services will need to excel in several areas:

Standing Out in the Crowd

Accurate Targeting

Service Discovery and Availability

7 8 All rights reserved | www.parksassociates.com | © Parks Associates STANDING OUT IN THE CROWD view ofmultiplegames,view a widgetto for trackpitches, fantasyleagues. andstatisticstracking from U.S.-based League MLB.TV Major Baseballoffers amosaic itssubscribers service OTT Sports-related viewers. new to andword-of-mouth attract subscribers retention among existing hopesto encouragebothservice encouraging theservice socialinteraction, featurescommunity-building thatallowwitheachotherandfilmmakers.By itsusersto connect OTT playersSome are usinguniquefeatures to standout. and provide reasons to return orexpandusage. some programs withoutadvertising. programs ofaffinity These encourage usersto types invest intheservice DramaFever allows pointsfor usersto earn watching ad-basedprograms andspendthepointsto watch promotionalDistinctive programs canbeeffective tools for differentiation. Asian-language service genres,consumers withinterest languages, inparticular cultures, orinterest areas. are aggregating content are thatisappealingto specifictarget designed segments. to attract services Some to invest inoriginal content companieswithoutthecapitalorexpertise Other unique valuefor theirservices. Established players suchasNetflixandAmazon are investing inoriginal content asaway to establisha league, team, orplayer. naturally fall into this category, sport, since theirofferings services appeal torelated fansof a particular OTT leverage highawareness offerings, oftheirbrandsto draw atleastinitially. consumersto OTT new Sports- and filmstudiosare content often brandsthat are easilyrecognized by consumers. These companiescan are from usingcontent competitors. to setthemselves services apart Several Broadcasters, cablenetworks, assessuniquefeatures,struggle ifconsumersare unableto quickly benefits, andvalueproposition. willAs competitionincreases, videoservices differentiation EvenOTT quality becomesever more important. Horror OTT service Screambox promotes service Horror OTT ACCURATE TARGETING

Heightened competition forces players to find defensible niches that they can identify, target, and hold against competitors. Unless they have the financial backing to face off against Netflix or pay-TV provider- backed services, many OTT video services must tailor each part of their service to appeal to an identified target market. U.S. operator Verizon is using this approach, partnering with multichannel network AwesomenessTV to provide 200 hours of original content targeted at young consumers via two Verizon OTT video channels.

OTT services should be deployed on the connected platforms most frequently used by the target audience, a consideration that affects delivery mechanisms, app development, and content licensing. The user experience, interactive features, promotions, business models, and payment mechanisms should also be designed around the preferences and use cases that are unique to the target segment. Nickelodeon’s Noggin, an OTT video services for children, is a mobile-only service, giving parents content options while traveling with their young children.

Differentiation that targets a particular market segment is only effective if companies are able to accurately identify the characteristics, preferences, and interests of a specific consumer group.

Fortunately, IP-based video services allow services to track all aspects of a user’s interaction from login to the end. However, OTT service providers must be able to use effective analytics to optimize the service offering and experience to ensure that the target audience is both engaged and continually delighted.

Consumer preferences ebb and flow over time. to Building Momentum Part II: Keys Playbook, The OTT

Companies in many sectors originally built their offerings for a particular market segment only to find that consumer sentiment shifted, leaving their businesses at risk. Thus, OTT video services will need to continually monitor the consumption habits of consumers. They must be prepared to quickly adjust or create service offerings to meet current trends.

SERVICE DISCOVERY AND AVAILABILITY consumers andimproves competitive positioning. more platforms.connected accessiblefor Expandingthe scope ofavailable the service platforms makes to beavailable onmultiple services OTT consideration.Consumers expect Availability isalsoanimportant app store friendly. downloads by existingusers, andcarefully theapptitle, crafting to keywords, beuserand anddescription Companies canoptimize theirplacementinappstores by incentinghighuserratingsandreviews, promoting App stores from andAppleuseratings, Google reviews, inranking. factors andvolume ofdownloads askey consumers. Yet, aswell. discovery theappstore considerationinservice isakey Many companiesare leveraging thelatest socialmediatools to spread awareness with andconnect budgets efficiently. spendtheirmarketing services Thus, inhelpingOTT detailed,analyticsare actionable important and online ads toplayers increase rely often exposure on social networking among target audiences. Large offerings andpromotions. players to arepublicize theirservice Smaller usingtelevision advertising difficult. itself.must firstbeableandmotivated to userattention findandusetheservice Capturing isincreasingly butviewers userengagementandstickiness, Promotion indriving ofcontent are important anddiscovery due to theappdescription. percent downloaded theapp Thirty-six in theirdecisionto download theapp. important reviews orratingswere very and movies, 38%indicated thatuser use anappto watchprogramming TV owners whoregularly Among smartphone found theirappsimplyby browsing theappstore. Parks Associates ofvideoappusers notes almostone-third

Making the Money Work

IN THE END, SURVIVAL IS DEPENDENT UPON ACHIEVING PROFITABILITY.

