Over-the-Top Video Programming

Over-the-Top
Video Programming
August 2014
In this Fast Take we will discuss video
programming services delivered directly to
the consumer via the internet – without a
traditional bundled video subscription (like
cable TV).
We will explore how new content creators
have amassed large audiences, built valuable
programming brands, and why traditional
media companies such as Disney and Time
Warner are flocking to the space.
WHAT’S INSIDE
Defining OTT
What it is, why it matters
Basic Technology
Fundamental advancements which will propel future adoption
Major Programming Services
Who’s who in OTT
Infinite Channel Capacity & Rise of the MCN
How YouTube initiated a revolution & the companies bringing order
to their chaos
New Programming Brands
Next generation creators build equity and graduate to traditional
platforms
Marketers Need to Act Now
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Early opportunities bring rewards to bold brands
WHY “OVER-THE-TOP”?
The term “Over-the-Top” or OTT is a way to signify a
consumer’s ability to access video content without a cable or
satellite subscription. Instead, the consumer uses a broadband
or cellular connection to bypass traditional TV services to
watch what they want, when they want, on any screen they
want. These consumers figuratively leap over their set-top
box to enjoy a larger selection of content.
For many consumers, this option allows them to trim cable bill
costs, as well as provides them access and flexibility to see
programming not available on linear channels. Regardless of
the reason, OTT is increasingly popular, and consumers are
spending more time watching video content via connected
devices, and demanding an unprecedented amount of control
over their programming.
MAKING THE CUT
The term “cord-cutting” signifies the growing trend of
consumers satiating their hunger for content without ordering
a traditional TV subscription. Alarmists fear that this behavior,
if widespread, will erode the established financial model that
pays for most programming, ultimately leading to a reduction
in quality content.
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The number of “cord-cutters” and “cord-nevers” (Millennials
who have/will never purchase a traditional TV subscription) is
statistically low; OTT streaming, however, is increasing.
Whether it’s a supplement to a consumers’ TV subscription or
a replacement, one thing is certain: OTT is a genie that won’t
go back in the bottle.
A PERFECT STORM ENABLES
BEHAVIORAL SHIFTS
Fifteen years ago, the Consumer Electronic Show (CES)
buzzed with excitement over streaming video and the
connected home. Consumers could watch high quality video
directly from their computer, and companies such as Atom
Films and Broadcast.com emerged as content delivery
services. The large screen computer monitor was touted as
the centerpiece of the new living room as manufacturers
promised an integrated media center for the home.
Then, reality set in. The monitors and CPUs were more
expensive than traditional television sets. Video buffering
interrupted most viewing experiences. High-speed internet
connections (1.5 MBS at the time) were costly and sparsely
available. Complicated connections and clunky interfaces
made it easier to simply watch TV, leaving the early version of
OTT to quietly die.
Over ten years later, the confluence of technological
achievements such as increased broadband penetration, low
cost computing power, smart phone adoption, and the tablet
revolution have resurrected OTT.
Today, more consumers have access to fast connections (70%
of US homes have broadband) and more personal screens
capable of receiving content (70% of the adults own
smartphones, 34% tablets). Microprocessors have become
inexpensive, resulting in affordable Smart TVs (25% of US
broadband homes) and $99 streaming players (%19 of US
broadband homes).
With the foundation laid, consumers have adopted new
behaviors that will gain even wider acceptance as the
penetration of these technologies grow.
TECHNOLOGICAL MILESTONE PROVIDES FOUNDATION FOR OTT
Access to Programming Goes from Hardware to Software
The conduit for receiving TV content has progressed from terrestrial antenna to
cable box, to satellite dish, to simple OTT. Receivers of the future are the software
interfaces. They run on basic, interchangeable machines, which receive packets of
data over the internet.
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THE “INTERNET OF THINGS” ENSURES GROWTH
More Connected Devices + More Screens, All Equipped with the
Basic Functionality to Watch Content
Dedicated streaming players such as Roku, AppleTV, and Amazon
Fire, make viewing simple. Gaming consoles such PS4 and Xbox One
toggle between video games and shows with ease. Tablets, smart
phones, and smart TVs feature simple apps with universal log-ins.
Each year at CES, two predictions hold true: Whatever the device,
there will be a desire to connect it to the internet. Whenever there’s a
screen, there will be a desire to stream content to it.
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“500 CHANNELS AND NOTHING TO WATCH”
Consumers have flocked to OTT because online
services have made compelling programming
available anytime, anywhere, on any device.
