In the second of our articles in the Tessellate series looking at how technology, media and sport are intersecting, Heston Aniteye, Richard McMorris, Rebecca Lewis and Matthew Standen survey the past, present and future of the over-the-top ("OTT") broadcasting market.

The rapid uptake of OTT services has revolutionised the way that content owners and producers deliver content to audiences.  We are now at a point where there is so much focus on how to build and operate the most successful OTT service that it’s difficult to remember quite what prompted this revolution in the first place.

This article looks at how we got here, how new players in the market may become increasingly significant and how they, alongside their traditional pay-TV counterparts, might leverage new technologies to engage audiences.

Content is king!  Or is it?

The traditional pay-content ecosystem in most countries involved aggregators and platforms like Sky and Virgin Media having direct relationships with large numbers of consumers, hoping to provide a one-stop shop for consumers’ media needs. In many markets it’s been possible for a small number of early movers or the odd well-funded powerhouse to achieve significant market share because the only way of getting content into consumers’ homes (let alone their hands or their pockets) was via hugely expensive broadcasting infrastructure. This would involve leasing cables, dishes and satellites over long periods of time so that the economic benefits of the arrangements could eventually bear fruit; access to capital and scale were essential. (Either that, or they’d have to send DVDs to people’s homes in the post, as Netflix used to do, and hope they would occasionally be returned.)

But then along came the internet: not dial-up, which was just about good enough to send a short email and the odd photo, but wide-reaching industrial pipes that could shift enormous volumes of data in the blink of an eye.  Expensive underground cables, dishes and satellites instantly became less essential and the market for consumer video services exploded.

Perhaps, then, the single most significant factor in the early days of OTT has not been mind-boggling levels of investment in original content, but simply better connectivity.

Improved connectivity hasn’t just made it possible for more content to be distributed faster and at better quality; it’s enabled virtually anyone to monetise a piece of content by making it available to anyone – and often everyone – else.  This is true whether you’re trying to sell films, music tracks or electronic games.  Liberalisation, democratisation, disintermediation: call it what you will – the ability for a media service provider to have a direct relationship with everyone on the planet has already started to reshape the way the media and sports industries think, operate and monetise their wares.  And it’s all down to better connectivity.

Inevitably, though, this unfolding space for media businesses has quickly been occupied by a new generation of early movers and well-funded powerhouses.  Platforms such as Netflix and Amazon Prime have ignited what already feels like an irreversible shift to content distribution via OTT.

The last couple of years of the OTT revolution have been characterised by a handful of really deep pockets being slowly emptied into content production.  Just as traditional players have started getting into the OTT game with their own offerings, their newer competitors have disrupted the market again by spending unprecedented amounts of money to produce and distribute their own content. In doing so, not only have they caught the headlines and produced some cracking new content: they have also significantly (and deliberately) reduced their reliance on third party licensors to prosper and created clear differentiation between their offerings.

In this sense the pattern of the first twenty years of digital media is now repeating itself:  large, well-funded organisations seek to monetise new distribution technologies and use exclusively owned, must-see content to draw in viewers and users.

Once again connectivity – technology – has been the enabler, the catalyst. That said, it still feels as though content is king. It’s likely that 5G will bring a revolution of its own, but even the greatest 5G evangelists recognise that it will need a killer app or two to really come to life.  With the vast majority of traffic on 5G predicted to be video, it wouldn’t be surprising if one of those killer applications comes from the media or sports industries.

Direct-to-consumer: the only way to survive?

In a world where one OTT provider alone spent $12 billion on content in 2018 and now commissions 85% of its own content, content producers are constantly fighting for relevance. A wide variety of direct-to-consumer OTT propositions are now being launched in different markets across the globe by businesses with brands and user bases to protect. Commenting on the market in the US, AT&T CEO Randall Stephenson said: “The modern media company must develop extensive direct-to-consumer relationships, and we think pure wholesale business models for media companies will be really tough to sustain over time“.

