The OTT Playbook: Success Factors for Video Services

A Parks Associates Whitepaper Developed for 2 All rights reserved | www.parksassociates.com | © Parks Associates Marketplace The Latest Chapter inaCompetitive Success Factors for Video Services The OTT Playbook: service provider DISH Network to introduce an OTT service within the next few months. withinthenext service provider to introduce DISHNetwork anOTT service Many in the U.S. satellite expect service. munications market jointly launched their shomi OTT Canadian operators Cable andShaw Rogers Comand Foxtelinitshomemarket. - services Go BeTV, Australia’s services. have alsointroduced OTT new Foxtel recently unveiled Presto itsnew Now offering. European pay-TVdo sowithitsSky Other players,TV including Orange, Viasat, and revenues aheadofdirectcompetitors. wasoneofthefirstinEurope U.K. pay-TV to leaderSky tooperators all consumers, are attempting offering to claimtheirshare onlineservices ofOTT Initially, operators offered only to multiscreen their pay-TV services subscribers Pay-TV space. providers addressing are theOTT quickly offering have players encouragedseveralan OTT new to videoservices. offer theirown OTT to of professional success ofNetflixandthehelpcompanieseasilylaunchavailability services creating itsown content andlicensinglocal-languagecontent to strengthen itsposition. The After substantial growth in the U.S., Netflix is now expanding into new global markets of themore traditionalplayers market. inthe TV are growing services many to rival Netflix andothersuccessfulOTT eachhopingto establishtheirposition inthefuture ofthevideoindustry. services, own OTT throughout thevideoecosystem aswell asmany non-traditionalplayers are launchingtheir spacethe pushinto hasheightened theOTT thecompetitive tension While pay haslongbeenahighlycompetitive marketplace inmostdeveloped nations,TV aswelldistribution asthefloodgates ofnewcompetition. ofcontent delivery hasopenedanewfrontier of (OTT) Over-the-top

. Companies from . Today,large , Content producers and cable networks are now entering into the fray. Building upon its HBO Nordic OTT service in Northern Europe, HBO announced that it would expand its OTT direct-to-market offering into additional markets in 2015. U.S. broadcaster CBS added a new subscription OTT service, CBS Direct Access, and stated its intent to also launch a direct-to-consumer OTT service in 2015 for its Showtime premium channel. Movie studio Lionsgate announced plans to offer a subscription OTT service, partnering to do so with the operator of the Tribeca Film Festival.

Several other players have either entered the space or are considering their options to offer an OTT service.

• Google already offers professional content through YouTube and is channelizing YouTube content.

• Amazon’s Instant Video service is gaining momentum by leveraging the company’s online commerce site and its CE products.

• Microsoft and Sony both offer transactional video services through their game consoles and have the ability to offer much more.

• Apple, Roku, Samsung, LG Electronics, and many more offer services and partner with others to distribute content through their devices. The OTT Playbook: Success Factors Playbook: The OTT for Video Services

Traditional print media firms are joining the market as well, moving beyond online portals for their publication brands and adding a substantial amount of online video content. These companies blur the line between subscriptions to printed magazines and online video services. Not only are giants like TIME Magazine and The Wall Street Journal adding video, emerging publishers like VICE. com are using video as a critical part of their value proposition.

The net result of all of these OTT activities is a great deal of uncertainty and experimentation as companies seek the right mix to create a successful OTT video service.

3 17.4 hours per week.

4 All rights reserved | www.parksassociates.com | © Parks Associates The Reality of The Reality Viewer Habits OF SERVICES. NEW OTT CHANGING CONSUMER HABITS ARE DRIVING THE INTRODUCTION including both programming andmovies. TV Importantly, theonlinecontent beingviewed includes longer-form content, platforms.instead usingon-demand entrants. Consumers are market andnew increasingly moving away industry from linearvideoservices, TV strongand tablets. amongyoung consumers,notlostonthetraditional This increase afact isparticularly Consumption ofonlinevideoisincreasing across allplatforms, including computers,TVs, smartphones, viewing ona viewing TV. third ofnon-linear video represents one- increased, Internet hasviewing While DVR-based 2010 10.4 © PARKS ASSOCIATES OF Broadband Homes watched an average of

NON 2010

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2014 HOURS .

