Research & Insights Into Growth Opportunities & Consumer Behaviors

Paid OTT Video Services

Achieving World-Class Paid OTTConsumers have widely embraced paid OTT video services (also known as “subscription video on demand” or SVOD) as they seek on-demand access to premium, broad and niche entertainment on the viewing platform of their choice. This has created growing market opportunities for content owners, wireless, satellite and cable operators, studios, digital publishers and brands, some of which are becoming subscription video providers for the first time.

Now that consumers have had a taste of stellar OTT experiences, every service they consider must measure up by delivering on growing expectations and offering a premium experience.

Any service that wishes to compete in the current climate must either become a world-class offering or launch as one.

It must be designed to drive engagement, profitable growth, and provide consumers with the best experiences available.

IBB Consulting helps guide business and technology innovation at the convergence of media, broadband and mobility. This includes supporting development and launch of new video products and platforms, services and businesses. Based on IBB’s experience helping clients develop successful SVOD offerings

in the US and internationally, we have found that world-class services:

• Impress with a high-quality viewing experience that is supported by compelling features, and an attractive and intuitive interface, across multiple devices

• Entertain with instant access to a diverse set of flagship content and easily findable programming that feels familiar but with new things to discover

• Constantly grow the user base, moving users through the trial and purchase funnel, driving referrals, and maintaining low churn

As more subscription and advertising-based video on demand (SVOD and AVOD) offerings come to market, all are eager for a share of consumer spend and attention. At the same time, consumers are still forming viewing habits, providers are experimenting with business strategies and content owners are determining how to best leverage expanding libraries.

Now is a unique window to either enter the market or enhance an existing offering. More content is becoming available for digital distribution. Experienced platform vendors can help support the quickly evolving technical requirements. New distribution channels are opening as more players warm to partnerships. And more mainstream consumers are spending on OTT services.

This report includes a subset of IBB’s overall SVOD market perspectives, and growth strategies that leverage ongoing product experience, and insight into consumer preferences and behavior.

2 IBB Consulting Group: Paid OTT Video Services

IBB conducted in-depth market research on U.S. online consumers that have a paid subscription to at least one OTT service to get insight into the latest consumer attitudes and behaviors that will shape near-term market opportunities. Our findings show a significant number of consumers willing to spend more on existing services and add new ones.

Five Areas Of Insight Covered In This Report

Our findings show a significant number of consumers willing to spend more on existing services

and add new ones.

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You’ll see five areas of insights in this reportConsumer engagement with paid OTT services

Consumers’ plans to add new services within the next six months and what type of content will drive spending

Interest in options for viewing live content via paid OTT

Preferred methods for discovering new content

Different preferences and behaviors across demographics that must be considered when planning targeting and marketing strategies

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According to our survey, a majority of U.S. online consumers now subscribe to at least one paid OTT video service.

Almost half of SVOD users reported subscribing to just one paid service. One-third subscribe to two services and 18% subscribe to three or more services. It is not surprising that millennials are more likely than any other group to subscribe to three paid OTT services. 63% of paid OTT subscribers also subscribe to a traditional pay TV service from their cable, telephone or satellite provider.

A majority of OTT users subscribing to at least two paid services demonstrates an expanding appetite for specific libraries of content that can be accessed on-demand via a preferred device.

It’s also fair to say that most subscribers feel they’re getting good value from their paid OTT service. 61% said they’d pay at least an additional $2 per month for their favorite SVOD offering if the price were to go up.

This means that based on average SVOD pricing, the majority of SVOD subscribers are willing to pay at least 20% more for their favorite service.

Number of subscriptions among SVOD users

A Close-Up View Of The OTT Subscriber

2%3%

49%

33%

13%

3 Services2 Services

5+ Services4 Services

1 Service

100%

50%

25%

75%

018-29 30-44 45-59 60+

Age

5+ Services

4 Services

3 Services

2 Services

1 Service

4 IBB Consulting Group: Paid OTT Video Services

Younger demographics, including millennials, are more likely to own three or more paid OTT services, highlighting an opportunity to bundle SVOD services for increased adoption.