The upfront costs of content, building an audience, delivery technology, and other startup costs are substantial. New OTT services crave high awareness and use, and many are willing to forego short-term profitability in order to attract a critical mass of users. In doing so, these services are betting their future on the possibility that long-term profits will offset initial losses. Ultimately, services must capture revenue- producing usage as well as effectively move consumers to more profitable tiers of service.

Several business model and promotional options beyond free trial periods are emerging for OTT services that can encourage greater and/or recurring revenues. The following represents just a few of the approaches currently available.

• Ad-free subscriptions – This business model allows any consumer to watch free, ad-supported video content but eliminates advertising for subscribers. The primary advantages are that this approach moves users to a predictable revenue stream and appeals to consumers who do not want to view advertising. However, all use is monetized.

• Restricted content subscriptions – Some services provide free access to a limited set of content in order to build a user base but restrict access to some content (often the most popular content) to paid or premium service tiers. This business model provides users with an upgrade path. However, multiple tiers of service may frustrate or confuse consumers rather than incent higher recurring revenues.

• Bundling – U.S.-based Sling TV offers access to bundles of linear channels online with options for genre- The OTT Playbook, Part II: Keys to Building Momentum Part II: Keys Playbook, The OTT specific add-on bundles. U.K.-based Sky Now TV uses a similar approach, with premium add-on packages for sports and movie content. These bundles allow users to self-configure their preferred offering and enable the service provider to match content costs per package to revenues.

• Limited subscriptions with premium transactional use – This blended SVOD/TVOD business model was popularized by Amazon Prime Instant Video. Customers have access to a limited set of content as part of their subscription. However, a substantial volume of popular content is only available for rental or purchase. This approach allows the service to offer recently released content that is more current than content available from subscription or advertising-only services.

• Loyalty programs – While OTT services can use affinity programs to build user loyalty and encourage more transactions, these programs can also be used to incent certain types of behavior. For example, services may offer loyalty points or viewing credits to encourage service registration, app downloads, social media

interaction, or posting of user reviews.

11 12 All rights reserved | www.parksassociates.com | © Parks Associates necessary to thriveandoutgrownecessary therest ofthepack. and effectively deriverevenues consumersegments from willbeableto well-defined buildthemomentum andadequate revenues.traction However, thatare designed to differentiated appeal to videoservices OTT are year, launchedoverAs dozens thenext services ofnew many willstruggle to areto gain fail. likely Others VIDEO LANDSCAPE. SERVICES IP-DELIVERED ARE SERVICES NOW A PERMANENT PART OF THE This stageofsuccesshingesuponeffectively addressing competitionandbuildingmomentumfor growth. and user experiences, face the reality of they intense competition for consumer mindshare and spending. content, delivery, withquality discovery, move pasttheinitialstagesofestablishingaservice As services new for innovative entrants. remains withopportunity ripe marketplace NetflixwillcontinuetoAlthough giants bepresent, like theOTT Building Momentum work hand-in-hand in order interest, to attract produce revenues, incent behavior, and retain customers. is inadequate. theend, must quality the businessmodelanduser experience In seek refunds if delivery canbeinterrelated andmonetizationexperiences aswell, suchasinstanceswhereDelivery consumersmay onretentionnegative impact thanproblems withvideoquality. user’s before interest canwatch they asinglevideo, inaservice anderrors inbillingmay have amore the entire experience, includingpayments Problems andadvertising. inprocessing payments canenda experience. Usersassess ordiscovery onlyontheviewing videoservice Consumers donotevaluate anOTT relateduser experience to monetization. revenueA lessfrequently issueis the considered butimportant hope thatrevenue will come. Rather, must complement the business models and experiences interests,, priorities, andusagehabitsoftheirtarget segment. • mustunderstandandcloselyfollowo atightlydefinedaudience. As aresult, theevolving services intheuniqueelementsofaservice. o assessandfindvaluequickly • •