AVERAGE NUMBER OF HOURS

WATCHED PER WEEK Hours ofLinearvs. Non-Linear Video 20 10 15 Consumption onAll Platforms 0 5 2010

Linear Video U.S. Broadband Households 022013 2012

Non-Linear Video © Parks Associates 2014 ACCORDING TO DATA SHARE OF TIME WATCHED BY DEVICE FROM OOYALA’S Q2 2014 AND VIDEO LENGTH GLOBAL VIDEO INDEX— Q2 2014 60% The majority of time spent viewing online content is on videos of 10 minutes or more. 40% Videos of 30 minutes or more represented over 25% of content 20% viewed on computers, over 40% of content viewed on tablets, and over 60% of content viewed on 0% DESKTOP PHONE TABLET CTV Internet-connected TVs. 10-30 MINUTES 30-60 MINUTES 60 MINUTES OR MORE © Ooyala

Perceptions are changing as well. The greater availability of services, Perception of Internet Video by Age improved quality of delivery for OTT, U.S. Broadband Households and the greater awareness among In thinking about your video viewing preferences, consumers have improved the do you agree or disagree with the following statements: perception of OTT video services. "Online video is just as good as pay-TV"?

40% While 86% of U.S.

broadband households 30% Success Factors Playbook: The OTT for Video Services subscribe to a pay-TV service, over one-quarter 20% of consumers under age 10%

34 believe that online AGREE HIGHLY % RATED

video is just as good as 0% pay TV. 18-24 25-34 35-44 45-54 55-64 65+ AGE OF HEAD OF HOUSEHOLD

The change in both usage and perception is startling to traditional players and inspiring to

new entrants and has encouraged the rush to explore the OTT arena. 5 6 All rights reserved | www.parksassociates.com | © Parks Associates ALL WILL BE SUCCESSFUL. WHILE MANY COMPANIES ARE ENTERING THE OTT VIDEO SPACE, NOT Successful services build characteristics that puttheminapositionto buildcharacteristics succeed:Successful services from thosethat struggle? apart What videoservice setsasuccessful OTT Tesco thatitacquired in2011. onlinevideoservice isplanningto sellitsBlinkbox that inretailerthe samemonth,U.K.Redbox due to reported Earlier uptake. newspapers lower-than-expected 2014,U.S. October In company telco kiosk withDVD-rental Verizon streaming partnership discontinueditsOTT Already, several strong, have well-funded efforts beenunableto adequately capture consumers’ attention. Success Factors Services for OTT FACTORS Experience User & Effective Engaging Models Business Sustainable and Appealing Content Compelling Mass Critical Reaching Reaching Critical Mass Compelling Content critical mass of customers will take longerthanmany massofcustomers companieswillanticipate. willtake critical However,and seerapiduptake. inanincreasingly crowded space, buildinga market a quick payoff.game rather than expecting will enticeconsumers services Some needto bepreparedCompanies videoservice for considering anOTT thelong massofcustomers.over oftimeandbuildacritical aperiod must beableto demonstrate valueto consumers services OTT becamepaying tocustomers they customers. appreciate learned thevalueofservice, premium offering builtabaseofviewers muchmore slowly. Again, massof asacritical fee-based Its catch-up service. Hulubeganasanad-supported paid streaming service. nience ofstreaming, and Netflixwasableto transitionthisbaseofcustomers to anew, increasedvice. asusersrealized Usageofthestreaming service thevalue and conve Netflix’s beganasafree streaming service “extra bases over time. to theironlineormobileoffering. reality, buildtheircustomer In successfulservices enter believingthat themarket consumers will services Many OTT OTT services to asto beselective whichcontent services is availableOTT to users. contentHigh licensing costs and windowing considerations force providers of clever businessmodels, cannotovercome orlow pricing content. alackofattractive Special features, service. consumers to to use or innovativesubscribe an OTT marketing, for decision factor service. for is theprimary Thean OTT content available on a service viewersOffering something interesting tosuccess watch factor isthemostimportant ” feature forser of itsDVD subscribers quickly flock quickly - -

Successful services balance costs with the following content considerations: FACTORS

FRESH & CHANGING—Services must be able to keep the selection of content fresh, Reaching introducing new content weekly or daily. Doing so will provide users with a reason to return Critical Mass to the service. If users regularly fail to find interesting content upon visiting a service, they are likely to abandon that service and try another. For service providers, a growing disillusionment Compelling with the content selection will show up as shorter viewing sessions, an increased volume of Content videos abandoned prior to show credits, and service logins without any viewing of content.

