In the study Business Model Evolution in OTT and On-demand Video Markets – 2012 Edition, IMS Research estimates that in 2011 the market for on-demand video reached 998.9 billion video transactions. Pay transactions are estimated at 7.2 billion streams/downloads in 2011, generating $16.2 billion in revenues.
Business Model Evolution in OTT and On-demand Video Markets – 2012 Edition
Anna Hunt | IMS Research
World On-demand Video Market
Today’s entertainment market is experiencing a rapid increase in the availability of on-demand video, and viewers are responding positively, resulting in strong growth in the consumption of these videos. In the study Business Model Evolution in OTT and On-demand Video Markets – 2012 Edition, IMS Research estimates that in 2011 the market for on-demand video reached 998.9 billion video transactions. Pay transactions are estimated at 7.2 billion streams/downloads in 2011, generating $16.2 billion in revenues.
Many factors will drive the uptake of on-demand video over the next five years, including: increasing broadband Internet speeds; growing penetration of connected CE devices; and more intuitive user interface technologies simplifying the acquisition of digital video. On the supplier side, OTT technology has been a way to expand services to multiple devices, to extend the reach of existing pay offerings, and monetize on existing content.
Regional dynamics for on-demand video are quite diverse. North America is considered to be the most developed on-demand video market, with various pay-OTT services, an OTT subscriber base, strong closed-network VOD uptake, and several large ad-funded services. It is expected that North America will retain the largest share of on-demand video transactions during the period, both in terms of pay and ad-funded/free videos. The North American market for on-demand video is forecast at $16.9 billion.
The European market is forecast to surpass North America in terms of on-demand video revenues starting in 2017. This is partially due to higher pricing for pay-OTT services and pay-per rental transactions accounting for a large share of the market. European broadcasters’ distribution via on-demand will also result in significant growth in OTT advertising revenue in the region. IMS Research forecasts the European on-demand video market at $17.7 billion in 2017.
Growth in on-demand market revenues in Asia Pacific is predicted to come mostly from closed-network VOD services from cable MSOs and telcos. It is expected to become a more significant market for OTT starting around 2015, as more broadband is rolled out throughout the region. Latin America is forecast to have the strongest compounded average growth rate during the period for on-demand video transactions. Yet, the region is forecast to generate only $4.2 billion in 2017. In most Latin American countries, pay on-demand services are very new, and there is still a general lack of awareness about them with the mass public.
With the growing volume of on-demand video viewings, service providers are now trying to figure out what type of content is best suited for on-demand distribution via managed networks versus OTT, and which is better suited for pay-per services, versus subscriptions, versus free/ad-funded. Most of the content available today on operators’ closed-networks includes full-feature films and serial TV content (falling within the category of long form content). The latter has seen the most significant growth in VOD services, driven by the growing popularity of catch-up TV offered via pay-TV operators’ set-top boxes. The OTT segment is mostly comprised of user-generated content (UGC), estimated at 80.3% of all OTT video transactions in 2012.
In the OTT video market, the content mix falls into a 70/30 scenario: about 70% of OTT market revenues are generated by 30% of long form video transactions; while the short form segment accounts for about 70% of transactions but only about 30% share of revenues. Long form content is expected to continue to increase its share of the OTT market both in terms of transactions and revenues. This is a result of people becoming more comfortable with watching serial TV content on an on-demand basis and more premium OTT services becoming available.
There is a rapidly growing array of service providers within the on-demand video market, spanning broadcasters, retailers, OTT portals, pay-TV operators, telcos, premium channels, and CE suppliers. With such a breadth of providers, the business models shaping on-demand video services, particularly in the OTT segment, are expected to become quite diverse over the next five years. Service providers, particularly in North America and Europe, are experimenting by blending pay-per, subscription and ad-funded business models in order to develop effective ways to monetize on-demand video delivery.
Currently, the three most common business models for pay on-demand video are subscription, pay-per rental (also referred to as digital rental or streaming services), and pay-per purchase (also referred to as digital retail or download-to-own). The advertising model is used by many OTT portals and broadcasters in provisioning UGC and serial TV content. In addition, pay-TV operators often offer free VOD services, such as catch-up TV, as a retention and up-selling tool for digital TV subscribers.
