By Jason Friedlander, Director of Product Marketing
We are in the midst of the largest shift to the television industry in decades. That shift seems to call for the death of video advertising and the rise of subscription revenue, but the problem is that actual numbers don't really back that up. New research published by Parks Associates found that users are actually dropping their OTT video streaming services at an unprecedented rate: 50 percent of OTT subscribers end up cancelling. In the long term, that's an unsustainable level of churn. As the production costs of content continue to rise, content owners must increase revenue and reduce the endless cycle of signing up and cancelling. Otherwise, they won't be able to grow and stay profitable.
Luckily, a solution is already in sight. By connecting with their users directly, OTT service providers have the ability to unlock a treasure trove of data beyond old-school broadcasters' wildest dreams. That data is key to building sticky, massively monetizable streaming video that solves the churn problem for good. Here are my three predictions for how this transformation will shape OTT video in 2018.
Ads will get more valuable
In a way it's no surprise that OTT service providers are facing high levels of churn. Satellite and cable TV providers have infrastructure literally wired into each customer's house, which makes it much harder to shift between services, if the consumer even has choice at all in their area. By contrast, unsubscribing from a streaming service takes a mere click of a button. The landscape of OTT video solutions is also incredibly fragmented, so that users might need to subscribe to five or six different streaming services to see all their favorite shows. Who wants to keep track of all those different subscription fees?
In this climate, a return to ad-supported content seems likely. There's no question that advertising will have a big play here as online video ad values rise due to their dynamically targeted nature. Right now, prime-time broadcast TV ads command prices in the hundreds of thousands, dwarfing OTT ad spend by comparison. But as audiences continue to migrate to OTT video, so will the money – it just has to. Advertisers want to be where the audiences are, and content owners want to earn the highest revenue per ad spot for bringing that audience to the advertiser. Ad revenues at major cable networks are already declining as of 2017, while video ad spend has grown 67 percent since 2015. I predict that we'll be seeing a major rise toward parity for OTT and broadcast ad prices in 2018, with actual parity being reached within a few years.
Data will drive new shows
It's no secret that the OTT video content pipeline today is highly fragmented, and no one is taking full advantage of the data at their fingertips. However, that especially goes for players on the production side of the video ecosystem. At least on the distribution side, broadcasters and OTT service providers mine rich user data to target advertising and optimize video delivery, among other things. But data on content performance and user engagement usually remains siloed away from content creators, who rarely know where their content is being used, how it's performing or what ad revenue it's generating.
In 2018, that's about to change. Aided by end-to-end content intelligence platforms, content creators will start to utilize that data to create "stickier," more engaging OTT video content. For example, if a film editor knew that a particular clip from a trailer performed extremely well on social media, they could edit more of that particular scene into the movie itself. Video content optimized in this way will in turn generate more stable and predictable content creation, lowering the risk inherent in creating new content.
A return to scheduling
In today's age of ubiquitous video-on-demand (VOD), actually waiting for a show to come on might seem archaic. But believe it or not, linear TV has never gone away. It is however changing and being updated in an agile, streamlined way. In the near future, we'll see OTT service providers start to use data and artificial intelligence to create schedules of linear content personalized to each user, incorporating both live video and VOD. This never-ending stream of OTT video would be optimized to prolong viewing. Whether its end goal is to serve more ads or to drive more subscriptions, scheduling will help alleviate the effects of churn by grabbing and keeping viewer attention.
In 2018, the OTT solutions industry is due for a reckoning. Given that 50 percent churn rate, streaming video services won't be able to survive off subscription-based models much longer. However, by tapping into the power of data, the savviest content creators, broadcasters and OTT service providers will be able to turn this transition into an opportunity to improve their OTT video programming and bolster ad revenue. And, with stickier, more engaging, highly personalized content streaming to their living rooms, viewers will benefit, too.
Interested in major OTT video trends from this past year? Let's chat.