ADEQUATE VOLUME—Services must provide an adequate volume. Over half of Netflix and Appealing and Hulu viewers watch three or more programs in a single viewing session. One-quarter watch five Sustainable or more programs in a single sitting. In this era of binge viewing, viewers will quickly work their Business way through their most-preferred content. Since each user will be interested in only a portion Models of a video library, the volume of new content and of the library overall must be adequate in order to keep users interested. Engaging & Effective EXCLUSIVE ACCESS—Offering exclusive access to popular content, even for a limited period User Experience of time, is a powerful way to attract consumers to a video service. Consumers have proven willing to pay for early access to content, and fans of particular programming often go to great lengths, even piracy, to access content that they seek.

Content exclusivity is expensive, since the video service must pay the content rights holder a hefty premium in order to prevent competitors from licensing the same content. For this reason, only the largest market players can afford to acquire exclusive access to popular, current content.

Instead, several services are now creating their own content, which gives them the appeal of exclusivity and greater control over the content. HBO has been using this approach for its premium movie channels for many years, with shows such as The Sopranos, Boardwalk Empire, and Game of Thrones actually driving subscribership. The OTT Playbook: Success Factors Playbook: The OTT for Video Services Today 43% of HBO customers claim that the company’s original series programming is the primary reason that they subscribed to HBO.

Some large OTT players, including Netflix, are investing in original content, hoping to achieve similar results.

Another approach is to acquire exclusive rights to international content that may be popular in other markets but is not available in the OTT service’s target geography. Exclusive rights to international content are less expensive than those same rights in the content producer’s home country, but the content will likely be appealing to some consumer segments.

Content can be a key differentiator among services and can help define an OTT service’s branding, marketing, and positioning against competitors. These three factors are content 7 cornerstones for any competitive service, including for publishers such as TIME or VICE. 8 All rights reserved | www.parksassociates.com | © Parks Associates FACTORS Experience User & Effective Engaging Models Business Sustainable and Appealing Content Compelling Mass Critical Reaching Average Monthly Expenditure onDigital Video AVERAGE SPENDING PER MONTH $20 $25 $30 $35 $10 $15 $5 $- 35 Online Video Online Subscribers Service Renting video downloads video Renting downloads video Buying services video Internet subscription, On U.S. Appealing andSustainableBusinessModels Appealing invites price-based competitionorpresents theperceptioninvites ofbeinga price-based “lesser” service. expensive willhave to prove theirvalueto consumers. However, alessexpensive service thatare more ofEurope).for Services (£5.99 intheU.K. pricing and€7.99inotherparts entrantshave establisheda$7.99baselinecurrent market content. Netflixandotherearly of subscription services, most transactional services have struggledwithuptake. services mosttransactional services, of subscription pay more for services digital contentof transactional onamonthlybasisthancustomers ers faceapurchase wantto decisioneachtimethey seesomethingnew. While customers have often the most current content, but us that are (rental transactional & EST) Services offer usersquickaccess services Subscription maintain relationships withexistingdistributors, includingpay-TV providers. and businessmodelsthatappealto consumersandstillallow thecompany to faceauniquechallengeinbusinessmodels. service These players mustoffer pricing Content producers that andcablenetworks are establishing faceahighhurdle viability. to achieve market users. services As aresult, OTT new competitors thatare ableto oncontent getbetter dueto pricing theirlarge baseof are atacostdisadvantageto pay-TV providers services andlarger OTT addition, new ofcontent licensingagreements. aspart a minimumnumberofsubscribers In guarantee mustoften high per-user costofcontent licensing, services emerging OTT provider,sustainable for theservice adifficultbalanceto additionto achieve. the In mustbeappealing The businessmodelforservice anOTT Broadband Households 35 Transactional Service Users © Parks Associates All Broadband All Households to a volume of selections but often lackto butoften avolume ofselections adirect-to-consumer to consumersand - Ad-based models have the lowest barrier to usage for viewers, have a high upside potential for popular content, and can monetize both long and FACTORS short form content. Reaching Critical However, ad-based models alone may not retain users as effectively as subscription or Mass transactional models. Advertising-based models or combined subscription/advertising models like Hulu Plus allow services to be profitable despite a low or no monthly charge to consumers. Compelling Content Because they face low consumer-paid revenues, successful OTT services leverage their understanding of user behaviors to enhance monetization of their services, regardless of Appealing business model. and Sustainable • Those with transactional services use this information to Business Models “merchandise” content, tailoring placement of recommended content within the user interface in spots most likely to trigger a purchase. Engaging & Effective • Subscription services examine viewing behavior beyond User selected titles in order to offer a stream of content that keeps Experience viewers engaged.

