OTT stands for “over-the-top” and refers to the productized practice of streaming content to customers directly over the web. It represents the future of entertainment — one that is already unfolding.
My name is Meghan McAdams, and I’m the VP of National Brand Sales at Tapjoy. In this blog series, we’ll explore the platforms, opportunities, and challenges that are driving modern online entertainment. We’ll discuss topics like:
- The role of OTT in the modern media industry
- The technologies and growth strategies responsible for its success
- The relationship between OTT and in-app advertising
- The driving cultural factors behind “cord cutting”
But first, it’s important to more clearly define these services and their role in the modern media landscape.
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What is OTT?
An “over-the-top” media service is any online content provider that offers streaming media as a standalone product. The term is commonly applied to video-on-demand platforms, but also refers to audio streaming, messaging services, or internet-based voice calling solutions.
OTT services circumvent traditional media distribution channels such as telecommunications networks or cable television providers. As long as you have access to an internet connection — either locally or through a mobile network — you can access the complete service at your leisure.
OTT services are typically monetized via paid subscriptions, but there are exceptions. For example, some OTT platforms might offer in-app purchases or advertising.
Why use OTT?
With over 50% of North Americans maintaining Netflix subscriptions, it’s clear consumers love OTT content. Here are just a few reasons why the format is more appealing than traditional alternatives:
- High-value content at low cost: Streaming services are widely considered a cost-effective alternative to traditional cable packages. A Netflix HD subscription is currently $12.99 per month, while non-HD plans cost $8.99. That’s a reasonable fee even if you only intend to watch a fraction of its offered content.
- Original content: In recent years, OTT providers like Netflix and Amazon Prime have begun producing original content that is exclusively available through their service. Platforms like HBO Go and Disney+ also have exclusive streaming licenses for previously televised content.
- Compatibility with multiple devices: For years, watching cable television required a television set. Today, we can watch OTT content from a broad range of devices. Any account holder can enjoy the same OTT experience from a gaming console, smartphone, tablet, or smart TV.
How is OTT content delivered?
Thanks to its internet-based delivery system, OTT platforms bypass third-party networks that traditionally managed online content. The only things customers need are an internet connection and a compatible hardware device.
- Mobile devices: Smartphones and tablets can download OTT apps from a supported digital storefront.
- Personal computers: Most computers support OTT content viewing through desktop-based apps or web browsers.
- Smart TVs: The latest TV models often include pre-installed OTT apps, or provide users with an option to download them.
- Digital media players: Third-party devices like the Apple TV support a range of OTT solutions. Many modern video game consoles also include the ability to download and run OTT apps.
What types of content are suitable for OTT solutions?
While the OTT conversation largely revolves around video-on-demand, the technology actually covers a broad range of web-based content:
- Video: Video streaming is the most-widely recognized version of OTT media services. Popular platforms include subscription platforms like Netflix, paid storefronts like iTunes, and ad-based services like YouTube.
- Audio: Audio streaming is also possible through OTT solutions. Popular examples include internet radio stations and podcasts.
- Messaging: OTT-based instant messaging services connect users directly through internet connections, bypassing mobile SMS networks. Facebook, Google, Skype, WeChat, and many other brands have versions of these services. Most are capable of replacing or integrating with smartphone text messaging features.
- VOIP: Voice calling platforms such as Skype and WeChat that operate using internet protocols are considered OTT services. In some instances, these services can integrate with mobile phone networks to enhance certain features.
Is OTT replacing traditional media distribution?
Most OTT services are associated with “cord cutting” — the practice of cancelling TV or phone subscriptions to focus on web-based alternatives. While cord cutting has certainly increased OTT consumer adoption, that doesn’t mean traditional networks will disappear entirely. In fact, customers maintain traditional cable services alongside Netflix or Amazon Prime subscriptions.
It’s also worth remembering that OTT services are still fairly new, and could undergo significant changes as best practices are refined. For example, some experts believe OTT platforms could one day be bundled much like traditional cable packages. In fact, some cable companies offer OTT solutions like HBO Go as part of their premium subscriptions.
What challenges do OTT solutions face?
We no longer live in a world where Netflix is the only OTT game in town. Increased competition will be a major challenge for video OTT solutions in the years ahead:
- Disney will launch Disney+ — its own branded video streaming service — in November 2019.
- Amazon Prime is developing its own critically acclaimed programming that rivals Netflix’s original content.
- HBO has recently entered streaming license agreements to stream content like Game of Thrones in select countries.
We’re currently witnessing a new wave of diversification across OTT markets, creating new opportunities and challenges. Recent studies suggest 50% of OTT customers are experiencing “subscription fatigue” from engaging with so many platforms. In time, this could prompt customers to become more selective with their managed subscriptions. Meanwhile, the growth of large-scale platforms like Disney+ could impact the prospects for smaller, niche services.
What are the biggest OTT opportunities?
Despite these challenges, OTT technology has immense potential. Video streaming services are on the rise globally, with North America representing the most mature markets at a 51% adoption rate. Europe and Asia-Pacific are seeing impressive growth as brands like Netflix expand internationally.
Beyond global adoption rates, major opportunities exist in non-entertainment markets. One recent survey determined that 50% of OTT subscribers pay for educational content, usually in the form of instructional streaming platforms. Streams that emphasize children’s programming or health-based content might hold immense potential.
OTT platforms should also consider the benefits of tiered monetization. While most solutions are subscription based, 20% of subscribers also made in-app purchases in 2018. Casting a wide net when it comes to monetization methods could help OTT solutions grow in the years ahead.
Performance marketing has proven to be an especially successful method of attracting subscribers to OTT platforms in a way that is scalable and predictable for marketers.
Over-the-top media services have been with us for years, but they clearly have room to grow. Increased diversification and competition suggests the market is healthy and growing, and many opportunities remain untapped. Whether you’re following up-and-coming platforms, or enjoying the latest Netflix original series, OTT clearly represents the future of media. It’s an exciting time to be a part of it.