2 In this Fast Take we will discuss video programming services delivered directly to the consumer via the internet without a traditional bundled video subscription (like cable TV). We will explore how new content creators have amassed large audiences, built valuable programming brands, and why traditional media companies such as Disney and Time Warner are flocking to the space.
3 WHAT S INSIDE Defining OTT What it is, why it matters Basic Technology Fundamental advancements which will propel future adoption 3 Major Programming Services Who s who in OTT Infinite Channel Capacity & Rise of the MCN How YouTube initiated a revolution & the companies bringing order to their chaos New Programming Brands Next generation creators build equity and graduate to traditional platforms Marketers Need to Act Now Early opportunities bring rewards to bold brands
4 4 WHY OVER-THE-TOP? The term Over-the-Top or OTT is a way to signify a consumer s ability to access video content without a cable or satellite subscription. Instead, the consumer uses a broadband or cellular connection to bypass traditional TV services to watch what they want, when they want, on any screen they want. These consumers figuratively leap over their set-top box to enjoy a larger selection of content. For many consumers, this option allows them to trim cable bill costs, as well as provides them access and flexibility to see programming not available on linear channels. Regardless of the reason, OTT is increasingly popular, and consumers are spending more time watching video content via connected devices, and demanding an unprecedented amount of control over their programming. MAKING THE CUT The term cord-cutting signifies the growing trend of consumers satiating their hunger for content without ordering a traditional TV subscription. Alarmists fear that this behavior, if widespread, will erode the established financial model that pays for most programming, ultimately leading to a reduction in quality content. The number of cord-cutters and cord-nevers (Millennials who have/will never purchase a traditional TV subscription) is statistically low; OTT streaming, however, is increasing. Whether it s a supplement to a consumers TV subscription or a replacement, one thing is certain: OTT is a genie that won t go back in the bottle. A PERFECT STORM ENABLES BEHAVIORAL SHIFTS Fifteen years ago, the Consumer Electronic Show (CES) buzzed with excitement over streaming video and the connected home. Consumers could watch high quality video directly from their computer, and companies such as Atom Films and Broadcast.com emerged as content delivery services. The large screen computer monitor was touted as the centerpiece of the new living room as manufacturers promised an integrated media center for the home. Then, reality set in. The monitors and CPUs were more expensive than traditional television sets. Video buffering interrupted most viewing experiences. High-speed internet connections (1.5 MBS at the time) were costly and sparsely available. Complicated connections and clunky interfaces made it easier to simply watch TV, leaving the early version of OTT to quietly die. Over ten years later, the confluence of technological achievements such as increased broadband penetration, low cost computing power, smart phone adoption, and the tablet revolution have resurrected OTT. Today, more consumers have access to fast connections (70% of US homes have broadband) and more personal screens capable of receiving content (70% of the adults own smartphones, 34% tablets). Microprocessors have become inexpensive, resulting in affordable Smart TVs (25% of US broadband homes) and $99 streaming players (%19 of US broadband homes). With the foundation laid, consumers have adopted new behaviors that will gain even wider acceptance as the penetration of these technologies grow.
5 TECHNOLOGICAL MILESTONE PROVIDES FOUNDATION FOR OTT Access to Programming Goes from Hardware to Software The conduit for receiving TV content has progressed from terrestrial antenna to cable box, to satellite dish, to simple OTT. Receivers of the future are the software interfaces. They run on basic, interchangeable machines, which receive packets of data over the internet. 5
6 THE INTERNET OF THINGS ENSURES GROWTH More Connected Devices + More Screens, All Equipped with the Basic Functionality to Watch Content Dedicated streaming players such as Roku, AppleTV, and Amazon Fire, make viewing simple. Gaming consoles such PS4 and Xbox One toggle between video games and shows with ease. Tablets, smart phones, and smart TVs feature simple apps with universal log-ins. Each year at CES, two predictions hold true: Whatever the device, there will be a desire to connect it to the internet. Whenever there s a screen, there will be a desire to stream content to it. 6
7 500 CHANNELS AND NOTHING TO WATCH Consumers have flocked to OTT because online services have made compelling programming available anytime, anywhere, on any device.