• Services that include ad-based support use their familiarity with users to optimize both the ads shown and the volume of ads presented to consumers, preventing abandonment of the service due to over-exposure of advertising.

Engaging and Effective User Experience

In a crowded market, differentiation becomes a key element for success. “Me too” services that are virtually identical to (or are perhaps lesser versions of) other services in the market Success Factors Playbook: The OTT for Video Services will not survive. In order to gain attention and users, a successful service must be able to cultivate distinguishing characteristics that set the service apart from others in the marketplace.

While content and business model certainly impact uptake, user experience will greatly impact a service’s ability to retain users. Successful services understand that the user experience includes every element of the service, from login to logout, and work to optimize all aspects of the service. Because of the growing number of new entrants, services have to prove their value to consumers quickly or risk being set aside for alternatives. The authentication process must be easy and direct. Discovery must minimize the time and effort between first glance and content selection. The quality of delivery is best when not

noticed, including skips, restarts, or other anomalies.

9 10 All rights reserved | www.parksassociates.com | © Parks Associates Future Considerations FRAGMENTED. TO BE HIGHLY COMPETITIVE AND HIGHLY THE FUTURE FOR THE OTT VIDEO SPACE LOOKS the long term survival oftheirservice. survival the longterm spacewillneedto dothefollowingEntrants into theOTT inorder to preserve Be adaptable Be tracking viewing preferences viewing tracking for different members ofthesamehousehold. adapted its recommendation feature to allow multipleprofiles, separately has alsocontinuedto For innovate initsuser interface. example, theservice businessand a separate videostreaming business.a DVD-by-mail Netflix mously reversed itsdecisiononannouncedplansto splitthecompany into response towas addedin2010.In upsetcustomers andinvestors, Netflixfa optionin2008,HuluPlus withoutafee-based Though Hulucameto market els, features, offerings, service andcontent mixsince theirinitiallaunch Importantly, NetflixandHuluhave bothadapted theirbusinessmod willreturn. thatthey likely give consumersafeeling ofinvestment andownership, itmore making deliver acompellingpersonalized experience. Overall, successfulservices friends, andconsumer segments allows theprovider to anticipate and intoInsight usagehabitsandpreferences ofindividuals, households, userexperience.maintaining aquality elementincreating andData analyticsisanimportant andpersonalizationDiscovery have become keyelements forservic OTT simple, useinterface. easy-to- limiting optionsto thosethatare to meaningful theuserandproducing a to viewers. Personalization decreasesintheuserexperience, complexity moretions. theadexperience personalized palatable Delivering adsmakes However, personalizationisbecomingmuchmore thanrecommenda- consumers’which impacts to findandchooseinteresting ability content. es. Many services now includepersonalized recommendation andsearch,Many services - - - . FACTORS Experience User & Effective Engaging Models Business Sustainable and Appealing Content Compelling Mass Critical Reaching The willingness of Netflix and Hulu to respond to consumer and business needs iROKOtv, an OTT video and adapt their market approach allowed service for Nigerian movies, them to continue their growth. is an example of the

Other OTT services will need that same level of adapt- importance of adaptability. ability. With an abundance of new OTT entrants, com- The company began as panies must be prepared to shift their approach as the an ad-supported service. market changes. Service providers will need a strong iROKOtv later added a understanding of the consumer, including their habits user-paid option for newer and preferences. Companies can potentially track ev- film releases, adapting its ery aspect of the user experience, including extensive business model based in part details on login, discovery, selection, and viewing. OTT on viewer data. services will need to be able to assimilate this data, find relevant trends, and improve the delivered service. The company also used data Companies entering the OTT space will need their cho- analytics to find and better sen OTT delivery system to be flexible as well, allowing market the service to expa- service providers to adapt the service based on market triates around the world—a needs and opportunities. OTT systems must also be able unique micro-segment of to handle changing content licensing requirements for online video consumers. security and content management.

