The growth of OTT video streaming and its impact on the pay-TV industry

With the rapid video streaming growth currently underway across the globe, improvements in internet speeds, and the addition of improved over-the-top, or OTT video technology, like adaptive bitrate streaming, conditions for the advancement of OTT video streaming service providers like Netflix and Hulu have never been better. 

Netflix, the company that broke the mold and is still dominating the streaming industry started out by shipping rental DVDs to their customers, basically like a mail order Blockbuster. After a major shift in their business model in 2007 with the introduction of subscription-based OTT video streaming services, Netflix has refined its product and algorithms for over a decade, both causing and dominating the phenomenal growth of the OTT video technology industry.

The growth of OTT video streaming is a major force in the disruptive digital landscape, doing what Uber and Airbnb did to the taxi and hotel industries. This has sparked a major OTT vs pay TV battle, as the newer OTT video technology challenges the previous status quo of the home entertainment industry. Ten years ago Netflix had 12 million subscribers. Today, Netflix has 140 million subscribers and proof of this rapid video streaming growth is the fact that those numbers are increasing by around eight million a quarter. The only thing slowing down Netflix’s runaway success is deep-pocketed competitors who have noticed the growth of OTT streaming, recognizing that it’s the future of video services delivery and are doing everything they can to compete head-on. 

How much has the OTT video streaming market grown?

• Globally, online OTT video streaming service subscriptions have grown from 150 million in 2014 to over 600 million in 2019. Subscribers are expected to grow to 1.1 billion by 2021. 
• Global growth of OTT revenue will rise from $69 billion in 2018 to $129 billion by 2023.
• Market penetration of OTT video technology in the US is over 70%, with the average user subscribing to 3.4 OTT video services.
• There are over 300 OTT video streaming service providers worldwide, with more than 200 in the US alone. 

The reason for the phenomenal advancements of OTT video technology in less than a decade is twofold: First, there is increased accessibility created by greater broadband rollout, improved internet speeds, and high performing consumer electronics (CE) devices capable of utilizing OTT video technology. Second, the streaming industry’s advances in how they provide their services have hugely improved customer user experience (UX). In general the OTT video streaming industry now offers better content recommendations by using improved customer data analysis (which started in 2006 when Netflix offered its famous $1 million prize to developers).

How the growth of OTT video streaming has impacted the broadcast industry

Understandably, with the huge growth of OTT video streaming, the competitive dynamics of the OTT vs pay TV battle have changed greatly. The most obvious losers due to these shifts in content consumption are traditional broadcasters and cable TV operators whose subscribers are deserting because of high prices and lack of comparable choices. This phenomenon known as “cord-cutting” has led to drastic changes in the broadcasting market. Nearly half of US 22-45-year-olds don’t watch traditional TV at all and it’s estimated that 22 million households will quit satellite and cable TV providers by the end of 2019.

Cord-cutting is also influencing where marketers spend their ad dollars. Traditional broadcasters’ total share of ad spend is expected to decrease dramatically by almost 20% over the next few years from 36% in 2016 to 29% in 2021. 

These trends in video streaming growth have also challenged the traditional content production powerhouses to dominate the creative landscape. This was exemplified by director Martin Scorsese with his $200 million movie, “The Irishman.” According to Scorsese,  “Places we would have gone to for funding in the past were no longer viable. Then we started talking to Netflix.” 

Being relatively powerless to stop the tectonic shifts in home entertainment caused by OTT video streaming growth, the traditional TV and film giants are seeking to join Netflix and Amazon. Their bet is that, considering  the growth of OTT video streaming services, it’s better to be part of the streaming industry and benefiting from it rather than trying to fight an OTT vs pay TV battle they seem to be losing. NBCUniversal, Disney, and Warner Media have introduced or announced their own OTT video streaming services, increasing the competition and prices for legacy shows (such as NBCUniversal paying $100 million/year for The Office).

The current state of the OTT streaming market

The advancements of OTT video technology has led to the introduction of more streaming services. While this has caused the prices of some streaming industry services to increase (during high levels of competition), it may not be the best business move. For a competitive edge, an alternative strategy is improving the monetization of video content.

One way is by improving applications of emerging OTT video technologies, such as utilizing artificial intelligence (AI) to enhance the customer experience. By using AI to determine what customers actually want to watch, OTT streaming operators can earn more revenue and improve their bottom line. As an excellent example of this, Netflix revealed that it has saved $1 billion a year with AI technologies. 

Focus on content protection

Another important monetization strategy is stemming the flow of lost revenue. One of the biggest streaming industry revenue leakages occurs through piracy and the illegal re-distribution of video content. It’s estimated that piracy will cost content rights holders over $50 billion a year by 2022, which could crush the dreams of success for many nascent streaming services. 

The answer is improved content protection with digital rights management (DRM) solutions and anti-piracy services adapted to OTT video technology. If piracy continues to be an option for many around the world, the revenue from this current phase of the rapid video streaming growth of OTT will plateau, stifling innovation and creativity and reducing the motivation and financial justification for digital rights holders to continue producing top-notch, compelling content. 

Intertrust is one of the world’s top innovators in DRM and content security technology and can assist OTT operators with solutions that protect both content and service revenue. To learn more about DRM, download our whitepaper.