{"id":5614,"date":"2014-11-10T00:00:00","date_gmt":"2014-11-10T00:00:00","guid":{"rendered":"http:\/\/worldscreen.com\/tveurope\/2014\/11\/10\/over-the-top\/"},"modified":"2016-02-01T17:11:26","modified_gmt":"2016-02-01T22:11:26","slug":"over-the-top","status":"publish","type":"post","link":"https:\/\/worldscreen.com\/tveurope\/2014\/11\/10\/over-the-top\/","title":{"rendered":"Over the Top"},"content":{"rendered":"

\"\"This article originally appeared in the MIPCOM 2014 issue of <\/em>TV Europe.<\/em><\/p>\n

OTT and on-demand platforms are reshaping the media landscape across Europe.<\/em><\/p>\n

Perhaps the most highly awaited television launch in Europe this year was not that of a traditional channel at all but that of an OTT service\u2014the kick-off of Netflix in Germany in September. The OTT market in Germany is already crowded. The lineup of existing SVOD services offering Holly\u00adwood fare includes Amazon with its Prime Instant Video offer, Sky Deutschland\u2019s Snap and Vivendi-owned Watchever. The German free-TV broadcasters, meanwhile, have their own online platforms.<\/p>\n

The emergence of OTT is possibly the most important innovation to hit the television business since digital channels began to proliferate on cable and satellite platforms. For the first time in many years, there are big new players in the market and new stand-alone channels on a new technological platform. Industry veterans see the advent of OTT opening a new stage of competition, as the emergence of pay TV did.<\/p>\n

The big difference with this innovation is that OTT goes straight into the consumer\u2019s home without an intermediating cable or satellite package. This new approach has had an immediate impact on the business of TV production and distribution, probably faster than anything that has happened before. OTT video services can be linear or on-demand. From the perspective of incumbent pay-TV providers, OTT is potentially a threat. For content owners, it\u2019s certainly an opportunity. Eye-catching OTT deals seem to be happening every day. For the Netherlands, for example, Netflix has made deals with Walt Disney Studios for feature films and with NBCUniversal for films and series. In the U.K., Amazon Prime Instant Video is the exclusive window of CBS Studios International\u2019s sci-fi thriller series Extant<\/em>, which started its online run in July on the day after its premiere on CBS in the U.S. The platform also has a deal with Tandem for Crossing Lines<\/em>.<\/p>\n

SOARING SPENDING<\/strong>
\nGlobal spending on OTT video will rise to $4.7 billion (\u20ac3.53 billion) by 2018, according to Strategy Analytics. Even more bullish, PwC predicts that OTT streaming revenues will increase to $10.1 billion (\u20ac7.8 billion) in 2018.<\/p>\n

While forecasts show incumbent pay-TV operators grabbing much of the growing pie, it is pure-play services such as Netflix and Amazon\u2019s streaming offerings that are generating the buzz.<\/p>\n

According to Clemens Schwaiger, the global head of digital media strategies at the Telecommunication, Information, Media & Electronics (TIME) practice at the Arthur D. Little management consultancy, the excitement around the newcomers is still a bit greater than the market reality at this point.<\/p>\n

\u201cOTT is not having a big impact on the TV market as yet,\u201d he says. \u201cThe buzz is bigger than the reality. About 99 percent of the value of video and more than 80 percent of the consumption of video still come from television. But nobody would say that OTT does not represent a major change.\u201d<\/p>\n

\u201cOTT is a fundamental change,\u201d says Jakob Mejlhede, the senior VP of acquisitions and programming at one of Europe\u2019s biggest TV players, Modern Times Group (MTG), and chief content officer of its digital division, MTGx. \u201cThere has been a surge of competition in SVOD services. It has really been quite dramatic.\u201d<\/p>\n

To put what\u2019s happening in perspective, he says the current climate is \u201clike pay-TV competition\u201d in the early days of that sector.<\/p>\n

\u201cOTT is absolutely growing in volume, and the new services are growing as businesses,\u201d says Gina Brogi, executive VP of worldwide pay TV and SVOD at Twentieth Century Fox Television Distrubution. \u201cI think they will live and continue to evolve. There is room for all of these platforms.\u201d<\/p>\n