MAJOR
PROGRAMMING
PLAYERS
Using borrowed equity from established
network and studio libraries, early
entrants to the marketplace (like Netflix
and Hulu) taught America how to
stream. They’ve since aggregated a
robust selection of programming,
crafted a fantastic user experience, and,
in the process, created powerful brands.
LIBRARY & ORIGINALS
DIGITAL NATIVES
Using cable’s history as a guide, these
services utilize exclusive windows and
original programming to help
differentiate themselves.
Sports leagues are also venturing into
the space in an attempt to control their
worldwide distribution and create a
direct relationship with consumers.
SPORTS LEAGUES
This subscription model also works for
television personalities. Glenn Beck
converted his fans into paying
subscribers of his wholly owned digital
network, The Blaze.
TALENT BASED
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INFINITE CHANNEL CAPACITY
Seeing Beyond the Viral Video
It’s easy to think of YouTube as an online video destination. However, it’s
one of the most robust content platforms in existence, accessible by
virtually any device in 61 languages around the world. With one billion
unique viewers watching a combined six billion hours of videos each
month, and over 100 hours of video are uploaded every minute, YouTube is
clearly more than a video destination.
In its early days, television programming executives mocked YouTube’s
seriousness as a competitor for viewers and dismissed its ability to create
ongoing consumer relationships. The prevailing wisdom was simple: “Dogs
on skateboards are cute, but what’s the second episode?”
In 2007, YouTube started the Partner Program, which enabled creators to
earn revenue from their video views. Soon after, creators started to think
beyond the viral video – crafting ongoing series and developing channels.
Today, there are over 500 million channels on YouTube, with thousands
earning six figures a year in income. An ecosystem around these channels
has emerged with an emphasis on gaining subscribers, managing the
community, and developing sponsorship/ancillary revenue.
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Every channel, regardless of its size, is easily accessible via the YouTube
platform, a basic app on most OTT devices. Unlike the technological
constraints of cable systems, the number of channels on YouTube is limited
only by the creators’ imaginations.
WHAT IS AN MCN?
MULTI-CHANNEL NETWORKS
Bringing Order and Scale to a Fragmented Universe
A Multi-Channel Network, or MCN is
a company that manages a
collection of YouTube channels,
providing marketing, financing and
production resources for their
members.
Major MCNs
MCNs can be organized around
specific interests or demographics,
such as AwesomenessTV (centered
on teen culture) or KIN
(concentrates on women’s
programming). Other MCNs simply
aggregate channels across interests
aiming for large scale, such as
Fullscreen or Maker Studios.
MCNs generally look to represent
the largest number of channels, but
some, such as Collective Digital
Studios (CDS), have chosen a
different strategy: curating a
selective set of high-quality
channels, with maximum potential
for ancillary revenue.
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MCN Member services include:
Liaison to Google
Channel Promotion
Production Support & Facilities
Ad Sales & Sponsorship
Licensing & Merchandising
Project Funding
Advanced Software Tools
Off You Tube Content Distribution
MCNs ARE HATCHING PROGRAMMING BRANDS OF THE FUTURE
Creating Direct to Consumer Channels & New Shows That Migrate
to Other Platforms
MCNs market their top channels, enabling the creators to concentrate on producing shows. While YouTube provides an amazing
distribution system, MCNs are looking to expand opportunities outside of the platform and build stand-alone programming brands.
In the short term, that means taking hit shows from the internet and extending those franchises to established TV networks or
films. MCNs have become a farm system for out-of-the-box ideas that can be pitched as proven concepts (with built-in followings).
For example, Comedy Central has been actively migrating web series to their channel, with “Drunk History” and “Broad City” being
two bona fide hits, while A&E Networks’ FYI recently launched “Epic Meal Empire” based on the cult series “Epic Meal Time.”
Cartoon Network airs the wildly popular kids series “Annoying Orange,” and Nickelodeon recently ordered an adaptation of the
digital format phenomenon, “Kids React”.
The long-term goal, however, is not focused on getting a show on Comedy Central; it’s becoming the next Comedy Central, a mass
market, consumer programming brand.
Farmed to Cable: Hit Digital Series Making the Leap to TV
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BIG MEDIA COMPANIES ARE INVESTING MILLIONS
Follow the Money, which Follows the Audience
Traditional media companies recognize that MCNs can be a farm system for new properties, but more
importantly, they value the audiences aggregated by these channels. Looking beyond YouTube, they
recognize the power of a direct consumer connection and its implications for growing content
distribution on a global scale. These investments affirm their belief in the future of OTT.