Target market segments (or micro-segments)

As the number of players in the market increases, competition for customers will intensify, and differentiation will become more critical. New OTT services will need to carve out successful niches

that they can continue to hold despite competition. Success Factors Playbook: The OTT for Video Services

Targeting particular segments is a fundamentally different strategy than attempting to sell services to all consumers. Content licensing will focus on the target segment, providing greater focus and efficiency in content spend. The design of the interface and features should cater to the target viewers. Marketing, promotion, positioning against competitors, and the character of the service will all be optimized to reach the desired target. Importantly, a highly targeted segment will drive advertising- based models, making the service especially appealing to advertisers seeking to reach those consumers.

Successfully maintaining the niche in the long term will require an in-depth knowledge of the target segment and an ability to cater to their unique preferences. Companies will need to leverage their data analytics to not only understand target micro-segments but also to evolve the service over time. As the needs of the segment change, services will need to change themselves in order to remain

relevant to these key customers.

11 12 All rights reserved | www.parksassociates.com | © Parks Associates information caninform companiesatagranular level asto: importantly,Most letdatabeyour guide. Today, more information isavailable thanever before. This andtransactions.subscriptions allmethodstheprovider forms ofadvertising, willwanttovideo platform explore—multiple supports audience.approaches It’s thatthe tocritical understandthemodelthatbestsuitstheirparticular providers mustremain withdifferent flexibleandexperiment videoservice monetizationOTT manage theserulesacross abroad ecosystem isimportant. ofdevices andplatformon where thatcanhelp thecontent atechnology canbeviewed. partner Selecting owner to ensure thatcontent isusedonlyby authorized viewers orto provide geographic limitations licensing will require adherence tomanagement and otherrulesset by strict rights thecontent Many, ifnotmost,willlicensecontent from othercreators andstudios. ofthetime, Much content For withtheirown original content. itoutoftheirpark company isgoingto knock example, notevery business to newdevices. any company faces instandingupavideobusinessormigrating anexisting isalsopredicatedsuccess ofanyservice onkeytechnology decisions OTT This playbook outlines many ofthekeysuccess forservices. factors OTT The For more information, visit www.ooyala.com. Europe, andtheAsia-Pacific Japan Africa, region. Mexico. The company withpremier works throughout reseller theAmericas, andtechnology partners tered inSilicon Valley, hasofficesinNew Ooyala York City, London, Sydney, Tokyo andGuadalajara, ESPN, Telegraph Group, Media Telefonica, Face,The North Stone, Rolling Headquar andSephora. Dell Companies technology usingOoyala includeUnivision,Foxtel, Comedy Central, NBCUniversal, Telstra, through deepinsightsthatdrive increased viewer engagementandrevenue from video. integrated gives suite content oftechnologies owners thepower andservices to expandaudiences and isaleaderinonlinevideomanagement,publishing, analyticsandmonetization.Ooyala’s of asubsidiary Ooyala, Telstra delivers Corporation, personalized across videoexperiences allscreens success. audiencesengagedlongerandreturning moreto keep frequently, are ofOTT theunderpinnings analytics for Rich these business insights, driving andfor enablingpersonalized content discovery • • • • • how canbeimproved. viewer experience ofcontent shouldconsiderlicensingmore they orlessof,what kind and best, which assetsare performing what viewers’ ofmonetizationacross tolerance &other types allforms isfor ofcontent, advertising where, whenandhow theiraudienceisengaging, -

All rights reserved | www.parksassociates.com | © Parks Associates 13 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 - - - INTERNATIONAL RESEARCH FIRM ResearchResearch && AnalysisAnalysis for Digital Living Technologies

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