OPENING WINDOWS<\/strong>
\nThe traditional program-distribution business has actually accommodated OTT without too much trouble so far. \u201cSVOD has almost always been a part of the business of subscription television,\u201d Brogi says. \u201cIt has evolved into an OTT business, and this has caused our business to evolve.\u201d<\/p>\n

The windowing structure continues to work for movies\u2014theatrical, then premium pay TV. Many traditional linear services have their own on-demand services. So in the case of Sky, for example, a film could be on Sky Movies and on-demand and on Sky\u2019s OTT service, NOW TV (which was launched to compete with new OTT providers). \u201cWhether they buy separately or together with the linear services depends on the market,\u201d Brogi says.<\/p>\n

Television series usually start on advertiser-supported free-TV channels. They could be on SVOD after that. Frequently, SVOD is a way to offer previous seasons of series that are still on linear channels. In the case of 24<\/em>, for example, when the limited series 24:<\/em> Live Another Day<\/em> aired on FOX, the previous eight seasons were available on Amazon Prime in the U.S. Internationally, the studio has used different iterations of the same tactic.<\/p>\n

SVOD can also offer an alternative for shows with more niche audiences. \u201cIt can breathe life into series that might not have a place in the market otherwise,\u201d Brogi says.<\/p>\n

This has been the case for MTG, which has used SVOD to get more value out of shows that might struggle on linear free TV.<\/p>\n

\u201cWe have seen a decline in linear ratings,\u201d says Mejlhede. \u201cPart of the reason is that many U.S. series are more narrow in appeal than they used to be. They struggle to find a broad linear television audience, but they can work well on SVOD. Take a personal favorite of mine like Dexter <\/em>[from CBS Studios International]. It had dismal television ratings but it is a strong SVOD program. Thanks to Viaplay [MTG\u2019s online streaming platform], suddenly the show became viable for us.\u201d<\/p>\n

BEING TERRITORIAL<\/strong>
\nFrom the content owners\u2019 viewpoint, the OTT market may be pretty smooth sailing, but for stand-alone OTT services like Netflix, the rights market is tricky.<\/p>\n

\u201cThe video market is riddled with national territory rights,\u201d says Arthur D. Little\u2019s Schwaiger. \u201cYou still need to buy rights nationally. That\u2019s why it\u2019s taking Netflix so long to conquer Europe. There are specific OTT rights, subscription video rights, but these are traditionally the last window.\u201d<\/p>\n

Netflix also expanded into Austria, Switzerland, France, Belgium and Luxembourg this year, having launched in the U.K. and Ireland, Denmark, Finland, Norway and Sweden in 2012 and in the Netherlands in 2013. Since its birth in 2007, the streaming service has grown to more than 50 million subscribers in 40-plus countries with close to 28 percent of them outside the U.S. at the end of the second quarter of 2014. A report from Digital TV Research issued prior to the European expansion ranked the U.K. as Netflix\u2019s second-biggest market outside the U.S. with 4.5 million subs, followed by Canada and Sweden.<\/p>\n

Netflix has an interesting situation in Austria, where the company launched last month. House of Cards<\/em>, one of its signature original series, repped by Sony Pictures Television, has been licensed to public broadcaster ORF, so it does not have the show for its own OTT service.<\/p>\n

\u201cThe value from television for rights\u2019 owners is much greater, and it is going to remain that way for a very long time,\u201d Schwaiger continues. \u201cThe rights business is all about negotiation. Pay-TV companies and rights\u2019 owners want to protect their businesses. Deals are negotiated very carefully.\u201d<\/p>\n

Viasat is one company buying exclusive OTT rights. \u201cIf I am going to make a big output commitment I want to have everything,\u201d says Mejlhede. \u201cI\u2019m not interested in having free-TV rights to a show that\u2019s on Netflix for SVOD. Over the last year or so, we have been seeing how we can convert the rights in our output deals to a mixture of free-TV and SVOD. Output deals are under pressure in many places. But you can provide a good solution for the rights\u2019 owners if you have all platforms, as we do.\u201d<\/p>\n

ALL-ACCESS PASS<\/strong>
\nFor Ioris Francini, the president of IMG Events & Media, \u201ctechnology is further enabling rights\u2019 owners to segment their offering and enabling consumers to access specific content. OTT will not be a revolution. It will improve access.\u201d<\/p>\n