Respondents that subscribe to a greater number of streaming services in addition to Pay TV are more willing to spend $3-5 more for their favorite content.

More than half of respondents that plan to subscribe to premium, niche or sports SVOD services are willing to pay between $5-$15, whereas more than half of respondents planning to add broadcast and generally-focused SVOD services are willing to spend up to $10.

A majority of respondents (81%) that own both a Pay TV and SVOD subscription say that they would allocate a budget for an additional streaming service that had content they found important. More than half (52%) would pay at least $5 for such a service. 13% say they would pay at least $11.

The substantial number of consumers that own a Pay TV service, an SVOD offering and are still willing to spend on another service suggests varied content interests that point to a continued opportunity for content owners that enter the market with a compelling offering.

Snapshot of SVOD subscriber willingness to spend more for their favorite service.

24% 16% 7% 14%

$2 $3 $4 $5

5

24% 16% 7% 14%

$2 $3 $4 $5Additional subscription fees subscribers would pay

Consumers that subscribe to Pay TV and SVOD are willing to spend even

more for an additional service.

How much would you payfor an additional SVOD service.

$16-$20 $20+$11-$15$5-$10$1-$4

29%39%

10%3% 1%

Percentage of OTT & Pay TV respondents

Majority of consumers willing to spend $5 or more on an additional service.

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$0

$16-$20

$11-$15

$5-$10

$1-$4

100%

75%

25%

50%

0General Premium Niche Broadcast Sports

Service content genre

Where SVOD Subscribers Will Spend NextWe wanted to understand additional consumer appetite for near-term spending on SVOD services and what categories of service were of most interest.

30% of paid OTT video subscribers plan to add an additional paid service within the next six months. This represents a substantial percentage of the overall consumer market ready to spend on such a service.

Spending will be targeted across a range of service types. 53% report planning to spend on a general service such as Netflix or Hulu, 23% say they will add a premium network subscription like HBO or SHOWTIME, and 24% want to add either a sports, broadcast network or niche content service.

This insight highlights that paid streamers are increasingly ready to spend beyond the general OTT services that initially popularized SVOD offerings, suggesting a growing opportunity for companies that can attract users with compelling premium content.

Nearly half (47%) of all paid streamers would be willing to pay more for a service to which they currently subscribe if they were able to add live content such as news or sports. 19% of paid streamers would be willing to spend at least $4 to add this type of content. 29% would spend between $1 and $3. (See above image for breakdown of willingness to spend by those SVOD users who say they are interested in subscribing to live TV.)

These findings point to the growing importance of live content in paid SVOD offerings, which is becoming easier to deliver via a direct to consumer offering as CDN providers invest heavily and the convergence of HLS and MPEG-DASH as distribution technologies continues. This is supporting the ability to narrow the focus of delivery efforts to just one or two approaches, resulting in unprecedented optimization. As devices connected to most networks are increasingly able to support high-resolution content without buffering, consumers are more likely to trial live streaming.

This comfort brings a willingness to spend, which IBB expects will result in a turning point for live streaming during 2017. This could potentially include greater availability of

streamed professional sports, as well as other types of live events, such as concerts.

Finally, one major takeaway related to live is not to discount millennials. This is especially true for men, with two-thirds saying they are willing to pay specifically for live content. Contrary to what some headlines may suggest, this group is willing to pay for content, particularly live TV. But they want it on their terms, on the device and in the location of their choosing.

A greater percentage of millennials are willing to spend on live content.