8 MAJOR PROGRAMMING PLAYERS Using borrowed equity from established network and studio libraries, early entrants to the marketplace (like Netflix and Hulu) taught America how to stream. They ve since aggregated a robust selection of programming, crafted a fantastic user experience, and, in the process, created powerful brands. LIBRARY & ORIGINALS DIGITAL NATIVES Using cable s history as a guide, these services utilize exclusive windows and original programming to help differentiate themselves. Sports leagues are also venturing into the space in an attempt to control their worldwide distribution and create a direct relationship with consumers. This subscription model also works for television personalities. Glenn Beck converted his fans into paying subscribers of his wholly owned digital network, The Blaze. SPORTS LEAGUES TALENT BASED 8
9 INFINITE CHANNEL CAPACITY Seeing Beyond the Viral Video It s easy to think of YouTube as an online video destination. However, it s one of the most robust content platforms in existence, accessible by virtually any device in 61 languages around the world. With one billion unique viewers watching a combined six billion hours of videos each month, and over 100 hours of video are uploaded every minute, YouTube is clearly more than a video destination. In its early days, television programming executives mocked YouTube s seriousness as a competitor for viewers and dismissed its ability to create ongoing consumer relationships. The prevailing wisdom was simple: Dogs on skateboards are cute, but what s the second episode? In 2007, YouTube started the Partner Program, which enabled creators to earn revenue from their video views. Soon after, creators started to think beyond the viral video crafting ongoing series and developing channels. Today, there are over 500 million channels on YouTube, with thousands earning six figures a year in income. An ecosystem around these channels has emerged with an emphasis on gaining subscribers, managing the community, and developing sponsorship/ancillary revenue. 9 Every channel, regardless of its size, is easily accessible via the YouTube platform, a basic app on most OTT devices. Unlike the technological constraints of cable systems, the number of channels on YouTube is limited only by the creators imaginations.
10 WHAT IS AN MCN? A Multi-Channel Network, or MCN is a company that manages a collection of YouTube channels, providing marketing, financing and production resources for their members. MULTI-CHANNEL NETWORKS Bringing Order and Scale to a Fragmented Universe Major MCNs MCNs can be organized around specific interests or demographics, such as AwesomenessTV (centered on teen culture) or KIN (concentrates on women s programming). Other MCNs simply aggregate channels across interests aiming for large scale, such as Fullscreen or Maker Studios. 10 MCNs generally look to represent the largest number of channels, but some, such as Collective Digital Studios (CDS), have chosen a different strategy: curating a selective set of high-quality channels, with maximum potential for ancillary revenue. MCN Member services include: Liaison to Google Channel Promotion Production Support & Facilities Ad Sales & Sponsorship Licensing & Merchandising Project Funding Advanced Software Tools Off You Tube Content Distribution
11 MCNs ARE HATCHING PROGRAMMING BRANDS OF THE FUTURE Creating Direct to Consumer Channels & New Shows That Migrate to Other Platforms MCNs market their top channels, enabling the creators to concentrate on producing shows. While YouTube provides an amazing distribution system, MCNs are looking to expand opportunities outside of the platform and build stand-alone programming brands. In the short term, that means taking hit shows from the internet and extending those franchises to established TV networks or films. MCNs have become a farm system for out-of-the-box ideas that can be pitched as proven concepts (with built-in followings). For example, Comedy Central has been actively migrating web series to their channel, with Drunk History and Broad City being two bona fide hits, while A&E Networks FYI recently launched Epic Meal Empire based on the cult series Epic Meal Time. Cartoon Network airs the wildly popular kids series Annoying Orange, and Nickelodeon recently ordered an adaptation of the digital format phenomenon, Kids React. The long-term goal, however, is not focused on getting a show on Comedy Central; it s becoming the next Comedy Central, a mass market, consumer programming brand. Farmed to Cable: Hit Digital Series Making the Leap to TV 11
12 BIG MEDIA COMPANIES ARE INVESTING MILLIONS Follow the Money, which Follows the Audience Traditional media companies recognize that MCNs can be a farm system for new properties, but more importantly, they value the audiences aggregated by these channels. Looking beyond YouTube, they recognize the power of a direct consumer connection and its implications for growing content distribution on a global scale. These investments affirm their belief in the future of OTT. Disney acquires Maker for $500 million against $950 Subscribers: 450 million Channels: 55,000 Dreamworks Animation acquires MCN for $33 million against $117 Subscribers: 51 million Channels: 86,000 Scipps Networks leads $25 million Round C Subscribers: 1.3 million Channels: Warner Bros division of TW leads $18 million Round D Subscribers: 320 million Channels: 12,500
13 WE ARE HELL-BENT ON NOT BEING IN RAILROAD CARS AS PLANES FLY OVERHEAD Just as cable ushered in a new wave of programming choices, consumers will follow the next wave led by OTT. Marketers will have many options in the future. Today, however, they have the ability to shape the industry s future.