In the long run, Schwaiger says, OTT will not kill off traditional pay-TV companies like BSkyB because of the importance of premium sports, which have their established subscriber bases and whose rights cost more than OTT players can afford.<\/p>\n

\u201cOTT won\u2019t demolish the infrastructure of pay TV,\u201d Francini says flatly. \u201cThat\u2019s not going to happen. OTT is about the long tail of choice.\u201d<\/p>\n

High-profile Netflix might not be the biggest OTT challenger to the status quo. The company is a heavyweight in the OTT-only space, but compared to its main adversary, online retailer Amazon, it\u2019s actually a lightweight in the bigger economic scheme of things.<\/p>\n

Amazon\u2019s launch in the video-subscription business in 2011 opened the door to a new kind of bundling well beyond the old tiering model of cable and pay TV.<\/p>\n

Amazon Prime members can access thousands of movie and TV titles on their Amazon Instant Video service, at no additional charge beyond the annual fee they pay for expedited delivery of their Amazon orders. It\u2019s probably not a coincidence that the fast-delivery fee has risen to $99 in the U.S. since the inclusion of video.<\/p>\n

\u201cBy bundling its SVOD service with Amazon Prime, Amazon is using content to drive e-commerce,\u201d says Bernd Riefler, chief marketing officer at Munich-based research company veed analytics. \u201cThis is scary for broadcasters.\u201d<\/p>\n

And it presents a real challenge to Netflix.<\/p>\n

INTO THE AMAZON<\/strong>
\n\u201cThe stand-alone model faces an uphill battle,\u201d Riefler says. \u201cNetflix has a superior product, but it does not have the cross-selling potential of the competition. Perhaps its new [marketing alliance] with Deutsche Telekom will improve the prospects.\u201d<\/p>\n

Analysis from veed also says that Amazon Prime offers the largest catalogue of current movies and TV shows in Germany, and the biggest selection of recent movies and TV shows, with a very low price point. \u201cNetflix has a superior product in terms of technology and user-friendliness, but ultimately the user decides based on price and content.\u201d<\/p>\n

\u201cAmazon is in a strong position because the video offer fits so well into the existing e-commerce business,\u201d says Arthur D. Little\u2019s Schwaiger. \u201cIt already has customers and is earning revenue from other sources. It has massive cash flow and pricing power and can bundle video with other offers. Netflix, on the other hand, is investing cash flow and debt-financing and making investment rounds. The picture would change immediately if Netflix were to be acquired by a big player like Google.\u201d<\/p>\n

Schwaiger sees Apple, which dominates online music, as a big disappointment in the OTT space. \u201cThey don\u2019t seem to have a new strategy. The music model is a transaction model, and that will be hard to move into the video space. Video will be a subscription business. Competition will focus on the size of catalogues. Having a big catalogue is important.\u201d<\/p>\n

That\u2019s because video content is \u201cnot easily substitutable,\u201d he says. His explanation goes like this: \u201cIf you look at music, there are a few big labels. Let\u2019s say three. You could have deals with two of the three, but if the consumer wants Madonna and she belongs to the one you don\u2019t have, that consumer will not want you. The same is increasingly true of TV. For the platform it\u2019s hard to have everything. It\u2019s not affordable.\u201d<\/p>\n

That\u2019s where the strong push by OTT players into original content comes in. \u201cOriginal content offers differentiation and exclusivity,\u201d Schwaiger says.<\/p>\n

DRIVING SUBSCRIPTIONS<\/strong>
\nStrategy Analytics sees stand-alone OTT as a proposition \u201caddressing the holdouts\u2014who will not be swayed by traditional premium-TV offerings\u2014by promising high-quality content including, crucially, live sports, shorter commitment periods, a lower cost of entry and much simpler installation and hardware requirements than traditional pay-TV services.\u201d<\/p>\n

IMG\u2019s Francini cites the example of TennisTV, which offers live ATP World Tour and WTA events for a subscription of $129.95 (\u20ac100) a year. \u201cIf you\u2019re a tennis fan and you just want to watch tennis and don\u2019t care about anything else, then OTT in this case is a replacement for Sky in a more effective way. It\u2019s much cheaper than any Sky package. Maybe you want to get Netflix too for \u00a35.99 (\u20ac7.50) a month. You\u2019re a happy boy.\u201d<\/p>\n

