OTT’s Impact on the Future of Cable and Advertising
By Jo Brown
In the digital age we live in, it is no surprise that TV, cable, and satellite have new competition with OTT platforms like Netflix. But, what exactly is ‘OTT’ and how will it impact the future of cable and advertising?
(Photo by Tina Rataj-Berard on Unsplash)
What is OTT?
Over-The-Top (OTT) is the term given to describe a platform that allows a consumer to watch TV or movies using the internet without having to subscribe to a cable, TV, or satellite service like Spectrum.
A few examples of OTT industry leaders include: Netflix, Amazon Video and Hulu.
Netflix is the clear market leader in both revenue and the number of subscribers with 125 million subscribers worldwide in Q1 of 2018! In addition, Netflix users can be found in over 190 countries and watch around 140 million hours of movies and TV shows each day!
(Photo by freestocks.org on Unsplash)
There are three different types of OTT based on the type of revenue model:
SVOD stands for Streaming or Subscription Video on Demand, like Netflix or Hulu. Consumers will pay for a subscription to view content.
AVOD stands for Ad-Supported Video on Demand, like Youtube. AVOD is a little different in that sometimes it is free like Youtube, but other times it can be a bit of a hybrid of SVOD like a cheaper Hulu subscription that has commercials.
TVOD stands for Transactional Video on Demand. Consumers will pay for each individual piece of content they view like when you watch a movie on pay-per-view.
Why are People Ditching Cable for OTT?
People are tired of paying high cable prices for a bunch of channels they hardly watch. OTT subscriptions allow people to pay one low price for a wealth of shows and movies. It also eliminates the hassle of a long-term contract and having to deal with any equipment like cable boxes, TV dishes, etc. With OTT platforms like Netflix all consumers need to do it sign up, buy, and watch.
Just like that hundreds of shows and movies are at their fingertips. Not to mention the mobility of OTT is key, as many people watch their favorite shows and movies on-the-go from their laptops, phones, or tablets.
Does That Mean TV is Dead?
It is a common misconception that TV and cable are not making much money these days compared to services like Netflix and Hulu. Even with the rise in OTT users, cable, satellite, and TV still make tens of billions of dollars more in revenue each year.
According to Convergence Research, in 2017 Netflix raked in $11.9 billion in revenue from US users, this total may seem high but when compared to the $107.6 billion from US cable, satellite, and TV it is just a drop in the bucket.
(Source: Jens Kreuter on Unsplash)
The Future of OTT
In the next few years, OTT revenue is expected to rise, while TV, cable, and satellite revenue are expected to drop. Convergence Research found that this year US TV, cable, and satellite revenue will drop to $107.4 billion and $106.9 billion in 2020, while US OTT revenue will increase to $16.6 billion and $27.6 billion by 2020.
Cable, although dropping at a very slow pace, is expected to continue to decrease, while OTT is rising at a much faster pace and will continue to rise for the foreseeable future.
US OTT subscriber households will far surpass TV subscribers in 2020. However that’s not to say advertising on TV and cable is not effective. According to Convergence Research, TV subscriber average revenue per user (ARPU) will be four times US OTT subscriber household ARPU, down from six times in 2017.
2017 saw a decline of 3.66 million US TV subscribers and they forecast a decline of 3.72 million TV subscribers this year! It’s clear that cable is here to stay for a while, but OTT is rising quickly both in viewership and revenue.
How Does OTT Impact Advertising?
OTT’s main point of impact when it comes to advertising is the fact that it provides new platforms and ways for consumers to see advertisements. When it comes to advertising you need to make sure you are working with an agency that is well versed in both traditional media (TV, radio, print, etc.) and new media (digital, TV streaming, social, etc.).
This way they can best assess your needs and implement an effective strategy. AVOD and SVOD provide a great new place for to market services and products to a targeted segment.
Maybe you are selling fancy wine glasses, well what better people to advertise to then the millions of women who watch Scandal on Hulu?
(Source: Refinery 29 ABC Scandal)
Or maybe you are marketing a food subscription program like Blue Apron avid Top Chef and Chopped watchers are the perfect audience to reach out to.
This way of thinking is spreading throughout the industry, as broadcast and cable network online TV advertising represented 5.2 percent of 2017 US TV advertising revenue and that number is expected to grow to 5.6 percent for 2018.
It is also important that you are able to base your marketing strategy on your target audience and the product or service you are offering.
- Are you trying to reach older women in their 50s?
- Or younger males in their teens?
- Is your product something that will sell better online or through a TV commercial?
These are all questions that are vital to ask and answer when starting to plan your marketing strategy. If you’re thinking about changing your media mix and would like some help, check out our new Social Media Handbook. This handbook will help you prospect and engage with new leads through social media.
Or for more one-on-one guidance, schedule a free Strategy Session with one of our specialists today!