$1 - $3 $4 - $6 $7 - $10

How much SVOD users interested in subscribing to live TV services are willing to budget

Willing to pay ($)

$1 - $3 $4 - $6 $7 - $10 $10+

60% 24% 10% 6%

Age demographic60+45-5930-4418-29

Percentage that would pay for live content

52% 49% 46% 36%

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Examining Strategies For Attracting Consumer OTT Spend

IBB’s survey demonstrates that there is continued growing demand for SVOD.

To fully realize the paid OTT opportunity in today’s competitive environment, strong acquisition marketing will be essential. In our paid OTT acquisition and retention engagements with clients, IBB recommends several proven processes and an SVOD marketing technology stack with the necessary tools and data for success in a market that is getting increasingly competitive.

While many consumers say they are set to spend on additional content, there will be a threshold at which this spending slows and they max out on subscriptions. This is creating a window of opportunity today. Having the right tools and data to find these customers when they are ready to buy is critical.

This SVOD marketing technology framework supports a robust marketing approach that spans a range of disciplines and best practices. IBB counsels its clients to enhance subscriber and revenue growth efforts by executing across focus areas that include segmentation, programmatic, cross-channel attribution, email marketing and push messaging, CRM, acquisition, retention, predictive modeling and marketing automation.

● Segmentation - Identify and target high- propensity segments, while avoiding over- segmentation. Align segments with outcome KPIs to ensure they are grouped by behavior and addressable channels.

● Programmatic - Automate retargeting of non-converters and churned subscribers.

● Cross-Channel Attribution - Combine third-party tools with integrated in-house modeling to create internal, flexible models with cross-functional agreement on key performance indicators. Incorporate behaviors that correlate with customer engagement and retention, such as multi- show viewing or completion of full episodes.

● Email Marketing & Push Messaging - Personalize messages and align landing page creative using behavioral and demographic data. Automate testing of delivery timing and creative, while leveraging data management platform tagging and dynamic messaging within emails.

● CRM - Integrate profile store, content and product data, marketing campaign exposure, email messaging, and customer support and transaction history to optimize journey and messaging based on predictive modeling. Target push messaging using CRM data to drive sustained loyalty.

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SAMPLE USE CASEImplement segmentation of non-sub prospects and lookalike models of loyal subscribers, with usage, lifetime value and third-party data

Target high-propensity non-subscribers via email, paid social, SEM and display

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Conduct targeted remarketing of high ROI non-converters

Drive lower CPAs with cross-device attribution and creative optimization

CRM + Marketing Automation

Profiles &Segments

DSP DMP On-boarding

Matching

UserJourneys

Creation &Deployment

PersonalizationTargeting

BehaviorHistory

WorkflowAutomation

CreativeAssets

MultivariateTesting

Big Data/Enterprise Data Warehouse

Data Lake• Profile Segments• Viewership• Behaviors• Transactions

ID Matching Framework Reporting Workflow

Attribution

Anonymization

Data Science Environment

TransactingPaid Media

Reporting

Targeting

Executive Reports

Data Science Tools

Modeling

Data Enrichment

Identity Matching

3rd Party Data

Marketers Designers Marketing Operation Agency/Trading Desk Buyers In-House Buyers

Reporting

Data Science/Research

Data Sources

AttributionData

Content, ProductEngagement

PromotionalPlatforms

SocialMedia

Call CenterInteractions

SyndicationPartner Data

Paid MediaData

Paid OTT Service Features Must Address Evolving Viewer Behavior

We wanted to understand how subscribers preferred to discover content once they have engaged with an SVOD service. One-third of users say they prefer browsing and surfing. 24% rely on social media for suggestions. 19% choose what to watch after reading about a program online. 8% rely on in-app recommendations and 5% use app search tools.

Almost half (46%) of the preferred options demand the OTT provider to help. Browsing and surfing, in-app search and app recommendations all demand a streamlined interface, smart algorithms and smart data to power a great experience. Of course, as users find that features like app recommendations consistently point them to high-quality content that they enjoy, they’ll use them more often, in favor of other methods.

In a fragmented space, users are constantly distracted by content, making marketing critical for success.