This philosophy is no better demonstrated than by Disney’s plan to launch Disney+ later this year, a subscription streaming service that will be the exclusive home of Disney movies and TV shows. Disney will reportedly lose $300m in annual revenue by ending its content licensing deal with Netflix. In the UK, the BBC and ITV have announced the imminent launch of a domestic-market BritBox in 2019 (a service that already has 500,000 subscribers under the same name in the US). Britbox will be a paid-for subscription service marketed as the home of British box sets and original content. The biggest consumer facing brands in the industry are launching an increasing number of subscriptions at consumers to develop direct-to-consumer propositions. The Broadcasters’ Audience Research Board (BARB) reports that over 12 million UK households have at least one streaming service, and this number is expected to grow. Our MediaWrites team discuss the new wave of competitors across a number of European markets here.

It’s easy to talk about this technologically-enabled new era as a period of unqualified emancipation.  Everyone can be all things media to all people.  As with any period of dramatic change, however, there will be winners and losers.

It’s one thing for well-established brands – a Disney or an HBO – to see this as the moment to go it alone and direct, but large swathes of the production industry do not have anywhere near the level of consumer brand recognition required to simply tell fans to stop watching their content in one place and start watching it somewhere else.  For many years, and from long before the technology was in place to enable it, production companies around the world have looked forward to the moment when they could start running their own services and finally have their own direct fans and consumers.  However, so far very few have made it to this point.

You might be forgiven for having little sympathy for them given the flood of new money into TV and film production. Indeed, plenty of production company executives will tell you with a grin that this is something of a golden era for them.  Headlines abound with stories of one TV series after another being given budgets of millions of dollars an hour pay tribute to this notion.  It turns out, though, that this money is not getting evenly spread across the production industry, with those in obvious places such as the west coast of the US doing very well, but with many others not seeing an appreciable increase in opportunity or funding.

Budgets from traditional players are also changing shape.  Funding for public service broadcasters around the world is getting squeezed and the revenues of classic ad-funded broadcasters are under pressure with money shifting online and away from “TV”.  As a result, their capacity to spend big on production is also under challenge, with many choosing to put more money into fewer, bigger productions and co-productions with global heavyweights like Netflix and Amazon.

This rebalancing of spend by larger media organisations away from a “something for everyone” approach towards a concentration on a handful of premium propositions is also reflected in the sports media rights market, with several of the world’s more prominent sports broadcasters directing their rights acquisition war chests on a small number of top-end properties, leaving many smaller sports fighting for shrinking pools of cash.

Similar changes are also affecting consumer facing brands. With consumers cutting the cord and terminating classic pay-TV subscriptions in favour of OTT services, an increasing number of eyeballs are being transfixed on OTT services, where the most prominent provider, Netflix, does not currently allow any advertising.

More new technology to the rescue: data, AI and discoverability

In truth it’s hard to know quite what to make of the current state of the market.  It feels exciting and revolutionary, but not necessarily for everyone.  Is it possible that a new wave of currently embryonic technologies will come to the rescue – or will they just set off a new and even more unpredictable period of change?

Take, for example, discoverability – a challenge faced by producers, brands and advertisers alike.  Could better content metadata, search technologies, improved data and AI-driven recommendation engines, combined with effective techniques to really start sifting valuable insights from massive data help solve this problem?

One of the biggest benefits for OTT operators should be the chance to harvest vast amounts of incredible data about users and their habits. Which content is being watched? When? On which device? Where? For how long?  By how many people? When did they switch off?  Why?  It’s this kind of data mine that the likes of Netflix cherish and content producers and advertisers covet. In a rare show of transparency, Netflix reported that over 45 million accounts streamed its original movie “Bird Box” within the first seven days of release.  This scale is unrivalled and not just in traditional direct-to-consumer propositions; it suggests that early distribution on OTT could also threaten the cinema industry. It also gives some idea of the volume of information available to OTT service providers which they will undoubtedly try to harness to optimise every viewing experience for every user.

