Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Is OTT relevant beyond the U.S. domestic market? »
OTT TV Myth #8: OTT TV Is a Mature Market Phenomenon
The growing importance and opportunities presented by over-the-top (OTT) TV are not limited to mature media markets.
In fact, it is highly relevant to emerging markets, which in many cases have leap-frogged the traditional media evolution cycle to embrace digital content distribution methods.
OTT TV represents an intriguing option to roll out content internationally (assuming, that the underlying infrastructure can support video streaming).
For Myths 1-2, please see part one of “Over The Top TV trends” in our Executive Insights’ “Spotlight on Media & Entertainment” series. Myths 3-7 can be found in part two.
Myth
OTT is a mature market phenomenon
Reality
Definitely not
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
The rapid growth of China’s broadband infrastructure (~39% penetration, ~168M households in 2014), has fueled the emergence of multiple online video platforms (alternative video platforms or AVPs) with national audience reach.
A set of large, well-funded, national digital players, including Tencent, iQiYi (Baidu owned), Youku/Tudou (Alibaba minority ownership) and Sohu are driving demand for content.
These players are increasingly considered as a viable monetization alternative to traditional TV, particularly as AVPs recognize the value of exclusive premium content (e.g., Tencent’s exclusive agreements with the NBA and HBO).
Can TV organizations take advantage of domestic and international opportunities? »
Crouching Tiger, Hidden Dragon:Demand for Online Video in China Is Vibrant
L.E.K. Consulting / June 2015 LEK.COM
Note: 1Stats as of September 2013Source: L.E.K. analysis
Users of Major Chinese Online Video Providers1
Millions of users
162
Online video arm ofBaidu, leader in
mobile video users
168
Diversified digital playerranging from ads andpay-for-click services
to gaming
254
Major digital playeractive in mobile, social(QQ), gaming, onlineads and e-commerce
Previous share leader inonline video, acquired
Tudou in 2012
309
0
50
100
150
200
250
300
350
OVER THE TOP TV TRENDS
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
What cautionary tales exist for organizations that attempt to get into OTT TV without being digital ready? »
OTT TV Myth #9: TV Organizations Are Digital Ready
Digital readiness refers to a company’s ability to:
1. Engage with their viewers regardless of channel (traditional Pay-TV, broadcast, VOD, over-the-top (OTT) Internet)
2. Provide a seamless and integrated entertainment experience across platforms, anytime and anywhere
3. Develop a direct connection to the consumer (higher margin and less-intermediated by others)
Myth
TV organizations are digital ready
Reality
Not really
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
The OTT TV market is littered with failed experiments because organizations are not sufficiently prepared to take on the challenges of OTT.
Case in point: Despite large organizational support and deep investment (~$150M), Verizon and Redbox shut down Redbox Instant just 19 months from initial launch after being plagued with issues.
While fortunes will be made going forward, the high levels of current investment by incumbents will require new entrants to develop clever strategies, find deep-pocketed partners and carefully leverage existing assets.
How can organizations develop the right capabilities to succeed in OTT? »
Risky Business:The OTT TV Territory Is Treacherous
“… The service was plagued with problems right out of the gate. The library of movies was nowhere near as expansive as Netflix’s, Amazon Instant’s, or even
Hulu’s. They also didn’t offer any TV shows …”
Fast Company, October 2014
“… Compounding the misery of the service was the security vulnerability – criminals were using Redbox Instant to
verify stolen credit cards and Instant was forced to shut down new user sign up for three months .…”
Fast Company, October 2014
“… We made the mistake of putting traditional Telco and media guys into the venture instead of bringing in someone who understands
digital media and digital subscriptions. It was a disaster .…”
Company board member, November 2014
Source: CNET, BGR, Variety, The Desk, Gigaom
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
While (OTT) TV is top of mind for network executives, most firms are not digital ready. Studio executives acknowledge OTT is a rising trend in home entertainment. However, traditional TV organizations don’t know how to conduct billing, collections, customer service, app development and other critical tasks.
TV networks that switch to an OTT-ready mindset face content acquisition challenges and cannibalization risks. Competing effectively in OTT requires a new approach to content acquisition and creation. There are also inherent risks, especially for networks that rely heavily on traditional revenue streams.
What are the required criteria for a successful OTT launch? »
The OTT TV Hunger Games:Big Opportunity Poses New Challenges for TV Organizations
Source: L.E.K. analysis
Level of Preparedness
Traditional TV Functions (pre-2014)
Time
“Digital Ready” Functions (2015+)
Viewer / customer data warehousing
Platform / app development
Data analytics
Billing / collections
Scheduling
Content acquisition
Content development
Offline marketing
Legal / privacy / PII data management
Viewer / customer service
Subscriber acquisition / retention
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
What tips and traps should organizations know about? »
Fantastic Four:Here Are the Required Criteria for Successful OTT Launches
Successful OTT TV network launches require the following:
• Affinity base must be reachable and can be activated to a paying audience
• Ongoing pipeline of differentiated or new content to keep the audience interested
• Promotion platform to access your affinity base and drive it towards your service
• Excellent technology delivery and ubiquitous placement on devices for anytime, anywhere viewing – meeting these criteria are table stakes for OTT TV networks Source: L.E.K. analysis
Affinity Base Ongoing Pipeline of Differentiated Content
OTT LaunchSuccessFactors
Promotion Platform
Excellent Technology Delivery and Ubiquitous
Placement on Devices
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
This installment of our Executive Insights’ “Spotlight on Media & Entertainment” series covering “Over the Top TV Trends” aims to highlight a set of tips for launching an online video network and some pitfalls to avoid.
