English
Executive Trends: What to expect the day after OTT (Part 1- October 2015)
Part 1: some
definitions, background
The current frenzy about the rapid growth of "anytime, anywhere" video viewing is in fact a classical repetition of what happens to a medium (in this case, television) when there is a change in the way it is consumed.
It is important to keep in mind that "prepackaged" (or linear) television is a device to watch video programming. Devices, like technology, are commodities: therefore, contemporary audiences don't care about the difference between watching a game show on regular television or on a hand held device such as an iPad or a smartphone. They do care about "timing": sports events and news, for instance, lose they appeal if not watched live, like yesterday's newspaper: the content is still there, but the experience is less satisfying.
Another aspect to consider is that watching TV is an essentially "passive" experience: you sit down and let yourself be entertained. Computer usage, by contrast, is "active": viewers get restless if they just have to watch the screen for more than a few minutes, without being able to interact with what they are watching. Sometimes, they just switch to another similar content or watch more than one of them at a time.
Startups, frontrunners, competitors
Netflix emerged as a company that mailed videocassettes to customers, a business where Blockbuster was the leader. The problem with renting physical VHS cassettes (and DVDs) as that you had to return them; that happens when you have already watched the content and returning the cassette or disk becomes a nuisance. That's why Blockbuster made more money on late charges than on rentals by itselves. They hated the Internet because there were no returns and were unable to adapt to it, but this cost them their existence.
Netflix, during several years, found itself developing a nascent market but facing few competitors. It obtained access to vast inventories because prepackaged TV usually buys limited-time licenses to the product developed in the States by Hollywood and the pay channels. Non-exclusive rights were not a problem because the right holders obtained little money from each buyer and could sell the content to different digital platforms at the same time.
This changed when Hulu, Amazon and Google found what was going on. Google bought YouTube to pursue the free-watching mode of the video business, a success that now appears as a drawback as it intends to launch a paid, ad-free service. Amazon uses any means available to sell as many things as possible to scattered customers. Hulu was founded by Fox, Comcast and NBC in order to contain Netflix, a concept that at first placed profits on the back burner, to the point that in 2013 Hulu was put on the block, yet found no desirable suitors. Now it is considered an "undervalued" company by market analysts at JPMorgan, a sign of good management and the importance of having acquired the rights to series such as "Seinfeld", "Empire", "South Park" and "Nashville", as well as becoming a VOD service for AT&T and Cablevision customers.
Crystal-ball gazers happily forecast that Netflix will reach, for instance, 24.4 million subscribers in Brazil by 2020, or 10.6 million in Mexico, and 100 to 130 million worldwide at that time, according to the source chosen. The problem is, powerful competitors are working to prevent the company headed by Reed Hastings to remain the paid OTT global leader. German analysts Vast Media, list HBO Now --which is armed with exclusive content--, Amazon (which in the US will offer three-years old HBO product) and Hulu (9 million subs in the US by April 2015).
But, at least in Latin America, there is a swarm of telcos (America Móvil, Spanish Telefónica, Millicom among others)interested in this business. The same happens with several TV local powerhouses (Televisa in Mexico, Globosat in Brazil, Grupo Clarín in Argentina, in addition to the OTT services offered by the major cable MSOs; last but not least, there is as well an increasing number of Internet access providers that, at least, will help to heavily fragment this market in the next 3 years. This will modify the existing relationship between the content owners and distributors; "Kill the middleman" is one of the current writings on the wall.