It is ironic that Over the Top (OTT) video content players are increasingly turning to traditional pay-tv and mobile operators to distribute their content. There is no better example of this than Netflix, but other major content players like Amazon and Viacom are also starting to employ these strategies.
Netflix has made huge gains in its subscriber base (which now stands at 93 million) through distribution deals with some of the major cable operators, such as #1 US cable operator, Comcast (22.4 million subscribers), and Liberty Global, one of the world’s largest cable operators (24.2 million subscribers). Amazon, the fastest growing video streaming service globally with some 30 million video subscriptions (2016), have also said that they are “definitely open” to partnerships with cable operators, whilst major content owner, Viacom (owner of content geared for the younger generation such as MTV, VH1 and Nickelodeon) recently did a distribution deal with SingTel (Singapore) and have said that “the next wave of partners is the mobile operators”.
OTT, by definition, means that the service is independent or “over the top” of any specific carrier or operator, needing only an Internet connection, which could come from anywhere, to deliver the service. This has been highly disruptive to mobile operators over the last 10 years and is becoming an increasing challenge to pay-tv operators, delivering via satellite and cable.
Historically, pay-tv and mobile operators were the universal gatekeepers of content delivery. Pay-tv operators had the financial muscle to negotiate large content deals with content producers, which was delivered to a subscriber base through a set-top box with conditional access. The mobile operators tried to control access to content and even the Internet on mobile phones through their walled garden policies, making it very difficult for many content players to monetize their content.
It was these very restrictive policies and the general lack of interest in partnering, which forced the OTT players to go it alone and totally disintemediate traditional operators, starting around 2007. Everything changed with the iPhone – the launch of smart phones, apps and app stores, and the opening up of the mobile Internet. Suddenly mobile operators were no longer in control. The greater availability of faster Internet to support good quality video streaming was a key enabler for OTT Internet video streaming services such as Netflix.
So, having built extremely successful businesses without the operators, what changed to lure the OTT players back? It is this success in building desirable content demonstrable by the size of their subscriber bases, together with a demonstrable lack of dependency on doing deals with operators in order deliver content to users, which has shifted the balance of power towards the OTT players. The terms of engagement are now very different.
Operators can still leverage their large subscriber bases to distribute OTT content while technology advances are enabling it to be more easily consumed by subscribers. Higher mobile bandwidths through 3G/LTE/Wi-Fi enable good mobile video content viewing experiences, whilst apps on the set top box enable the easy addition of content apps such as Netflix to the pay-tv stack. By adding and sometimes bundling this content, operators get to keep their subscribers on their platform for longer, whilst also earning a margin on sales.
Operators are beginning to think like platform owners Apple and Google, by using third parties in a curated ecosystem to increase the overall attractiveness of their platforms. The risk is that they may be “letting the fox into the henhouse”, particularly for pay-tv operators who are more threatened by OTT video – these partnerships enable the OTT players to become even more successful.
However, history has shown that users will go elsewhere if an operator cannot deliver what they want. The operator’s original mistake that spawned the OTT category was to ignore these players, but now they simply have to engage with them.