Over-The-Top (OTT) Insights

Nearly 60 percent of U.S. households with televisions pay a monthly fee to subscribe to an OTT service such as Netflix, HBO NOW or Amazon Prime Instant Video.

Over-The-Top (OTT) video services – the delivery of film and TV content without a traditional cable or satellite subscription is growing at a rapid pace.

In 2015, more than 180 million individuals – 7 in 10 U.S. Internet users – watched a video on an OTT platform.

By 2018, one in five American households will not subscribe to a traditional pay TV service.

These subscribers will instead choose OTT services.

In the next five years, OTT subscribers are projected to surpass 306 million, and revenues are expected to climb 50% to nearly $27 billion.

While OTT subscribers and OTT service revenue continues to grows, the ways to model and distribute OTT services are still in their infancy.

The models are changing everyday.

Our insights into Over-The-Top (OTT) are listed below in the form of articles.

To learn more say [email protected]

From Microsoft to Netflix: Growth Through Partnerships

The value and importance of partnerships should never be overlooked.

In 2007 at the Wall Street Journal D5 conference Bill Gates and Steve Jobs sat down for a joint interview together. During the interview Steve Jobs and Bill Gates were asked the following question; “What did you learn about running your own business that you wished you had thought of sooner or thought of first by watching the other guy?”

Steve Jobs response about Microsoft was “they learned how to partner with people really well”. Mr. Jobs was correct, Microsoft built the business through partnerships and a software licensing model that still controls 57.12% of the operating system market.

Netflix strategically adopted the Microsoft growth through partnerships model in January 2007 when they first debuted their streaming service with a tiered pricing model. Early adopters of the Netflix streaming service had only 1,000 titles to choose from and were limited to six hours of streaming a month on the $5.99 plan and eighteen hours for the $17.99 plans.

The decision by Reed Hastings, Founder & CEO of Netflix to launch a streaming service in 2007 was an example of a forward looking executive who is focused on the consumer’s experience and growth.

During the launch of the streaming service Mr. Hastings said the following about streaming; “While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step”.

Mr. Hastings was correct about the future, but more importantly he understood the future wants and needs of the consumer. As the Netflix streaming business expanded during it’s first year of operation, it would not hit it’s major growth period until late 2008 after Netflix publicly announced their first hardware partnership with LG Electronics at CES earlier in the year.

For the first time consumers were able to watch Netflix on their TV without having to connect a computer. The LG Electronics deal would forever change how consumers interact and consume video content from all online video providers including Netflix.

In an interview with The New York Times in January 2008, Mr. Hastings reflected on his vision for the future of Netflix by stating; “We want to be integrated on every Internet-connected device, game system, high-definition DVD player and dedicated Internet set-top box. Eventually, as TVs have wireless connectivity built into them, we’ll integrate right into the television.”

He was correct about the future and over the next six years the team at Netflix would build one of the greatest video distribution pipes in history with over 53.1 million paid subscribers globally as of Q3 2014. The growth from 6.8 million paid subscribers in Q1 2007 to 53.1 million paid subscribers in Q3 2014 came through hard work, determination and partnerships.

The case could be made that without the game changing 2008 LG Electronics deal, Netflix would be a different company or could have been possibly acquired by Blockbuster. But history was not written that way as Mr. Hastings and his team at Netflix followed the Microsoft growth through partnerships model and succeed in creating a great business that delivers value to millions of subscribers.

Who will be the next great company to adopt the Microsoft growth through partnerships model?

From Microsoft to Netflix: Growth Through Partnerships is an article written by Brulte & Company Co-Founder Grayson Brulte.

Creating Value at High Internet Speeds

It has been 66 years since John Walson Sr. invented cable TV in America. Today, about 100 million U.S. households pay for TV, according to research firm SNL Kagan, or approximately 85 percent of all households in the country.

Despite such penetration, the pay TV market is actually in decline, experiencing its first full-year drop in subscribers last year amid competition from satellite and mobile. To capture new subscribers and stop losses from cord-cutters, cable and telecom companies should rethink their business models and focus on building frictionless user experiences that create value for customers.

The answer may be found online. Only 70 percent of American households have an active high-speed Internet connection at home, according to Pew Research. Meanwhile, 93 percent of all American households have access to broadband Internet, according to an NCTA analysis of SNL Kagan and Census Bureau estimates. That gap points to potential for growth.

In the early days of cable, value was created through providing hundreds of channels in the comfort of your home. Today, cable TV is not the value — the value is high-speed Internet access. While broadband speeds have increased for consumers, and revenue has increased for cable and telecom providers, the value of the service has not kept pace.

Value for subscribers can be created by boosting broadband speeds and offering value-added services to the network infrastructure — an emerging business opportunity that cable and telecom companies in the U.K. are starting to explore.

In the U.K., BT has strategically decided to offer complimentary access to BT Sport for free to all existing broadband customers, in order to gain new subscribers and market share. BT has about a 31 percent market share of the broadband market, which totals more than 22 million broadband subscribers, or 78 percent of all households.

Not to be outdone, Virgin Media, with about a 20 percent market share, has focused on complementary international Wi-Fi access for subscribers. Through a Wi-Fi sharing access agreement with Comcast, Virgin Media subscribers will be able to access Comcast’s Wi-Fi network when they travel to the U.S. Comcast is on track to have more than 8 million Wi-Fi hotspots live by January 2015.

Over in France, Bouygues Telecom — whose 2 million customers translates into about an 8 percent market share — recently announced a deal to give subscribers access to Netflix through their set-top TV boxes.Bouygues made the strategic and symbolic move to embrace Netflix, while creating value for their subscribers. After the deal, Bouygues Chairman Olivier Roussat said, “We intend to continue enhancing our offer so that customers can enjoy the best innovative content.”

As Roussat and his counterparts in Europe explore new business opportunities, U.S. executives are starting to take notice. Time Warner has just announced that HBO would unbundle HBO and offer it as a stand-alone service. “It is time to remove all barriers to those who want HBO,” said Richard Plepler, chairman and chief executive of HBO, in announcing the move.

As the price of broadband Internet access continues to rise, cable and telecom executives in the U.S. would be smart to follow the lead of their European counterparts and create value for subscribers by offering complimentary value-added services before Apple CEO Tim Cook does it for them.

Cook recently described the current state of TV as “stuck back in the 70s.” Cable and telecom executives should consider the Cook’s statement a shot across the bow. To anticipate a potential move by Apple into the TV business, they should double down on innovation that creates value for subscribers.

For inspiration on the future of TV, look to Europe. The TV/broadband relationship is changing to the benefit of consumers. Cable and telecom companies who put their subscribers first and create value through complementary value-added services will likely be the ultimate winners, and in turn gain revenue and market share.

Creating Value at High Internet Speeds is an article written by Brulte & Company Co-Founder Grayson Brulte that was originally published on General Electric Reports.