In an increasingly crowded over-the-top video service market, consumer perception drives purchasing behavior and players must differentiate themselves in order to succeed, according to a research presentation by Parks Associates on Tuesday at NAB 2018 in Las Vegas.
It used to be that one could roll out a video service with some content and consumers would take to it, but now companies need a value proposition, Brett Sappington, senior director of research at Parks Associates, told the audience. Parks Associates is tracking 230 OTT video services, including 15 that are coming down the pipeline.
Sappington outlined three trends the firm has found to be linked to success. First, services with a recognized content brand, such as HBO Now. Second, online pay TV services or vMVPDs, such as DirecTV Now, which Sappington pointed out hit the 1 million subscriber mark faster than any other service. Finally, original content producers, including Netflix and Amazon, which differentiate themselves by creating compelling exclusive content.
The number of OTT video services spiked in 2015 and has tapered off a bit since then, Sappington said, though there are still many services entering the market. Interestingly, there have been relatively few falling out of the market – though that trend is starting to change. He noted that more OTT streaming services have exited the market in the last six months than in the previous 18 months, indicating competition is beginning to intensify and services have to offer consumers something unique in order to draw them in.
Parks Associates indicated there are a few different factors leading to a company abandoning ship or moving in a different direction. CenturyLink for example, tested its Stream offering for about nine months, but ultimately decided to go in a different direction than offering their own OTT video service. While the company was still interested in the space, it need to look at partnerships rather than come out with an offering similar to DirecTV Now – which Sappington said shows again that differentiation is a significant factor.
For others, the ROI doesn’t pan out, as was the case with NBCUniversal’s comedy-focused streaming service Seeso, which shuttered last year.
Sappington said often many of these services decide entering the market themselves is too difficult so they look for alternate ways to drive revenues, either through promotional partnerships or bundling.
Parks Associates indicate that consumers are willing to pay for services if they feel they are getting value. The firm’s research found that the fastest growing segment of consumer households is those subscribing to three subscriptions or more, with 15 percent of U.S. households taking on that many in 2017.
The marketplace is also changing in the sense that it may not be about knocking out a direct competitor, but rather services needing to look at what they can do to complement others and become part of a consumer’s portfolio of services.
Sappington said players need to ask, “What can I do to be unique and carve out my value?”
Perception also ties into value – so consumers value perception of what they get out of paying $80-plus for a traditional pay TV subscription is not equal to that of paying less for a service like Sling TV, which starts at a price point of $20 per month.
According to Parks Associates, 63 percent of consumers say they’re not happy with their traditional pay TV service because of the high cost relative to that perceived value.
One big takeaway from the research, Sappington said, is that “branding still matters to consumers.” Again, pointing to services like the now closed Seeso, as an example of the difficulty in creating a new brand rather than relying on a known name like HBO.
He reiterated the importance of differentiation. Sappington said he has concerns surrounding vMVPDs, in that the longer they look similar to one another in their offerings, the more difficult it will be for a consumer to make a choice based on anything other than price.
“Today’s OTT market is about complementary offerings, aggregation and partnering,” Sappington said.
HBO and Showtime’s standalone direct-to-consumer offerings both credit Amazon Channels as a big driver of their respective subscriber growths, he pointed out. Comcast too, offers a variety of OTT services through its X1 set-top box, including Netflix and most recently Sling TV’s international channels. This model makes sense, according to Sappington, as pay TV providers originally got into the market by aggregating content from many different channels.
Finally, value – if a service doesn’t offer good content, consumers won’t sign on.