Pay-TV operators have moved to counter the stand-alone OTT challenge. They have the advantage of being able to add a Netflix-type OTT service on top of their TV offer. Comcast has done this in the U.S. BSkyB has Sky Go for higher-tier bundles.<\/p>\n

In Germany, Sky Deutschland cut the subscription price for its OTT service, Snap, to \u20ac3.99 ($5), down from \u20ac9.99 ($13), ahead of Netflix\u2019s launch in the territory.<\/p>\n

MTG\u2019s Mejlhede sees SVOD as an extension of pay TV that can reach new audiences. \u201cCable and satellite pay TV is largely a family product,\u201d he says. \u201cWe are finding success with a new group of consumers, young males for instance, who want premium sports but would not subscribe to traditional pay TV.\u201d<\/p>\n

Viasat is offering live sports via OTT in a premium package costing about \u20ac25 ($32) per month compared with the usual \u20ac10 ($12) for the lower-tier offer. That has helped its Viaplay keep pace with regional OTT rivals.<\/p>\n

OTT is by no means only an opportunity for pay-TV companies. Ad-supported linear channels can benefit too, as Viacom International Media Networks (VIMN) has found as both a channel provider and a source of programs.<\/p>\n

\u201cOTT is another distribution opportunity for the content from Viacom\u2019s iconic global entertainment brands, including Comedy Central, MTV and Nickelodeon,\u201d says Arran Tindall, senior VP of commercial and content distribution at VIMN. \u201cWe already make multiple rights windows for our content available. At the moment most of VIMN\u2019s OTT activity is for third-party SVOD services. There are some linear OTT players, and we are engaging with these operators too for distribution of our linear services. In some markets we have done deals with OTT operators for the rights to individual titles owned by Viacom or packages of content. Both SVOD and linear OTT offer opportunities for a return on the content investments that we continue to make. Viacom\u2019s annual content spend of $3 billion (\u20ac2.2 billion) is still geared towards our own branded networks and digital properties in the first instance. Viacom controls the IP to the vast majority of its content. Where we do buy content from third parties, the OTT rights would be taken into consideration as part of the acquisition. We are open to the idea of partnering with OTT providers on content initiatives.\u201d<\/p>\n

FAMILIAR FACES<\/strong>
\n\u201cThe same players who are big in TV will be the big players in OTT,\u201d predicts Leonard Fertig, the CEO of Motive Television, which develops software for delivering on-demand TV across any network. \u201cMajor broadcasters have deep relationships with the advertising business and with content providers, and they have a brand relationship with consumers. They know how to create programming and curate channels. And they have their own distribution assets.\u201d<\/p>\n

Motive Television is developing the ability to deliver programming that normally requires broadband infrastructure, such as OTT channels, over the air. \u201cTerrestrial distribution is cheaper,\u201d he says. \u201cThe networks are already in place. With fairly cheap software they can do the same things as broadband.\u201d In other words, in the future OTT might not be confined to the Internet.<\/p>\n

Fertig says he sees consolidation coming in OTT. \u201cEven Netflix is doing deals and forming joint ventures with broadcasters in order to emulate assets they don\u2019t have. The old players will be the new players.\u201d<\/p>\n

THE HEART OF THE MATTER<\/strong>
\nAnd content will remain king. \u201cA lot of tendencies favor rights\u2019 owners and content producers,\u201d says Schwaiger. \u201cWe have analyzed the trends in revenue from consumer and advertising spending, and we see that there has been significant growth in what rights\u2019 owners and producers pull out of the market. At the same time there has been an increase in the volume of production.\u201d<\/p>\n

He says that if he were a content producer looking at OTT, he would focus on two things. \u201cFirst, I would make tacit attempts to cut out the middleman and go direct to the consumer. HBO is doing this in the Nordics. Second, I would try to create and preserve healthy competition, between pay TV and OTT and between OTT players. You don\u2019t want consolidation under Amazon and Netflix. You don\u2019t want a repeat of the music scenario where iTunes became all-powerful as the only competitor. The rights\u2019 owner has plenty of leverage and plenty of opportunity to play buyers off against each other. The business is all about negotiation.\u201d<\/p>\n

That negotiation might mean a growing value for OTT-only rights. \u201cYou can differentiate rights for OTT,\u201d says Riefler. \u201cIt is becoming more complicated, but at the end of the day there could be more money in the market and programmers will probably benefit.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

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