For example, the demographic of 30+ who grew up watching multi-channel television still primarily discover new content via a browsing guide. This is especially true for seniors, 46% of whom use a viewer guide or surfing more than any other demographic to discover video. Meanwhile, millennials are more likely than any other demographic to use social media or rely on recommendations to find video to watch, with almost half (48%) preferring these methods. Then there are a range of discovery preferences everywhere in between. Therefore, there is a heightened need to merchandise effectively to highlight new and relevant content.

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Video discovery preferences across age groups

75%

100%

25%

50%

0%18-29 30-44 45-59 60+

Age

Recommended by friendRead about anew showOther

In-app search

Social media

Browsing or surfingviewer guide

With constantly expanding libraries, effective recommendation engines are key to the overall SVOD customer experience, in combination with optimal human curation methodologies that are supported by a tight strategy, rapid execution and easy-to-use scheduling systems.

Recommendation engine requirements vary based on data quantity and quality, with the level of required personalization affecting the methodologies used to provide implementations. IBB recommends to clients an approach that optimizes a combination of manual curation, social recommendation and algorithmic modeling to maximize ROI.

Ongoing training of recommendation models and supporting personnel is essential to continued improvements.

Getting Smarter About SocialNearly one-quarter of SVOD users rely on social media for recommendations and social media companies are considering OTT apps.With this in mind, OTT providers must also consider efforts beyond in-app discovery improvements to intelligently target influencers that can help spread the word about new programs that users might enjoy.

In particular, the importance of utilizing the right Facebook user targeting methodologies is more important than ever to increase return on marketing spend. According to IBB’s analysis of posts by more than 20 million users on more than 80 Facebook TV show pages, a focus on “organic influencers” should be a major component of these efforts, and can now be targeted for influencer campaigns on Facebook.

Organic influencers can be characterized by the resonance and engagement they bring to discussions. These influencers generate more comments and stimulate more conversations on average versus the vast majority of users. Personalization Requirements

Dat

a R

equi

rem

ents

Algorithmic+

Social

Manual+

Social

Algorithmic

ManualCuration

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Methodology IBB takes a vendor-neutral approach to market research to obtain the most valuable insights. We keep our questions and hypotheses focused and datasets manageable. Because our core competence is providing consulting services to a broad range of media, cable and wireless companies, we gather and assess data based on our in-depth understanding of technology, industry trends and what is most important to our stakeholders. To gain insight into consumer SVOD attitudes and behaviors, we initially surveyed 2,007 U.S. online consumers across a range of demographic groups, incomes and regions. Of these, 1,051 online consumers that completed the larger survey based on reporting owning a paid online video subscription.

About IBB Consulting IBB Consulting is a premier consulting firm serving the media, broadband and mobility industries. Founded in 2001, IBB’s team of senior industry experts leverage its extensive business planning, strategy and execution experience to help clients pioneer new products and services, understand and develop innovative technology, develop unique business models, and successfully execute business operations. In the streaming era, IBB’s focus also includes innovation and end-to-end product development, design and marketing of world-class OTT services. IBB Consulting is actively working with premier TV networks, digital media companies, studios, consumer brands and Pay TV operators to create technical and business solutions that solve real world problems and drive OTT demand. For more information about IBB Consulting, please contact jonathan@ibbconsulting.com.

IBB Consulting Group jonathan@ibbconsulting.com

www.ibbconsulting.com

SummaryIBB Consulting advises clients that a subscription OTT offering must either launch as a world-class offering or evolve quickly to meet this high bar. These OTT services have the potential to become revenue centers that lay the foundation for future offerings. They have to look incredible, function smoothly and deliver consistently outstanding customer experiences. In short, they must be a deep focus if they’re to compete—and as OTT becomes more international, differentiating on a global scale is even more essential.

There are proven strategies and technical capabilities that content owners can immediately leverage to begin making the world-class journey today.