Disney acquires Maker for $500 million against $950
Subscribers: 450 million
Channels: 55,000
Dreamworks Animation acquires MCN for $33 million against $117
Subscribers: 51 million
Channels: 86,000
Scipps Networks leads $25 million Round C
Subscribers: 1.3 million
Channels: 300
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Warner Bros division of TW leads $18 million Round D
Subscribers: 320 million
Channels: 12,500
“WE ARE HELL-BENT ON NOT BEING IN
RAILROAD CARS AS PLANES FLY OVERHEAD”
Just as cable ushered in a new wave of
programming choices, consumers will
follow the next wave led by OTT.
Marketers will have many options in the
future. Today, however, they have the
ability to shape the industry’s future.
HOW BRANDS CAN SEIZE THE OPPORTUNITY
Create Programs, Form Alliances, Aggregate Content
Moment in Time
Working with MCNs, OTT networks or a specific show is a great way to understand the landscape and
sample the power of these dedicated audiences. We are in the early stages of an industry, where
there are few requirements, obligatory media buys, or deal-making encumbrances. Early alliances
create long term allegiances.
Global Reach
As witnessed by YouTube, launching new programming can be instantly global. Brands have the
potential to partner with channel creators in a manner rarely available before. Whether in English,
Spanish, or another language, brands that travel can now align with programming that travels. All at
a fraction of the cost.
Join the Revolution
Creating a channel has a very low barrier of entry. That’s why there are over 500 million channels. The
real challenge is getting people to take notice and watch. In the future, the competition in OTT will
revolve around the home screen; persuading consumers to download your app or save your “tile.”
That level of commitment only happens by providing compelling content.
Few brands, such as Red Bull, have made the leap (with much success) by creating their own
production studio. There are other ways, however, to start a programming outlet. For example
through content acquisitions and partnerships, marketers can build an impressive slate to entertain
viewers with.
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TESTING LETS ADVERTISERS GAIN EARLY LEARNINGS &
BUILD AUDIENCE AFFINITY
Custom Shows, Signature Channels and MCN Promotion Push Programming
FORD Teams with Hot Channel
Creator for Custom Video
Series
Established adventure & stunt
filmmaker DevinSuperTramp
imagines his perfect outings using
only one tank of gas in this four-part
series that lived on Ford’s owned
YouTube channel. Devin’s talent,
credibility, and young following built
an audience, garnering over 10
million views.
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RED BULL Creates Channel,
Redefines Action Sports
AT&T Launches Social Reality
Series/Channel, Leverages
MCN Distribution
From creating one of a kind events like
the Stratos jump from space, to teaming
up with the best snowboarders and
mountain bikers, Red Bull has created
programming that consumers seek out.
Their online channel embodies the
brand, extends it’s world, and transcends
marketing. In the future, it’s OTT tile is
most likely to be found on the home
screen of Millennials.
Using established channel partners
and Fullscreen as a distribution
partner, AT&T launched
@SummerBreak, a first of it’s kind
real-time reality show, which lived via
social media and was memorialized in
HD episodic content. Set in the tone of
an MTV show, AT&T created a custom
YouTube channel that lived seasonally
and amassed over eight millions views
in it’s first season.
1.
More Devices Mean Ubiquitous Access: When more
consumers adopt broadband, smart phones, and tablets,
access to content becomes universal. It’s not a question of if
consumers will stream via OTT, it’s a question of how much
they will stream.
2.
Programming Is Programming: People choose content
based on their interests; a show’s origin has become
irrelevant. Did it start on TV or the web? It doesn’t seem to
matter, as consumers are willing to subscribe (and
sometimes pay) for programming they care about.
3.
YouTube Is A Bellwether: The stable platform, global reach,
and friendly ecosystem have made it the best place for
creators to launch new programming ventures. Perhaps only
a small piece of the OTT future, it offers a template for
understanding the multi-million channel universe.
4.
MCNs Will Gain More Significance: As investment flows to
this sector, MCNs will be integrated into the operations of
major media conglomerates. They will offer advertisers more
custom content, sponsorship, and distribution opportunities.
Their audience management tools will become increasing
important.
5.
Marketers Are Still Early: As the OTT landscape progresses,
a few star channels will emerge. Brands could be marketing
partners and/or channels themselves.
KEY TAKEAWAYS
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Thank you!
For questions or more information, please contact:
[email protected]