The State of OTT 2020
A study for the European Audiovisual Observatory (EAO) in mid-2019 suggested that the launch of new subscription video-on-demand (SVOD) services is actually continuing to expand rather than cannibalise the market for linear pay TV. Although pay TV growth has slowed since 2015, the overall pay market's growth has continued to be driven by the increase in SVOD services.
This is a potentially positive environment for some of the major players to finally launch their services. 2019 saw Disney+, BritBox, and Apple TV+ begin to enter into the already congested marketplace with somewhat mixed results.
Can The Mouse Make OTT Magic?
Disney+ launched in the US, Canada, and the Netherlands on 12 November with a mixture of content from all the major Disney brands, including Discovery, Pixar, Disney, Star Wars, and Marvel. This included 500 films and more than 7,500 episodes of library television content, as well as 10 exclusive series and films. The service will have expanded out into the UK, France, Germany, Italy, Spain, and other countries by 24 March 2020.
The service's targets for subscriber acquisition are fairly high. Back in April, Disney told investors it was expecting to have between 60 and 90 million subscribers for the service within the first 5 years. That's an ambitious goal, as it took Netflix around 5 years to achieve 60 million subscribers in a market with far less competition—albeit one which was much less mature. However, Disney are off to an impressive start with 28.6 million paying subscribers by 3 February.
These subscriber numbers need to be reached not only to reassure investors on Disney's content distribution strategy but also to justify the costs of the 21st Century Fox acquisition ($71.3 billion) and the $1.58 billion spent to acquire the remaining stake in BAMTech. BAMTech, now known internally as Disney Streaming Services, was originally spun off from MLB Advanced Media (MLBAM), the digital media arm of Major League Baseball. Disney purchased the company so it could have full in-house control over its streaming platform technology. Given that the purchase price is equivalent to around 25% of Netflix's total R&D platform spend, this could be seen as a significant saving depending on the additional investment required in the coming years.
A major economic consideration is also the licensing revenue Disney generates each year from supplying content to other third parties. With everything now falling under the Disney+ banner, the platform needs to grow its subscriber base quickly to replace the revenue lost from licensing.
Continuing to drive this growth content is key. Disney CEO Bob Iger has said that by its 5th year on the market, Disney+ will have 620 movies, 10,000-plus TV episodes, and 60-plus original projects under production.
Despite its size, however, licensing issues are still a problem for Disney in the short term as it seeks to bring an array of global rights under one platform. For example, to get the Star Wars movies available at launch in the US, it had to agree to have a small Starz network advert on Disney+, as Starz currently holds the license for the broadcast rights.
Even with Disney gradually shutting down its content deal with Netflix during the last 18 months, there are still complexities around other rightsholders. For example, part of the delay in the UK launch is believed to be due to the complexity of the broadcast rights deals for various Star Wars and Disney properties agreed with Sky.
There is also a question as to where other Disney content will sit. Disney+ will feature content rated 12A and below, but that still leaves a raft of content in Disney's catalogue that has nowhere to go in the territories where Disney+ will launch. For example, movies like Deadpool naturally sit on Hulu in the US, but the UK and other countries don't have a similar Disney platform, so does that mean these titles will ultimately still reside on Amazon and Netflix? Of course if this is the case, then it would reduce the amount of revenue Disney will lose from licensing to third parties.
Where Will BritBox Fit In?
BritBox, the streaming service from the major UK broadcasters, launched in November in the UK after previously being launched in the US and Canada. The platform contains content from both the BBC and ITV and will add content from both Channel 4 and Channel 5 from the start of 2020.
Currently, the service is focussed on delivering programmes from the various channels' archives, with the only truly new and exclusive content being Lambs of God, an Australian drama. Although original shows have started to be commissioned, the first, The Sister Boniface Mysteries,will be a spin-off for an existing and well-regarded series, Father Brown.
As with Disney+, one of the main issues the platform will face centres around existing and new programme rights. The BBC, for example, has long-held deals with both Netflix and Amazon for a selection of its most high-profile content. However, it actually produces a lot of its content through independent production companies that only grant the BBC limited rights before the companies are free to deal with other platforms. The same is true of Channel 4, which is also publicly funded.
In contrast, ITV has a large number of its own content suppliers that sit under the ITV Studios' umbrella, and so it therefore has much more control over the rights to its content. Channel 5, which is owned by Viacom, also has a similar setup.
Whatever the production model, there is also the issue that many of the key pieces of content are currently viewable via other platforms such as Netflix. While this problem is solvable going forward, at the moment, it can make the BritBox offering in terms of content seem rather lacklustre and of poor value, which is unlikely to help when building a subscriber base.
For those viewers in the UK, there is also another issue. The BBC and Channel 4 are funded (or in part funded) via a TV license fee. In the UK press, there has been a significant amount of pushback against the launch of a service where consumers could be seen to be "paying twice" for the same piece of content. Although this argument is deeply flawed—for example, there has never been any press outrage about consumers having to buy old episodes of Doctor Who on DVD—it does add to the sense with consumers and in the market that there may not be an obvious need for the service.
