ott tv myths and realities, over the top tv launch ... · here are our lessons learned on pricing....

Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT

L.E.K. Consulting / June 2015 LEK.COM

OVER THE TOP TV TRENDS

Is OTT relevant beyond the U.S. domestic market? »

OTT TV Myth #8: OTT TV Is a Mature Market Phenomenon

The growing importance and opportunities presented by over-the-top (OTT) TV are not limited to mature media markets.

In fact, it is highly relevant to emerging markets, which in many cases have leap-frogged the traditional media evolution cycle to embrace digital content distribution methods.

OTT TV represents an intriguing option to roll out content internationally (assuming, that the underlying infrastructure can support video streaming).

For Myths 1-2, please see part one of “Over The Top TV trends” in our Executive Insights’ “Spotlight on Media & Entertainment” series. Myths 3-7 can be found in part two.

Myth

OTT is a mature market phenomenon

Reality

Definitely not

http://www.lek.com/sites/default/files/ott-tv_over-the-top-tv_over-the-top-tv-market-trends_ott-series-part1.pdf

http://www.lek.com/sites/default/files/virtual-mvpds_mvpds_ott-tv_over-the-top-tv_over-the-top-tv-market-trends_ott-series-part2.pdf



The rapid growth of China’s broadband infrastructure (~39% penetration, ~168M households in 2014), has fueled the emergence of multiple online video platforms (alternative video platforms or AVPs) with national audience reach.

A set of large, well-funded, national digital players, including Tencent, iQiYi (Baidu owned), Youku/Tudou (Alibaba minority ownership) and Sohu are driving demand for content.

These players are increasingly considered as a viable monetization alternative to traditional TV, particularly as AVPs recognize the value of exclusive premium content (e.g., Tencent’s exclusive agreements with the NBA and HBO).

Can TV organizations take advantage of domestic and international opportunities? »

Crouching Tiger, Hidden Dragon:Demand for Online Video in China Is Vibrant


Note: 1Stats as of September 2013Source: L.E.K. analysis

Users of Major Chinese Online Video Providers1

Millions of users

162

Online video arm ofBaidu, leader in

mobile video users

168

Diversified digital playerranging from ads andpay-for-click services

to gaming

254

Major digital playeractive in mobile, social(QQ), gaming, onlineads and e-commerce

Previous share leader inonline video, acquired

Tudou in 2012

309

0

50

100

150

200

250

300

350







What cautionary tales exist for organizations that attempt to get into OTT TV without being digital ready? »

OTT TV Myth #9: TV Organizations Are Digital Ready

Digital readiness refers to a company’s ability to:

1. Engage with their viewers regardless of channel (traditional Pay-TV, broadcast, VOD, over-the-top (OTT) Internet)

2. Provide a seamless and integrated entertainment experience across platforms, anytime and anywhere

3. Develop a direct connection to the consumer (higher margin and less-intermediated by others)

Myth

TV organizations are digital ready

Reality

Not really






The OTT TV market is littered with failed experiments because organizations are not sufficiently prepared to take on the challenges of OTT.

Case in point: Despite large organizational support and deep investment (~$150M), Verizon and Redbox shut down Redbox Instant just 19 months from initial launch after being plagued with issues.

While fortunes will be made going forward, the high levels of current investment by incumbents will require new entrants to develop clever strategies, find deep-pocketed partners and carefully leverage existing assets.

How can organizations develop the right capabilities to succeed in OTT? »

Risky Business:The OTT TV Territory Is Treacherous

“… The service was plagued with problems right out of the gate. The library of movies was nowhere near as expansive as Netflix’s, Amazon Instant’s, or even

Hulu’s. They also didn’t offer any TV shows …”

Fast Company, October 2014

“… Compounding the misery of the service was the security vulnerability – criminals were using Redbox Instant to

verify stolen credit cards and Instant was forced to shut down new user sign up for three months .…”

Fast Company, October 2014

“… We made the mistake of putting traditional Telco and media guys into the venture instead of bringing in someone who understands

digital media and digital subscriptions. It was a disaster .…”

Company board member, November 2014

Source: CNET, BGR, Variety, The Desk, Gigaom






While (OTT) TV is top of mind for network executives, most firms are not digital ready. Studio executives acknowledge OTT is a rising trend in home entertainment. However, traditional TV organizations don’t know how to conduct billing, collections, customer service, app development and other critical tasks.

TV networks that switch to an OTT-ready mindset face content acquisition challenges and cannibalization risks. Competing effectively in OTT requires a new approach to content acquisition and creation. There are also inherent risks, especially for networks that rely heavily on traditional revenue streams.

What are the required criteria for a successful OTT launch? »

The OTT TV Hunger Games:Big Opportunity Poses New Challenges for TV Organizations

Source: L.E.K. analysis

Level of Preparedness

Traditional TV Functions (pre-2014)

Time

“Digital Ready” Functions (2015+)

Viewer / customer data warehousing

Platform / app development

Data analytics

Billing / collections

Scheduling

Content acquisition

Content development

Offline marketing

Legal / privacy / PII data management

Viewer / customer service

Subscriber acquisition / retention






What tips and traps should organizations know about? »

Fantastic Four:Here Are the Required Criteria for Successful OTT Launches

Successful OTT TV network launches require the following:

• Affinity base must be reachable and can be activated to a paying audience

• Ongoing pipeline of differentiated or new content to keep the audience interested

• Promotion platform to access your affinity base and drive it towards your service

• Excellent technology delivery and ubiquitous placement on devices for anytime, anywhere viewing – meeting these criteria are table stakes for OTT TV networks Source: L.E.K. analysis

Affinity Base Ongoing Pipeline of Differentiated Content

OTT LaunchSuccessFactors

Promotion Platform

Excellent Technology Delivery and Ubiquitous

Placement on Devices






This installment of our Executive Insights’ “Spotlight on Media & Entertainment” series covering “Over the Top TV Trends” aims to highlight a set of tips for launching an online video network and some pitfalls to avoid.

