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Mushrooming OTT market struggles under the weight of its own choice

Photo by ESPN

  • Industry research suggests sharp consumer resistance to subscribing to more than three OTT services
  • Churn expected to remain a serious industry issue
  • Potential OTT service partnerships fraught with complexities

During a recent earnings call with analysts, Disney chairman and chief executive Bob Iger offered what couldn’t be called a humblebrag. It was basically just a brag.

“I was asked earlier on CNBC about where I felt threatened by competition, there’s obviously more competition coming into the space,” Iger said. “But there isn’t any competition like ours, like our product, because of the investments that we’ve made in those franchises and the quality of the product that we’ve made over the years and we’re continuing to make.”

Iger did indeed have plenty of basis to crow about his company. Disney had just reported a set of stellar subscriber numbers for its suite of over-the-top streaming products: 28.6 million for its entertainment-focused Disney+ after just three months of operation; 30.7 million for Hulu; and 7.6 million for ESPN+, including a million-viewer bump in just a month’s time thanks, in part, to a Conor McGregor UFC bout.

Of course, it helps a lot to have at your disposal major content engines such as the Star Wars and Marvel franchises, a large suite of major television hits, and rights relationships with virtually every major sports property to help power those services.

But even high-profile entities such as Iger and Disney have to worry more about an increasing amount of OTT services, particularly within the US market, and the ability of the average consumer to handle – and pay for – all that choice.

Bob Iger, chairman and chief executive officer of The Walt Disney Company. (Photo by Drew Angerer/Getty Images)

As the quickly redefining media landscape moves more away from the traditional cable-led aggregated bundle of content and more toward a direct-to-consumer business model the OTT networks generally operate within, how that mushrooming choice is managed and consumed will speak volumes for not only the entire sports industry, but video content at large.

“It really is the great issue in the OTT space,” says Tom Richardson, president of digital media and marketing consultancy Convergence Sports & Media and a lecturer at Columbia University. “Customer acquisition is super-competitive right now. And it all goes back to the fundamental challenges of distributing content in this new era because nobody, even the big players, has everything.”

Research distributed last year by software and services provider Amdocs Media painted an even more sobering picture. In a survey of a thousand US consumers, more than a third – 39 per cent – said they felt “overwhelmed by the amount of streaming subscriptions they manage”, and want some type of a bundled solution with consolidated billing for their digital video content.

Nearly half – 46 per cent – said they plan to switch streaming plans in the next year, suggesting high amounts of churn within the industry yet to come. And price will be the prime driver of that churn, with just 22 per cent of respondents saying they are open to adding a new streaming service.

“Aggregators like telecom operators need flexible bundles that customers really crave, meaning they need to offer several – even dozens – of customizable options, and need to seize the initiative by taking a revised approach to building out these new flexible bundles,” says Ian Zeifman, product marketing lead with Amdocs Media. “This means taking a path that simplifies partner integrations, while also creating a frictionless, end-user experience that wins and retains customers.”

Subscription Fatigue

Seemingly every week, there is another high-profile announcement of a new OTT service, even just within sports. Nearly every major league, college conference, media network, and niche discipline now has their own dedicated streaming platform and, increasingly, individual teams are also getting into the act. And that’s to say nothing of broader entertainment-driven streaming vehicles, some of which also provide sports content as part of their offerings.

More recent data from Nielsen Media Research, like the Amdocs figures, have similarly suggested there is essentially a cap to what consumers will take on in streaming video subscriptions. More than 90 per cent of the consumers Nielsen surveyed subscribe to between zero and three paid streaming video services; beyond three, there was a sharp cutoff, with just 7 per cent having a fourth service, and only 3 per cent with a fifth.

For any streaming provider, that suggests a real need to be on consumers’ short lists, as the prospect of building a scalable business on being essentially a tack-on or non-core option is not particularly great.

YouTube TV includes live sports in its aggregated blend of linear TV channels, essentially a cable-like experience without having cable. Its executives describe a similar situation, wherein many of its customers also subscribe to one or two other streaming services, but very few have as many as three or four others.

“Many of our subscribers do subscribe to other services,” says Lori Conklin, YouTube TV head of content partnerships. “It’s often a situation where YouTube TV is their core service and then they have something else like Netflix or Disney+.”

Amazon prime showing the match live via the internet during the Premier League match between Arsenal FC and Brighton & Hove Albion. (Photo by Marc Atkins/Getty Images)

Though the common industry term for this dynamic is subscription fatigue, the real issue may in fact lie closer to spending fatigue. For most consumers, there is always going to be a finite amount of funds for non-essential products, of which streaming video is one.

Complicating the issue still further is that for many evolving streaming services, first impressions among many consumers have already been made. DAZN, for example, is largely known for its large presence in fight sports, despite its available Major League Baseball, soccer, and esports content and publicly-stated efforts to expand into other sports. For that outlet, and many others, rebranding beyond their original value proposition, if they so choose, will be difficult.

“’Superficial judgments have already been in the mind of many regarding a lot of the streaming services,” Richardson says. “That presents some really big marketing challenges going forward.”

Reach versus revenue

So with all this resistance to taking on additional streaming subscriptions and consumers being overwhelmed with dealing the ones they already have, the simple question then presents itself as to why there have been more fervent efforts to combine OTT services, and make the disparate streamers look a bit more like a classic cable bundle?

There have been initial steps in this direction. Companies such as Amazon, Apple, and AT&T offer some ability to order multiple streaming services through one platform and ease purchasing processes for the consumer somewhat. But the choices on those platforms is certainly much less than the full scope of what’s available out on the open market, and often come with large fees and other restrictive contract terms for other OTT programmers that are not necessarily attractive compared to going it alone.

Then, of course, there is the thorny data component in terms of who owns the crucial customer relationship and the valuable information that spins off from that. In any joint arrangement between multiple streamers, such issues can be highly difficult to solve.

“We’ve explored some shared billing opportunities with others, but there are certainly some complexities around that,” Conklin says. “In any type of partnering situation, it needs to make financial sense.”

Then there is the classic reach-versus-revenue question. Particularly for smaller and start-up OTT services, partnering with a large third-party platform to help could certainly bring additional exposure and new eyeballs to the service. But paying hefty commissions to a larger entity such as Apple also cuts into revenue targets compared to acquiring customers independently, creating a business planning conundrum.

“There are a lot of entities, particularly sports leagues, that are always under pressure to take the revenue and make as much as they can,” says Richardson, who previously worked at both the National Football League and National Hockey League. “You think about league commissioners. Their mandate from ownership is to drive revenue. But taking the revenue like that can also limit your reach and your ability to reach casual fans.

“So looking ahead, anybody who has a frictionless way for that rebundling to happen is going to have a real advantage in the market.”

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