It will be interesting to see if access to a wealth of older content can not only develop a significant subscriber base in the UK but also bolster numbers in the US and Canada, which currently stand at around 650,000. A key strategy here could be the expansion of the service into other markets, particularly those with a large English-speaking audience such as Australia and the Nordics, as BBC content is well-regarded globally.
As a true opponent to Netflix and Amazon, BritBox is unlikely to be a serious challenger; however, don't bet against it carving out its own niche in the global market as an increasing number of rights revert or are negotiated to enable the channels to showcase new content.
Apple Takes a Bite
Apple TV+, Apple's long-awaited service, was finally launched on 1 November in more than 100 countries, including the vast majority of Europe. The service costs around £4.99 a month.
Apple doesn't bill this as a direct competitor to Netflix or Amazon at the moment, as it is not directly licensing content from other providers; rather, the subscription gives viewers access to a range of exclusive content. The content available at launch included the dystopian drama See, starring Jason Momoa; M. Night Shyamalan's Servant; Dickinson, a contemporary take on Emily Dickinson's life; and The Morning Show, featuring Jennifer Aniston, Reese Witherspoon, and Steve Carell.
The latter alone is reported to have cost around $300 million for 20 episodes, which suggests that Apple is going to have to sell a lot of £4.99 subscriptions to even cover basic production costs for some of this content. This may be particularly tough when you consider a year's subscription to Apple TV+ is now offered with all new Apple devices, which must comprise a substantial portion of the service's target market. However, there is an argument given Apple's cash reserves that this content proposition can be seen as a loss-leading differentiator in a phone and tablet market that is becoming increasingly competitive.
What About the Incumbents?
Of course, with this flood of new entrants into the market, the main services to come under pressure will be Netflix and Amazon Prime Video. They account for almost 80% of pay SVOD services across Europe. The former caused dismay amongst its investors when it missed its subscriber addition target by 2.3 million in Q2, but managed to show more progress by adding 6.77 million subscribers in Q3, which was only slightly short of its aggressive 7 million target. There was also reassurance about the US subscriber market as 520,000 new subscribers were added in Q3 after the loss of 120,000 in the previous quarter.
Growth for Netflix looks like it will continue to be delivered predominantly from the international markets, but with increased competition, the company is also seeking to alter the market's perception of what success looks like. Its CEO Reed Hastings has, for a number of months, been speaking about time being a real measure of any platform's success.
"Time will be the real competition," Hastings said at a New York Times conference in November. "You'll hear some subscriber numbers, but you can just bundle things so that's not going to be that relevant. So the real measurement will be time—how do consumers vote with their evenings? What mix of all the services do they end up watching?"
He also talked about how most consumers will likely have a number of subscriptions rather than being focussed on one before saying he, himself, was intending to subscribe to Disney+.
To this end, over the last year, Netflix has begun to release more viewing statistics than ever before. For example, the new series of Stranger Things was watched by more than 64 million households in its first week after release. However, these viewing figures alone are not without controversy. Up to about a year ago, Netflix counted a view as having watched at least 70% of an episode or movie, but in the last few months has reduced this to 2 minutes of viewing, which is likely to considerably increase reported viewing numbers while doing nothing to help their credibility.
If viewership is to become a more consistent measure of success, then we can expect the ratings companies to become more involved in publishing more precise and independent viewing data from these platforms, which will require them to be given more access to be credible.
Amazon Prime Video is still a distant second to Netflix, with just over half the subscribers globally, a total of 85 million. However, the platform is looking to innovate in different ways as it remains part of the overall Prime package rather than a standalone service.
This didn't stop Amazon from signing a major deal with BT TV in the UK to give subscribers to the service a 6-month trial of the Video Prime service as Amazon looked to expand its subscriber base. The service also live streamed Premier League Football in the UK for the first time, streaming all live matches in December 2019 as it looked to expand its live sports offering beyond tennis. The live days set new records for Prime signups in the UK, but whether the service can hang on to those new subscribers remains to be seen.
The service also continues to experiment with creating live content it can tie into product sales via the main Amazon site itself. For example, in October, Amazon partnered with Bacardi to deliver a live whisky tasting available both on site and through Prime Video. The live stream tied directly into sales of a tasting box so viewers could taste along at home. Questions could then be sent in via the Amazon app or webpage so viewers could interact directly with the whisky experts.
With the availability of the whisky tasting kit on the Prime Now 2-hour delivery service in both the UK and Germany, the product was sold out before the live stream even started. More than 50,000 viewers tuned in for the live event, showing a potential new programme type directly linking programming with sales, which could help differentiate the platform in an increasingly congested market.
Despite the influx of new competitors late in the year, 2019 was a period of consolidation for the main platforms. As the new competitors begin to flex their muscles in terms of unique content and marketing spend, it will be interesting to see if Netflix can maintain its lead position and whether Amazon can use elements of differentiation to defend its position. However, with Disney's marketing muscle and brand recognition, it would be foolish to bet against The Mouse having a significant impact.
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