By Elizabeth Parks, President and CMO, Parks Associates
Today, streaming video usage is the norm across the country. According Parks Associates research, over 80% of US broadband households have at least one over the top (OTT) video subscription, like Netflix or Hulu. OTT subscriptions outnumber those of pay TV and streaming is the primary way video is consumed in the US now. Almost half of consumers have four or more OTT video subscriptions, and this stacking of services continues to grow.
Understanding the market definitions are important and so here is how Parks Associates defines these services:
- Pay-TV Services: Subscription-based services providing access to a bundle of live, linear channels of professionally produced content. Sometimes this is also called “live TV”, however, as many other services also offer live content–including non-professionally produced livestreamed content, real-time content, and other linear content–without requiring a subscription, Parks Associates prefers the term “pay TV.
- Online Pay-TV: Increasingly, pay-TV providers have begun offering over-the-top app-based pay-TV services to current subscribers of their other existing services–most commonly broadband or even mobile subscribers. Online pay-TV apps are designed and maintained by pay-TV providers and provide users with a single portal to access all or most of the pay-TV channels and content that they receive in their home.
- OTT (Over the Top): Accessing online content over a broadband connection without the need for a cable, wireless phone, or satellite TV subscription. Most traditional MVPDs provide their service through a dedicated, managed network designed for that purpose
- MVPD (Multichannel Video Programming Distributor): These are traditional pay-TV providers that aggregate multiple channels of television programming and distribute them to consumers as a packaged monthly service.
- Virtual Multichannel Video Distributors (vMVPDs): These are separate from traditional pay-TV, and a subset of online pay-TV and offer OTT subscriptions for bundles of live, linear channels of professionally produced content. These services are available to consumers at large–subject to content licensing agreements–and are not restricted to a company’s existing broadband or other subscribers. vMVPDs often include access to the users’ major local television stations as part of the subscription package.
- AVOD (Advertising-based Video on Demand): A business model for video services where a consumer has access to a library of on-demand video content that includes embedded advertising.
- Traditional Pay-Tv Services: traditional players such as telephone, cable TV, and satellite providers that serve specific geographic footprints via a network they manage and control provide these services. Historically, pay TV is delivered to customer premise equipment (CPE), such as a cable box, which is specifically configured for use with the network.
- FAST (Free Ad-Supported Television): A business model for video services that are available at no charge but include advertisements, which viewers cannot fast-forward or otherwise skip. Content may be linear, on-demand, or a combination of both.
- SVOD (Subscription Video On Demand): A business model for video services wherein a consumer pays a regular fee in order to gain access to a library of video-on-demand content for a specified period of time.
The large number of service choices, and the ease of subscription and cancellation are great for the consumer—they can easily switch to an alternative if they’re unhappy—but challenging for streaming services due to the inherently higher churn potential this creates. As a result, competition is happening at a breakneck pace today, not just to bring in subscribers but also to keep them engaged and continuing to subscribe month after month.
Content is the primary catalyst on both sides of the subscriber journey. In terms of maximizing customer acquisition, engagement, and stickiness, content is the key to success. Parks Associates research shows that within the top five factors driving OTT subscriptions, the top three factors involve content. On the opposite side, not finding the right content, or running out of content to watch, are two of the top five reasons for consumers churning away from a service.
Consumers can be overwhelmed by too much content. Matching the right kind of content for the right subscriber is the key to maximizing how “irreplaceable” a service is to the consumer in terms of subscribing to and staying with a service. Often offering consumers a bundle of content or delivering an aggregated selection can simplify and cut down the overload of choice.
Viewers dedicate an average of 70% of their viewing to services with a broad variety of content. Over one-third of viewers dedicate over three-fourths of their time to services with varied content. The top 5 OTT services: Netflix, Prime Video, Disney+, Hulu, HBO Max and their closest competitors leverage this by featuring a variety of programming across genres.
Niche services can also leverage this same effect via bundling deals that deliver a varied combination of content to consumers or by being included in an aggregation platform, such as a vMVPD or FAST (free ad-supported) service, that is similarly delivering a package of variety.
Parks Associates data from Q3 2021 shows that nearly one-third of broadband households, or about 34M households, watch ad-based OTT services, reflecting growth over the past two years. Ad-based services are becoming foundational within the market through fluid ad integration and appealing content libraries. As advertising dollars have transitioned from traditional pay-TV to online video, ad-based service providers see an opportunity to capture revenue from content owners seeking distribution deals.
The ad-supported market is diverse and competitive, and its rising popularity is driving increased competitive velocity. As a result, many of these services are making heavy content investments, forming alliances, and brokering hardware integration deals. FAST services have become an integral part of the OTT landscape. They are pre-integrated into every major connected TV platform — Samsung, LG, Roku, Google, Amazon, and Vizio. FAST services and ad-supported services in general are here to stay, continuing to grow in popularity with consumers. Industry business, content, and advertising strategies should adjust for this reality.
Given the competitive picture today, services and content providers need all the advantages they can get, and bundling, aggregation, and service and content optimization, via better, smarter data and measurement, are all useful tools to this end.
Parks Associates will present consumer research impacting the streaming video market and address key trends and topics affecting the video and connected entertainment industries during its annual Future of Video: OTT, Pay TV, and Digital Media conference. In its fifth year, Future of Video will host virtual sessions March 10, May 5, July 21, September 22 and in-person sessions in December.