Despite the efforts of many companies to aggressively pursue pay strategies via on-demand distribution of premium content, ad-funded and free videos will continue to dwarf pay video streams/downloads. Around 99% of world video transactions during the entire period are forecast to be ad-funded or free, with UGC accounting for a majority share of these. OTT advertising revenues are estimated at $5.4 billion in 2011, exceeded by $10.8 billion from pay on-demand services (of which about half comes from pay-OTT). The growth in in-video OTT advertising revenues is forecast to accelerate towards the end of the period, with the growth of the OTT viewer base in mature markets and due to the continued rollouts of ad-funded services in Asia Pacific.
Over the next five years, an increasing number of companies throughout the world will use OTT technology to distribute video entertainment. Media and content companies that have strong brands will experiment aggressively with direct-to-viewer strategies. Additionally, a growing number of pay-TV operators throughout the world will deploy and improve closed-network VOD offerings. These efforts on the part of video service providers are an important factor driving the availability of on-demand video.
The world OTT market in 2011 generated about double the revenues of pay-TV operators’ VOD services. Although pay-TV operators are forecast to account for only a small percentage of OTT revenues, they will retain a significant share of the overall on-demand video market, reaching 40.5% in 2017. These companies are expected to continue to pursue managed VOD services via their own networks, if and when possible, to retain control and maintain their quality of service standards.
OTT video portals such as Netflix, YouTube and Apple’s iTunes are expected to retain the majority share of the global market. The OTT video portal distributor channel is forecast at $21.7 billion in 2017. Broadcasters are another distributor channel that will make a positive impact on on-demand video revenues, with the segment forecast at $5.9 billion in 2017. Broadcasters revenues will be generated by catch-up TV, funded by in-video advertising, and offered via the web and on connected CE devices. Although many broadcasters in emerging markets are still somewhat apprehensive about launching OTT services, this is expected to change towards the end of the period. Retailers will also play a role in OTT video distribution, as the segment tries to replace revenue losses from physical media sales. Retailers are forecast to generate 8.1% of global OTT revenues in 2017.
Connected CE Devices’ Impact on OTT
The PC is the primary device for OTT video viewing during the forecast period. There is significant growth expected for OTT video consumption via connected CE devices, particularly tablets, TV sets and games consoles, especially in the long term. Over the next few years, though, devices such as Blu-ray Disc players and specialty retail set-tops (such as Apple TV and Roku box) will account for a large share of OTT video streams. These devices will be used by viewers to enable legacy TV sets to support new protocols and standards and connect to available OTT services.
Market revenues generated from OTT activity on the PC is forecast to increase to $9.2 billion in 2017, although the share of total revenues will decrease to 44.5% that year. It is expected that consumers will use in-home fixed devices, such as TV sets, Blu-ray players and game consoles more frequently for OTT video purchases, especially as the installed base of these devices grows.
The impact that portable devices have on OTT video consumption is also important, particularly for service providers offering free and promotional content (although promos and trailers are not included in OTT video market sizing). Service providers envision that smartphones will be used by customers to preview shows, and if viewers like a show, they will purchase it on the larger screen. Tablets will become more common for watching long form content such as TV series because they tend to rely on Wi-Fi versus mobile broadband networks.
Anna Hunt is a principal analyst in IMS Research’s Consumer Electronics Group, and focuses on portable CE device markets, convergence in the CE and mobile space, and new digital TV platforms such as mobile TV and 3D TV. In addition, Anna is part of IMS Research’s consultancy team that focuses on serving global CE and semiconductor clients. Prior to this role, she was the Group’s research director, responsible for the Group’s strategic direction. Anna has seven years of expertise in the areas of digital set-top boxes, the global digital TV ecosystem, and consumer electronics. She is part of the judging panel for The Cable & Satellite International Product of the Year Awards, and has presented and moderated at several international conferences, including Mediacast, IP Trends, Digital Hollywood, 3D-Next, and Display Week – The Future of TVs.
Prior to joining IMS Research, Anna was the Americas region marketing and communications director for French enterprise software company, ICOM Informatics. She has over a decade of industry experience in market research, MARCOM, and branding in enterprise technology sectors, and is able to communicate in three languages.
Anna holds a bachelor of business administration in international business from The University of Texas at Austin and an MBA from St. Edward’s University. She is based in San Jose, Costa Rica, and may be contacted at Anna.Hunt@imsresearch-usa.com
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