Here are our lessons learned on pricing. »
How can you deliver a great service? »
The Craft:Pricing an OTT TV Service Correctly Requires Research and Flexibility
Source: L.E.K. analysis
Conduct extensive market research to understand price parameters, benchmark to competing offers, trade-offs and opportunity costs
Do Your Homework
Low switching costs and comparable features require pricing to be at least comparable to other OTT services to facilitate adoption and steal market share
Making Pricing Competitive
Test multiple offers to see consumer response beyond the initial launch price
Be Flexible
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
How should you acquire and retain subscribers? »
Fundamentally, no OTT TV service will succeed if it is not intuitive and ergonomic.
Here are more lessons learned on pricing. »
The OTT Engine That Could:Successful OTT TV Services Deliver a Great User Experience
Source: L.E.K. analysis
Remove barriers to easy sign-up and payment, ensure availability across devices, facilitate discoverability and develop intuitive navigation tools that empower the consumer (e.g., library queue, recommendations)
Simplify the Service
Consumers expect OTT networks and platforms to provide a seamless and high-performing viewing experience from any device
Have a Leading Edge UI
Understand product requirements and partner with vendors that can handle seamless back-end support, including KPI monitoring
Partner Strategically
OVER THE TOP TV TRENDSOVER THE TOP TV TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
What pitfalls should be avoided in launching an OTT service? »
What To Expect When You’re OTT-ing:Getting Consumers and Investors on Board with Your OTT TV Service
L.E.K. Consulting / June 2015 LEK.COM
Driving new customer acquisition and return usage is critical to the long-term success of an OTT TV network.
Here are our lessons learned on consumer offers and managing expectations. »
Source: L.E.K. analysis
Ensure the product offering has a rotation of “fresh” and repeat value content; follow up on marketing efforts that work and don’t work to support subscriber base
Feed Your OTT Service
For content aggregators, consumers will not be motivated to add an additional or replace their existing subscription if the new OTT service does not provide at least the comparable catalog as offered by existing competitors
Offer a Comparable Catalog
(for aggregator)
Building a successful OTT service takes time and requires a different set of measures than are traditionally followed by investors; ensure that this is communicated clearly and do not over-promise on the expected growth
Manage Expectations
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
So what can TV organizations do to become digital ready? »
Hawaii Five-No-Nos:Pitfalls to Avoid When Launching an OTT TV Service
These critical mistakes can nip promising OTT TV services in the bud.
Here are our pitfalls to avoid. »
Shifting to a subscription-based model requires a focus on subscriber care and acquisition, a continuous refinement of the product, and ongoing monitoring of subscriber analytics
Not Organizing Appropriately
Be prepared for adverse reactions from other content carriers (be they networks, MVPDs or other OTT providers) after you announce a channel that circumvents their service
Not Anticipating Partner Reactions
Underfunding Marketing
Don’t short change the marketing resources needed to generate trials from prospective users (wherever they may be), subsidize trials and support ongoing retention. CACs will be painfully high at outset but will come down over time as the network effect builds
Avoid launching before appropriately beta-testing and working out the ”kinks” in the service to limit negative PR at launch from technical issues
Launching Too Quickly
Global expansion — beyond simply making the domestic service available — necessitates a strong understanding of localization requirements including dubbing/sub-titling costs, billing/payment infrastructure, local regulations, in-country marketing etc.
Launching Internationally
Without Appropriate Due Diligence
Source: L.E.K. analysis
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
What have we learned? »
Maps To The Stars:TV Organizations Can Chart a Path to Digital Readiness
The path to becoming digital ready requires organizations to re-think their strategic positioning and answer some tough questions.
Here are our four steps to success and digital readiness. »
Source: L.E.K. analysis
Digital Readiness Is Where TV Organizations Can and Need to Act Now
End State Definition
1.
• What is the ideal end state for digital readiness?
• How much control do we want over our digital rights?
• Which approaches are most attractive?
– MVPD subscription
– Standalone subscription
– Transaction-based platform
– Ad-supported platform
– Utilize a third party’s platform
– Others?
Current State Diagnostic
2.
• Where are we today?
• What is the current status of digital rights / licensing deals?
• Do we currently have a touch point with the end consumer?
• Where are we distributed today?
• Is there sufficient scale / demand for our content?
• Where do we have permission to play?
• Who owns digital within the organization?
Gap Analysis
3.
• What are key gaps between current state and end state?
– Capabilities
– Organizations
– Processes
– Systems
– Content rights
– Distribution partnerships
– Others?
Barrier Identification / Resolution
4.
• What are key roadblocks to addressing gaps?
• For each, what are our options and pros / cons?
• What subscriber numbers are required for each approach to be attractive?
• What are the financial implications?
– Incremental revenue potential
– Cost requirements
– Scenario analysis
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
L.E.K. Consulting / June 2015 LEK.COM
OVER THE TOP TV TRENDS
Our Outlook:Digital Ready Is the New Black
Our Executive Insights’ “Spotlight on Media & Entertainment” series covering “Over the Top TV Trends” presents a case to debunk a few of the key myths around online video services.
What Have We Learned About OTT TV?
1. OTT is for real
2. Traditional TV viewing is not dead, but under pressure
3. Millennials do consume OTT disproportionately but have not abandoned cable/satellite
4. Virtual MVPDs will pressure the traditional cable bundle, but it will persist for the time being…
5. …in no small part due to live sports, even if premium networks are at risk
6. OTT is not constrained to mature markets as many emerging markets such as China represent tremendous growth opportunities
7. Despite the opportunity, many TV organizations are not “digital ready” to avoid the risks of and realize the benefit from OTT
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© 2015 L.E.K. Consulting LLC