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13 All rights reserved | www.parksassociates.com | © Parks Associates OTT services usingproven billingsolutionsfrom subscription services OTT Vindicia thatallow themto: scalability, and continuous improvement. More and more successful operators are monetizing their must combinecompelling content and value with enticing promotions, proactive retention processes, pay operators, order market, cable/satellite toIn thrive in the lucrative providers, OTT TV and MVPDs more information, visitwww.ooyala.com. Singapore andGuadalajara,salesoperationsindozens across ofothercountries theglobe. For inSilicon Headquartered Valley, hasofficesinNew Ooyala York, London, Sydney, Stockholm, Tokyo, hundreds ofbroadcasters andmediacompanieswhochooseOoyala. (U.K.) andSingapore’s (Sweden), (Spain),STV Mediaset theseareTV4 justafew Mediacorp: ofthe (U.K.), Foxtel Sports (Australia),ESPN, Univision,Sky NBCUniversal, Group (Germany), M6(France), RTL withpersonalized,video and across interactive experiences any screen.TV companies, andbrandsbuildmore enterprises engaged andmore profitable audiences, andmonetize Ooyala’s broadcasters, solutionshelplarge-scale operators, end-to-end media industry-leading capabilities for advancedbusinessintelligence andastrong commitmentto customers’ success, analytics solution.Builtwithsuperior largest premium videoplatforms andaleadingadserving company IT services Telstra, Ooyala’s comprehensive suite of offerings includes one of the world’s ofglobaltelecommunications and helps deliverOoyala content thatconnects.AUS-basedsubsidiary Promising Tech Companies” magazine. by For CIOReview more information visitwww.vindicia.com. by and recognized Business-Software.com, solution on the market one billing software as a “Top 100 IAC, Bloomberg,Intuit, Vimeo, andmore. Issue Media Next Vindicia wasrecentlythenumber ranked over $90million in annual incremental revenue for clients. Clients include TransUnion Interactive, revenuessubscription need. they Vindicia hasprocessed more than$21billiongloballyandgenerates love, they to andcompaniesconnected the customersservices to connected thesubscription keeps companies acquire andretain morepayments seamless, customers bysecure making andeasy. Vindicia innovation to consumer-facing billingto helpdigital subscription Vindicia enterprise-class brings customer acquisitionandretention. resource models, butalsoas a marketing that strengthens service fornecessity successful OTT were created from thepremise thatstrategic notjustasanoperational monetizationis critical any existingbillingsystem to resolve failedpayment ofthesecloud-based solutions transactions.Both billing andretention platform; and acustomer retentionVindicia Select™, with solutionthatworks Vindicia offers SaaS-basedsolutions: two Vindicia® CashBox®, acquisition, acomplete subscriber eby enablingfaster andimproved decision-making. Leverage • Retain • Maximize • Create • ther

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All rights reserved | www.parksassociates.com | © Parks Associates 14 All rights reserved | www.parksassociates.com | © Parks Associates INDUSTRY: EXPERTISE For more information, visit home control systems andsecurity. consumerapps, consumerelectronics, advancedadvertising, energy services, management,andsupport digital health,mobileapplicationsandservices, and television services, and gaming, Internet homenetworks, The company’s of digital mediaandplatforms, includestheInternet entertainment expertise Things (IoT), tive conferences, subscriptions. andannualservice studies, consumerresearch, custom primary research, reports, through market workshops,start-ups execu Founded in1986,Parks Associates creates research capitalfor companiesranging from Fortune 500to small company specializinginemerging consumer technology andservices. products Parks Associates isaninternationally recognized research market andconsulting Video Middleware, Metadata, Technical Services Support Set-top Boxes,Services, Gateways, Residential Electronic Program Guides, Video Search andRecommendation, Cloud-basedConsumer Multiscreen Services, BroadbandValue-added Services, Services, terrestrial/DTT), in physics from Baylor University. holds anMBAfrom of theUniversity Texas andaBA atAustin withaconcentrationinhigh-tech marketing responsibility for any inadvertent errors. foranyinadvertent responsibility Printed intheUnited States ofAmerica. ofthisbookmay bereproduced, Nopart reserved. inany form orby any from means, inwriting thepublisher. withoutpermission ATTRIBUTION—Authored by Brett Sappington. Published by Parks Associates. ©Parks Associates, Dallas, Texas 75248.Allrights Twitter ID:@BrettsView Brett asananalyst,executive hasspentover eighteen manager, years intheindustry andentrepreneur. forcesoperators andthemarket affecting theirbusinesses. personalresearch His wide television focuses andbroadband andtrends services. ontheactivities among DISCLAIMER — Parks Associates has made every reasonable effort iscorrect.to ensureParks that all information in reasonablethis Wereport effort has made every Associates assume no cloud media, video gaming, and technical support services. Brett is an expert inworld Brett isanexpert services. cloud media,videogaming, andtechnical support digital media,OTT,vices research services, team, includingaccessandentertainment As a director of research at Parks Associates, Brett Sappington leads Parks Associates ser Brett Sappington, About The Author International Digital Living International Trends, Television cable, (IPTV, satellite/DTH, Services parksassociates.com Director, Research, Parks Associates or contact usat or contact 972.490.1113 / [email protected] Brett - - - NEED TO UNDERSTAND the Evolving Internet of Things, Connected Entertainment,

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