Outlook Insights Hot Topics the Rise of OTT Is Generating Questions for the Industry—But Consumers Just See Choice and Opportunities

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Outlook Insights Hot Topics the Rise of OTT Is Generating Questions for the Industry—But Consumers Just See Choice and Opportunities Outlook insights Hot Topics The rise of OTT is generating questions for the industry—but consumers just see choice and opportunities www.pwc.com/outlook ArticleThe rise of subsection OTT is generating questions for the industry—but consumers just see choice and opportunities OTT A new world of …generates disruption: OTT services… new questions the In November 2014, it was revealed that As the flow of new OTT offerings the new comedy Unbreakable Kimmy continues in markets across the world, Schmidt—produced by the team behind what does this say about the industry? 30 Rock, Tina Fey and Robert Carlock— Simply put, we’re currently positioned was moving to Netflix even before at the end of the beginning of the OTT airing on NBC. At the time, a show disruption curve, with a fragmented migrating from a major US network and increasingly crowded and frenetic to a subscription-based streaming site marketplace where most players are came as a surprise to many observers. feeling their way forward while jostling But its enthusiastic take-up by Netflix for position. For evidence, look no further customers suggests such moves won’t than the daily industry headlines: a seem surprising for much longer. single day in March 2015—by no means atypical—saw announcements about BBC download According to news reports, Netflix Worldwide planning digital platforms in clinched the agreement for Unbreakable Asia, ex-Disney and Microsoft executives within four days flat, with the move An expanding flow of over- joining the Netflix board, and HBO signing to Netflix then enabling the writers the-top (OTT) content up for a daily OTT newscast from VICE. to reinstate some of the saucier jokes services are being rolled that wouldn’t have made it on to NBC. Amid this frenzy of activity, it’s hardly out in markets worldwide, both These aspects of the deal underline two surprising that all participants in the from new “pure-play” OTT entrants defining characteristics of the over- value chain—OTT entrants, incumbent and traditional broadcasters adding the-top (OTT) world: faster decision- broadcasters, and content companies an OTT service to their portfolio. making, and a greater ability for talent —are facing more questions than to reach its audience in the way it wants. answers. And the questions are gaining greater urgency as TV unbundling and As entrants and The forecasts contained within this OTT move into the mainstream, with incumbents jostle for year’s Global entertainment and media existing customers engaging in position, the disruptive outlook reflect that the long-predicted “cord-cutting” or “cord-shaving” and frenzy of activity is creating a OTT world is finally here. Alongside the new customers becoming “cord-nevers”. complex, fragmented patchwork of “pure-play” OTT entrants rolling out All of this could herald a structural often-overlapping content services, worldwide, incumbent broadcasters decline in subscription TV revenues— using a diverse array of business, are also launching their own parallel or a scenario where multiple pay-TV operating and pricing models. OTT offerings to become dual-mode subscriptions become the norm in a players. The result is an increasingly typical household. Or maybe both. complex patchwork of OTT services Consumer pressure for with a spectrum of business models— Which scenario—or blend of scenarios— easier and more seamless pure subscription, subscription with comes about will depend on how several ways to search for content advertising support, and pure ad- questions play out. Questions like: what across services will ultimately lead supported—covering the waterfront of the “new” TV bundle will look like—a to greater integration through linear, on-demand and catch-up content, random scattering of OTT offerings, or aggregators and/or devices— and often overlapping with each other. a more coherent collection still centred leaving the eventual winners as the around a cable or satellite subscription? talent behind the content, and the Also, will we go “back to the future”, audiences that they can reach more with consumers ending up paying the directly than ever before. same amount for the same or perhaps less content than today? And, as they enter the OTT era, how will incumbent broadcasters manage the infrastructure originally built for linear delivery? Outlook insights: An analysis of the Global entertainment and media outlook: 2015 –2019 may require some renormalisation of the rights to particular content such as “We’re currently positioned at the sports, which in some cases is effectively blocked from access in other territories. end of the beginning of the OTT The second way in which the landscape will become integrated is through disruption curve, with a fragmented devices, with a smarter version of