Here are our lessons learned on pricing. »

How can you deliver a great service? »

The Craft:Pricing an OTT TV Service Correctly Requires Research and Flexibility


Conduct extensive market research to understand price parameters, benchmark to competing offers, trade-offs and opportunity costs

Do Your Homework

Low switching costs and comparable features require pricing to be at least comparable to other OTT services to facilitate adoption and steal market share

Making Pricing Competitive

Test multiple offers to see consumer response beyond the initial launch price

Be Flexible




How should you acquire and retain subscribers? »

Fundamentally, no OTT TV service will succeed if it is not intuitive and ergonomic.

Here are more lessons learned on pricing. »

The OTT Engine That Could:Successful OTT TV Services Deliver a Great User Experience


Remove barriers to easy sign-up and payment, ensure availability across devices, facilitate discoverability and develop intuitive navigation tools that empower the consumer (e.g., library queue, recommendations)

Simplify the Service

Consumers expect OTT networks and platforms to provide a seamless and high-performing viewing experience from any device

Have a Leading Edge UI

Understand product requirements and partner with vendors that can handle seamless back-end support, including KPI monitoring

Partner Strategically

OVER THE TOP TV TRENDSOVER THE TOP TV TRENDS


What pitfalls should be avoided in launching an OTT service? »

What To Expect When You’re OTT-ing:Getting Consumers and Investors on Board with Your OTT TV Service


Driving new customer acquisition and return usage is critical to the long-term success of an OTT TV network.

Here are our lessons learned on consumer offers and managing expectations. »


Ensure the product offering has a rotation of “fresh” and repeat value content; follow up on marketing efforts that work and don’t work to support subscriber base

Feed Your OTT Service

For content aggregators, consumers will not be motivated to add an additional or replace their existing subscription if the new OTT service does not provide at least the comparable catalog as offered by existing competitors

Offer a Comparable Catalog

(for aggregator)

Building a successful OTT service takes time and requires a different set of measures than are traditionally followed by investors; ensure that this is communicated clearly and do not over-promise on the expected growth

Manage Expectations




So what can TV organizations do to become digital ready? »

Hawaii Five-No-Nos:Pitfalls to Avoid When Launching an OTT TV Service

These critical mistakes can nip promising OTT TV services in the bud.

Here are our pitfalls to avoid. »

Shifting to a subscription-based model requires a focus on subscriber care and acquisition, a continuous refinement of the product, and ongoing monitoring of subscriber analytics

Not Organizing Appropriately

Be prepared for adverse reactions from other content carriers (be they networks, MVPDs or other OTT providers) after you announce a channel that circumvents their service

Not Anticipating Partner Reactions

Underfunding Marketing

Don’t short change the marketing resources needed to generate trials from prospective users (wherever they may be), subsidize trials and support ongoing retention. CACs will be painfully high at outset but will come down over time as the network effect builds

Avoid launching before appropriately beta-testing and working out the ”kinks” in the service to limit negative PR at launch from technical issues

Launching Too Quickly

Global expansion — beyond simply making the domestic service available — necessitates a strong understanding of localization requirements including dubbing/sub-titling costs, billing/payment infrastructure, local regulations, in-country marketing etc.

Launching Internationally

Without Appropriate Due Diligence





What have we learned? »

Maps To The Stars:TV Organizations Can Chart a Path to Digital Readiness

The path to becoming digital ready requires organizations to re-think their strategic positioning and answer some tough questions.

Here are our four steps to success and digital readiness. »


Digital Readiness Is Where TV Organizations Can and Need to Act Now

End State Definition

1.

• What is the ideal end state for digital readiness?

• How much control do we want over our digital rights?

• Which approaches are most attractive?

– MVPD subscription

– Standalone subscription

– Transaction-based platform

– Ad-supported platform

– Utilize a third party’s platform

– Others?

Current State Diagnostic

2.

• Where are we today?

• What is the current status of digital rights / licensing deals?

• Do we currently have a touch point with the end consumer?

• Where are we distributed today?

• Is there sufficient scale / demand for our content?

• Where do we have permission to play?

• Who owns digital within the organization?

Gap Analysis

3.

• What are key gaps between current state and end state?

– Capabilities

– Organizations

– Processes

– Systems

– Content rights

– Distribution partnerships

– Others?

Barrier Identification / Resolution

4.

• What are key roadblocks to addressing gaps?

• For each, what are our options and pros / cons?

• What subscriber numbers are required for each approach to be attractive?

• What are the financial implications?

– Incremental revenue potential

– Cost requirements

– Scenario analysis




Our Outlook:Digital Ready Is the New Black

Our Executive Insights’ “Spotlight on Media & Entertainment” series covering “Over the Top TV Trends” presents a case to debunk a few of the key myths around online video services.

What Have We Learned About OTT TV?

1. OTT is for real

2. Traditional TV viewing is not dead, but under pressure

3. Millennials do consume OTT disproportionately but have not abandoned cable/satellite

4. Virtual MVPDs will pressure the traditional cable bundle, but it will persist for the time being…

5. …in no small part due to live sports, even if premium networks are at risk

6. OTT is not constrained to mature markets as many emerging markets such as China represent tremendous growth opportunities

7. Despite the opportunity, many TV organizations are not “digital ready” to avoid the risks of and realize the benefit from OTT

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners.

© 2015 L.E.K. Consulting LLC

ott tv myths and realities, over the top tv launch ... · here are our lessons learned on pricing....

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