Outlook insights Hot Topics

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1 Outlook insights Hot Topics The rise of OTT is generating questions for the industry but consumers just see choice and opportunities

2 The rise of OTT is generating questions for the industry but consumers just see choice and opportunities Article subsection OTT disruption: the download An expanding flow of overthe-top (OTT) content services are being rolled out in markets worldwide, both from new pure-play OTT entrants and traditional broadcasters adding an OTT service to their portfolio. As entrants and incumbents jostle for position, the disruptive frenzy of activity is creating a complex, fragmented patchwork of often-overlapping content services, using a diverse array of business, operating and pricing models. Consumer pressure for easier and more seamless ways to search for content across services will ultimately lead to greater integration through aggregators and/or devices leaving the eventual winners as the talent behind the content, and the audiences that they can reach more directly than ever before. A new world of OTT services In November 2014, it was revealed that the new comedy Unbreakable Kimmy Schmidt produced by the team behind 30 Rock, Tina Fey and Robert Carlock was moving to Netflix even before airing on NBC. At the time, a show migrating from a major US network to a subscription-based streaming site came as a surprise to many observers. But its enthusiastic take-up by Netflix customers suggests such moves won t seem surprising for much longer. According to news reports, Netflix clinched the agreement for Unbreakable within four days flat, with the move to Netflix then enabling the writers to reinstate some of the saucier jokes that wouldn t have made it on to NBC. These aspects of the deal underline two defining characteristics of the overthe-top (OTT) world: faster decisionmaking, and a greater ability for talent to reach its audience in the way it wants. The forecasts contained within this year s Global entertainment and media outlook reflect that the long-predicted OTT world is finally here. Alongside the pure-play OTT entrants rolling out worldwide, incumbent broadcasters are also launching their own parallel OTT offerings to become dual-mode players. The result is an increasingly complex patchwork of OTT services with a spectrum of business models pure subscription, subscription with advertising support, and pure adsupported covering the waterfront of linear, on-demand and catch-up content, and often overlapping with each other. generates new questions As the flow of new OTT offerings continues in markets across the world, what does this say about the industry? Simply put, we re currently positioned at the end of the beginning of the OTT disruption curve, with a fragmented and increasingly crowded and frenetic marketplace where most players are feeling their way forward while jostling for position. For evidence, look no further than the daily industry headlines: a single day in March 2015 by no means atypical saw announcements about BBC Worldwide planning digital platforms in Asia, ex-disney and Microsoft executives joining the Netflix board, and HBO signing up for a daily OTT newscast from VICE. Amid this frenzy of activity, it s hardly surprising that all participants in the value chain OTT entrants, incumbent broadcasters, and content companies are facing more questions than answers. And the questions are gaining greater urgency as TV unbundling and OTT move into the mainstream, with existing customers engaging in cord-cutting or cord-shaving and new customers becoming cord-nevers. All of this could herald a structural decline in subscription TV revenues or a scenario where multiple pay-tv subscriptions become the norm in a typical household. Or maybe both. Which scenario or blend of scenarios comes about will depend on how several questions play out. Questions like: what the new TV bundle will look like a random scattering of OTT offerings, or a more coherent collection still centred around a cable or satellite subscription? Also, will we go back to the future, with consumers ending up paying the same amount for the same or perhaps less content than today? And, as they enter the OTT era, how will incumbent broadcasters manage the infrastructure originally built for linear delivery? Outlook insights: An analysis of the Global entertainment and media outlook:

3 We re currently positioned at the end of the beginning of the OTT disruption curve, with a fragmented and increasingly crowded and frenetic marketplace. Some players are looking to sell their new OTT subscriptions like health club memberships but they may not have considered what will happen if all the members turn up at the gym at the same time. As companies strive to answer these questions, some imperatives are emerging for success in an OTT world. One of these is better cost modelling capabilities to ensure a profitable balance between cost, video quality and bandwidth when streaming content. Equally vital is selecting the right partner or partners to manage streaming. And a related issue is the choice of whether to build, rent or buy the back-end: Time Warner s HBO, for example, opted to team up with MLB Advanced Media for its stand-alone streaming service. The reintegration phase looms While the OTT landscape s current complexity may increase for a while as these issues play out, PwC s view is that pressure from consumers will ultimately trigger a process of reintegration between the different OTT consumer services at the point of consumer search, discovery and delivery. The current marketplace resembles a series of interlinked and overlapping walled gardens, which consumers often need in order to trawl through separately to find the content they re looking for. Instead, they want to be able to make sense of the OTT/linear landscape by searching across it in an easy and seamless way. We believe there are two main ways that this will happen. One is through the emergence of new aggregators that will provide content discovery for consumers across multiple networks. To work across global borders, this type of service may require some renormalisation of the rights to particular content such as sports, which in some cases is effectively blocked from access in other territories. The second way in which the landscape will become integrated is through devices, with a smarter version of today s smart TV being well-positioned to play this role. Ultimately these two trends could converge, through the creation of a plug-in dongle that turns any device with a screen into an entertainment unit that reaches seamlessly across the digital content ecosystem. OTT disruption

4 Article subsection.but all players face challenges to get there However, the industry has some way to go before this future emerges. And to be around to play a role in it, each participant in the value chain OTT entrant, incumbent distributor and content company faces distinct challenges to secure its position and avoid falling by the wayside. What are these challenges? For the new OTT entrants, the key challenge is how to focus simultaneously and successfully on managing and enhancing both their content roster and also their customer experience. Today, most players are stronger on one than the other but to win out they need to get both right. For the incumbent distributors/ broadcasters, the challenge is how to manage and retain their audience through the transition from traditional consumption to OTT, without cannibalising or losing them along the way. So they need to work out how to both maintain their audience and convert it. And for the content community, the challenge is about thinking beyond the traditional linear world and finding the best way to reach the audience that their content appeals to irrespective of the consumption mode, delivery method, device and time. Just because a content producer has made a comedy, that doesn t mean it has to air on a Thursday night at 9 o clock on a major network s comedy night. As Unbreakable Kimmy Schmidt demonstrates, the right audience may well be somewhere else even global. And it also shows that the ultimate winners from the disruptive explosion in OTT will likely be the participants at the two ends of the value chain: first, the talent that gains more direct, faster and cheaper access to its audience through the democratising power of digital connectivity and devices; and, second, the consumers in that audience who get to find and experience the content they love, wherever and whenever they want it. Everything else is about linking the two and that role is currently up for grabs. 10 questions to ask: 1. As viewing migrates from linear TV to OTT, multichannel networks and on-demand video services, what is the future business model for TV? 2. With TV unbundling becoming mainstream, what do you think the multichannel media bundle of the future will look like? 3. How should incumbent broadcasters and content providers respond to and reach the growing ranks of cord-cutters and cord-nevers? 4. Does lighter regulation give OTT players a competitive advantage over traditional broadcasters? 5. How long will consumers be happy to pay for a disparate, disjointed collection of services before demanding and being willing to pay for renewed integration? 6. How can entertainment and media best engage with customers through digital channels to drive their own innovation and adoption by customers? 7. How can they continue to improve the customer s digital experience around what, how, and when content is consumed? 8. How can content distribution companies best align their operating models with that improved experience: should they build, rent or buy? 9. When incumbent broadcasters and OTT players seek out delivery partners, what qualities should they be looking for? 10. What new skills will different participants in the value chain require for success and can they look to each other for these? Outlook insights: An analysis of the Global entertainment and media outlook:

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