There's no denying that consumers' desire to watch video across a variety of connected devices is creating massive opportunities within the OTT space. OTT ad revenue is set to reach over $2 billion in 2018, up 40 percent from last year, and that's just a small fraction of the dollars that will end up in the space in the years to come.
Despite the meteoric rise of OTT, it's important to remember that the market is still growing. Best practices are still under development, and dominance of the ecosystem is still up for grabs. An upstart could come along tomorrow and introduce an innovation that could change everything.
That said, throughout 2018, we started to see some trends that hint at where the OTT market will likely go, and not go, as it continues to mature. In a highly competitive market, broadcasters and content owners ignore these signs at their peril. Here's how they can set themselves up to successfully ride the massive wave of OTT growth.
Similar to cable TV in the 1980s, OTT has changed video entertainment forever. Today, over 200 media brands offer their own streaming apps, bringing a tremendous amount of content to consumers.
Although all of this sounds great in theory, finding the content you want while clicking through dozens of streaming services can feel like more trouble than it's worth. There are too many apps and too many options. Consider the experience of many Netflix users who might spend 20 or 30 minutes sifting through all of the categories and options before finding a show or movie they want to watch.
Consumers want quality over quantity. In other words, they want an OTT experience that functions as a version of cable TV. This means they not only want to watch shows that never buffer or freeze up, but they also want a smooth, uninterrupted flow of content, rather than having to sift through a giant repository of video-on-demand (VOD) content every time they want to watch something.
A study conducted by the Kinnari Naik of the Centre for Interdisciplinary Science at the University of Leicester found that it would've taken 237 days to watch all of the movies and documentaries added to U.K. Netflix in 2017. Who has time to watch that much television, let alone sort through it to figure out which content you like best?
Media brands also need to figure out how to deliver the sort of content consumers want. For example, any sports fan knows the struggle in figuring out which streaming service or cable channel is playing your team's next game. One reason live-streaming sports is so challenging to broadcast is that the rights are complicated. Different entities might own rights to carry certain teams' games in different geographical areas, leading to confusion and blackouts. Providers who can make games more accessible to viewers will have a greater opportunity to build viewership in 2019.
This past summer, Netflix briefly experimented with running promotions for its shows between TV episodes streamed on its platform. While the company assured consumers that there were no plans to sell third-party ads in the future, the move was a surprise coming from a service that has always been proudly ad-free.
Netflix wasn't alone. YouTube recently decided to take its original content off its paid YouTube Premium service, making shows ad-supported and available to all users. Other subscription services, like FilmStruck, shut down in 2018.
For OTT subscription services, the writing could be on the wall. Platforms that put video content behind a paywall have struggled to build audiences (with Netflix, Hulu, and Vudu being notable exceptions) or generate revenue or reduce churn. In 2019, we could see more niche subscription services either switch to ad-supported models or shut down due to lack of revenue. Rather than building their subscriber lists, OTT providers should change their focus to optimizing their ad delivery, targeting, and monetization tactics to drive the most revenue out of each piece of content and viewer, versus a locked-in subscription price.
One reason OTT holds such promise is that it is so personalizable. With technologies like dynamic server-side ad insertion, users can be served a stream of ads tailored to them. Not just the product being advertised but the creative content of the ad itself can be personalized, maximizing user engagement and conversions. This quality means that a programmatic ad served to a small niche audience can be just as valuable – if not more valuable – than a traditional TV advertisement served to a larger but less focused audience.
However, advertisers have been slow to appreciate the advantages of programmatic video advertising. Today, there's just not enough high-quality ad inventory to target audiences accurately. It's not useful for an ad server to "know" that a given viewer has been shopping for a new SUV if there's no SUV ad for it to serve them. Research shows that viewers are much more receptive to relevant, targeted ads – so why aren't advertisers creating them?
I'm cautiously hopeful that things will change in 2019. With the subscription services facing some serious financial challenges, OTT services need to create more natural viewing experiences and find a way to incorporate advertising seamlessly to generate revenue without upsetting viewers. The sooner, the better.