14 HOW BRANDS CAN SEIZE THE OPPORTUNITY Create Programs, Form Alliances, Aggregate Content Moment in Time Working with MCNs, OTT networks or a specific show is a great way to understand the landscape and sample the power of these dedicated audiences. We are in the early stages of an industry, where there are few requirements, obligatory media buys, or deal-making encumbrances. Early alliances create long term allegiances. Global Reach As witnessed by YouTube, launching new programming can be instantly global. Brands have the potential to partner with channel creators in a manner rarely available before. Whether in English, Spanish, or another language, brands that travel can now align with programming that travels. All at a fraction of the cost. Join the Revolution Creating a channel has a very low barrier of entry. That s why there are over 500 million channels. The real challenge is getting people to take notice and watch. In the future, the competition in OTT will revolve around the home screen; persuading consumers to download your app or save your tile. That level of commitment only happens by providing compelling content. Few brands, such as Red Bull, have made the leap (with much success) by creating their own production studio. There are other ways, however, to start a programming outlet. For example through content acquisitions and partnerships, marketers can build an impressive slate to entertain viewers with. 14
15 TESTING LETS ADVERTISERS GAIN EARLY LEARNINGS & BUILD AUDIENCE AFFINITY Custom Shows, Signature Channels and MCN Promotion Push Programming FORD Teams with Hot Channel Creator for Custom Video Series Established adventure & stunt filmmaker DevinSuperTramp imagines his perfect outings using only one tank of gas in this four-part series that lived on Ford s owned YouTube channel. Devin s talent, credibility, and young following built an audience, garnering over 10 million views. RED BULL Creates Channel, Redefines Action Sports From creating one of a kind events like the Stratos jump from space, to teaming up with the best snowboarders and mountain bikers, Red Bull has created programming that consumers seek out. Their online channel embodies the brand, extends it s world, and transcends marketing. In the future, it s OTT tile is most likely to be found on the home screen of Millennials. AT&T Launches Social Reality Series/Channel, Leverages MCN Distribution Using established channel partners and Fullscreen as a distribution partner, AT&T a first of it s kind real-time reality show, which lived via social media and was memorialized in HD episodic content. Set in the tone of an MTV show, AT&T created a custom YouTube channel that lived seasonally and amassed over eight millions views in it s first season. 15
16 KEY TAKEAWAYS 1. More Devices Mean Ubiquitous Access: When more consumers adopt broadband, smart phones, and tablets, access to content becomes universal. It s not a question of if consumers will stream via OTT, it s a question of how much they will stream. 2. Programming Is Programming: People choose content based on their interests; a show s origin has become irrelevant. Did it start on TV or the web? It doesn t seem to matter, as consumers are willing to subscribe (and sometimes pay) for programming they care about. 3. YouTube Is A Bellwether: The stable platform, global reach, and friendly ecosystem have made it the best place for creators to launch new programming ventures. Perhaps only a small piece of the OTT future, it offers a template for understanding the multi-million channel universe. 4. MCNs Will Gain More Significance: As investment flows to this sector, MCNs will be integrated into the operations of major media conglomerates. They will offer advertisers more custom content, sponsorship, and distribution opportunities. Their audience management tools will become increasing important Marketers Are Still Early: As the OTT landscape progresses, a few star channels will emerge. Brands could be marketing partners and/or channels themselves.
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