today’s “smart TV” being well-positioned to play this role. Ultimately these two trends and increasingly crowded and could converge, through the creation of a plug-in dongle that turns any device frenetic marketplace.” with a screen into an entertainment unit that reaches seamlessly across the digital content ecosystem. Some players are looking to sell their The reintegration new OTT subscriptions like health club memberships—but they may not have phase looms… considered what will happen if all the members turn up at the gym at the While the OTT landscape’s current same time. complexity may increase for a while as these issues play out, PwC’s view is that As companies strive to answer these pressure from consumers will ultimately questions, some imperatives are trigger a process of reintegration emerging for success in an OTT world. between the different OTT consumer One of these is better cost modelling services at the point of consumer capabilities to ensure a profitable search, discovery and delivery. The balance between cost, video quality and current marketplace resembles a series bandwidth when streaming content. of interlinked and overlapping “walled Equally vital is selecting the right partner gardens”, which consumers often need or partners to manage streaming. And in order to trawl through separately a related issue is the choice of whether to find the content they’re looking for. to build, rent or buy the back-end: Time Instead, they want to be able to make Warner’s HBO, for example, opted to sense of the OTT/linear landscape team up with MLB Advanced Media for by searching across it in an easy and its stand-alone streaming service. seamless way. We believe there are two main ways that this will happen. One is through the emergence of new aggregators that will provide content discovery for consumers across multiple networks. To work across global borders, this type of service OTT disruption Article subsection ….but all players face For the incumbent distributors/ in OTT will likely be the participants at broadcasters, the challenge is how the two ends of the value chain: first, challenges to get there to manage and retain their audience the talent that gains more direct, through the transition from traditional faster and cheaper access to its However, the industry has some way consumption to OTT, without audience through the democratising to go before this future emerges. And cannibalising or losing them along the power of digital connectivity and to be around to play a role in it, each way. So they need to work out how devices; and, second, the consumers participant in the value chain—OTT to both maintain their audience and in that audience who get to find and entrant, incumbent distributor and convert it. experience the content they love, content company—faces distinct wherever and whenever they want it. And for the content community, the challenges to secure its position and Everything else is about linking the challenge is about thinking beyond the avoid falling by the wayside. two—and that role is currently up traditional linear world and finding the for grabs. What are these challenges? For the new best way to reach the audience that their OTT entrants, the key challenge is how content appeals to—irrespective of the to focus simultaneously and successfully consumption mode, delivery method, on managing and enhancing both their device and time. Just because a content content roster and also their customer producer has made a comedy, that experience. Today, most players are doesn’t mean it has to air on a Thursday stronger on one than the other—but to night at 9 o’clock on a major network’s win out they need to get both right. comedy night. As Unbreakable Kimmy Schmidt demonstrates, the right audience may well be somewhere else—even global. And it also shows that the ultimate winners from the disruptive explosion 3. How should incumbent broadcasters 7. How can they continue to improve and content providers respond to— the customer’s digital experience 10 and reach—the growing ranks of around what, how, and when “cord-cutters” and “cord-nevers”? content is consumed? 4. Does lighter regulation give OTT 8. How can content distribution questions players a competitive advantage companies best align their operating over traditional broadcasters? models with that improved experience: should they build, rent 5. How long will consumers be happy or buy? to ask: to pay for a disparate, disjointed collection of services before 9. When incumbent broadcasters demanding—and being willing to and OTT players seek out delivery pay for—renewed integration? partners, what qualities should they 1. As viewing migrates from linear TV be looking for? to OTT, multichannel networks and 6. How can entertainment and media on-demand video services, what is best engage with customers 10. What new skills will different the future business model for TV? through digital channels to drive participants in the value chain their own innovation and adoption require for success—and can they 2.
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