Post-COVID-19 Future of Streaming: The Continuing Rise of OTT's

by Michael Tomlins on February 9, 2021


In May 2020, over half of the world's population was on total (or partial) lockdown due to the COVID-19 pandemic. That's more people than were alive during World War II. 

The effects of this pandemic have been evident across several spheres of human existence, unravelling and destroying traditional business models while allowing new disruptive and innovative markets to thrive. The pandemic has accelerated market and industry change that usually takes several years; consider the impact of the first iPhone on the software (now ‘app’) market and on the demand for mobile internet speed, whereas we have seen in just a few short months video conferencing go from an occasional novelty to absorbing half of many people’s working days.

While most people stayed locked down in their homes during what we all hope was the peak of the pandemic, the average number of hours spent in front of a TV shot through the roof. Traditional Pay-TVs such as Comcast reported a 6-7% rise in viewership, which was dwarfed by a 225% increase in sign-ups reported in the first week of lockdown by newcomer, Disney+. As a result of the COVID-19 pandemic, the OTT sector is now forecast to be worth $161bn in 2020 - an impressive compound annual growth rate of 55%. 

The relationship between OTT service providers and content owners wanting to control more of the value chain is becoming increasingly complicated. The rapid growth by service providers over the last few years is now under threat, indeed, pre-lockdown Netflix experienced its first drop in the number of new subscribers. In contrast, content owner services such as Disney and MLB have seen significant growth as they have launched their own standalone services, albeit from smaller bases.

This could explain Netflix’s strategic top-dollar offering (cost of production +30%) to rights owners in comparison to traditional licensing offerings (60-70% of production costs) to counter their shrinking content portfolio as rights holders look to hold onto their content to enhance their own services. In addition, smaller content owners such as Dust, have started to avoid the bigger players (Amazon Prime, Netflix and Hulu) in favour of smaller outlets such as Roku Channel and Vizio, that offer better commercial terms and provide consumers access at more attractive rates. Might we see the same confrontation as we have seen between the App Stores and Fortnite’s owner Epic in the OTT space soon?

As content owners seek to take advantage of the new growth opportunities that come from offering their services directly to customers they are presented with new operational challenges. Customer acquisition, customer relationship management (CRM), customer support, and payment processing are new grounds most rights owners have never had to tread. To mitigate this problem, content owners are partnering with subscription management companies such as Zuora, Delatre and MPP Global to help deliver an end-to-end customer experience.  

As competition continues to heat up among service providers, new strategies involving expanding to a broader international market base, integrated distribution partnerships and the creation of content are beginning to gain traction. Netflix, for example, plans to remain on top of the streaming food chain by growing its presence in territories currently ignored by the competition and investing strategically to produce localised content for these regions.

fileIn mature markets, OTT video service providers tend to offer a multi-tiered pricing structure with free trials to maximise customer acquisition rates and optimise margins. Payment in these developed regions tends to involve convenient options for the Western markets such as credit and debit cards, gift cards (popular with Amazon Prime and Netflix), PayPal etc.

A 2019 Apaya report forecasts that in the OTT video industry, emerging markets are predicted to enjoy a growth rate which is higher (19% CAGR for Africa and 14.8% for Asia) than that in mature markets (5.8% in North America and 5.0% in Europe). As these trends play out, service providers who wish to gain a slice of the growth pie in these markets will need to focus on increased localisation to gain traction. Equally important, services will need to offer customers payment options localised for each country that are both simple to use and ubiquitous. To have success, this will mean incorporating payment instruments such as; carrier billing, allowing customers to apply the charge to their mobile phone bill, mobile wallets that can be charged with cash and offer a stored value for digital transactions and, immediate payments from a customer’s mobile banking application direct to a merchant. 

The ‘Streaming Wars’ are only set to intensify – the winners will not only require deep pockets to acquire or create great content, but they will need to be agile enough to satisfy the customer’s growing demand for a localised experience.  

If you would like to learn how Apaya is working with OTT providers to expand their reach into new territories and increase customer acquisition rates, please get in touch.