However, most OTT services don’t currently have anywhere near the scale enjoyed by Netflix.  BBC executives can often be heard at conferences bemoaning the fact that even with a few tens of millions of registered users for the iPlayer it doesn’t have enough data to really garner useful insights. Fragmentation of the industry into an ever increasing number of services may simply lead to more and more services having some, but just not enough, data.

At the same time research indicates that consumers, although continuing their very individual hunts for high quality content, are already getting subscription fatigue (even this early in the OTT revolution).  The biggest brands and platforms continue to plough their own furrow, producing and distributing their own content but with a mass of new market entrants – increasingly including businesses and brands that have not traditionally been media companies or had media arms. It’s becoming tougher for content to find its audience, and vice versa.

In the midst of all of this is a raft of critical and unanswered questions: how many OTT services is too many? How will consumers choose which ones to buy?  How does a consumer successfully hunt for engaging content when it’s spread across so many different platforms?  Is there a need for a new form of aggregator to emerge?  Isn’t this in part what Apple is now going to do?  How will the battle for prominence amongst service providers affect how their offerings and content are organised and displayed to us?  At what point will we all just want to regress to the era of analogue linear television to the comfort of no tricky mid-evening choices about what to watch next, because someone else had already made those decisions for us?

To charge, or to advertise?

In January this year Amazon’s IMDB launched Freedive, an ad-supported OTT service, and NBC Universal plans to launch its own ad-supported OTT service later this year. These services are a stark contrast to Netflix’s resolutely ad free platform. However, unlike Disney, NBC Universal will also continue to license content to other platforms. Steve Burke, CEO of NBC Universal, believes that this will be a great opportunity to leverage their “data targeting capabilities” and that a “streaming service, with limited and personalised ads, will provide a great consumer experience“. This potentially gives the greatest insight into where the market is heading: a new generation of high-quality, free OTT services powered by state-of-the-art ad-tech.

Yet then comes the next conundrum for viewers and providers.  Fuelled by several recent high profile data security breaches by media companies of varying shapes and sizes, consumers continue to be naturally reticent about allowing organisations to gather and use their data.  However, making really smart adtech work requires lots of said data – and the right technologies to use it effectively.  At the moment, the sales pitch from ad-funded media companies is that we should let them use our data because they are going to serve us ads anyway, and we might as well be served ads that are relevant and interesting than not.  When we do allow our data to be used in this way, the service provider then has a series of tricky choices to make: for example, targeted advertising is sensible, but how should platform operators and advertisers alike use data to find the right balance between directing ads at a tiny number of hyper-relevant users (on the one hand) and the cost of achieving reach and general brand recognition (on the other)?

A new OTT landscape?

In its annual digital home survey, EY found that 63% of 18-24 year olds believe that they get better value from their OTT services than from traditional pay-TV, yet 39% of those same 18-24 year olds already find it hard to track content across different services, platforms and apps. In an illuminating comment, Praveen Shankar, EY’s Head of Technology, said: “Technology, Media and Telecoms (TMT) companies need to move away from programme guides and big budget marketing and build AI enabled recommendation engines to push content.” He went on to add: “Customers vary significantly in how they consume content, so personalising experiences through data and insights is paramount.”

As the number of OTT services continues to grow and content producers look for homes for their best content, will we see the rise of a new wave of tech savvy aggregators? Aggregators that are not interested in commissioning content but which have the technical infrastructure and commercial imperative to aggregate a variety of OTT services alongside acquired content and integrate the content metadata from all of them, then sell insights from the viewing data to create a bespoke, curated service for the consumer that presents search results and recommendations from all of the consumer’s OTT services in one place? New services such as Amazon Prime Channels and Apple’s recently announced new and improved ambitions in TV could be starting points for a new approach to OTT.  Perhaps if new entrants combine the ability to offer OTT services with reliable recommendations algorithms alongside targeted advertisements, perhaps for just one monthly subscription (imagine that!), they may find an equilibrium that suits both consumers and the vast majority of media businesses.

But hang on: doesn’t that sound an awful lot like the era we thought we were just leaving…?