Role of exclusive content in (OTT) video market

Tuesday 19 January 2016 | 13:31 CET | Background

Exclusive content is of increasing interest for all types of video providers. The reason is clear: it offers a 'unique selling point' to differentiate a service amongst the growing number of competitors, while also reducing dependence on 'Hollywood'.

Complete versus unique

Netflix is market leader in many countries in terms of its video offering, also in the Netherlands, but the competition is not standing still. Different from the music market, where all the major players offer around 35 million tracks, video players vary widely in the amount and type of content they offer. Video providers can specialise in a number of different ways:

  • A target group such as children (DisneyLife).
  • Certain content, such as sport (Fox Sports Go).
  • A release window, such as films just out of the cinema (Pathé Thuis).
  • Exclusive content (Netflix).

There are other ways to set yourself apart; for example, how many users can access the subscription on how many devices, the image quality (SD to 4K), the possibility of downloads and offline viewing, and the business model (subscriptions, advertising, pay-per-view or a mix thereof). Also important is the ‘packaging’: the user interface (UI), recommendations engine and support for different types of hardware and operating systems.

Providers refine their offer on all these parameters, but the true differentiation comes down to the content. 'Originals' and otherwise exclusive content attract the most attention. Rights are acquired, channels developed, and series and films are commissioned, by both OTT providers and traditional operators. Looking at each type of providers, we outline the most important developments.

Operators: TV Everywhere continued

The operators have their traditional service (managed service) over cable (Ziggo), satellite (CanalDigitaal), digital terrestrial (Digitenne) or IPTV (KPN, Vodafone, Tele2 and others). In addition, they increasingly offer some form of ‘TV Everywhere’, which to start offers the same content as the standard TV subscription, but ‘over the top’, i.e. over the internet. This is most often free for existing subscribers.

The next phase of development is now getting underway, where the service is offered separate from the standard TV subscription. This may be in the same form or modified, such as 'skinny' bundles with a reduced number of channels. KPN Play is a clear example of this trend. There are various advantages for the operator:

  • Follow the viewer, who is increasingly consuming video online and on screens other than the TV.
  • The cheaper service can help combat ‘cord cutting’.
  • Relatively low distribution costs, as the service relies on the open internet.
  • Increases demand for bandwidth, supporting the operator in its role as ISP.
  • Possible direct competitor for cheaper platforms, such as Digitenne.

In terms of content, the service includes the same channel offering, including the operator’s own channels, such as Ziggo Sport. In addition, the VOD library, (at Ziggo: MyPrime), which can compete with Netflix and similar services. And, staying with Liberty Global, content from associated production companies (All3media, Woestijnvis, Lionsgate, Formula E, Talpa) and broadcasters (SBS in Belgium, ITV in the UK, TV3 in Ireland). 'Original content' is still limited on the local market, for example Ziggo Sport and the Belgian TV series 'Chaussée d’Amour'.

Broadcasters: strength in numbers

Among the broadcasters, RTL is the biggest pan-European player, going up against the public broadcasters in a number of markets. Many of the other broadcasters are more oriented to national markets. Often they have a direct-to-consumer strategy based around an app that expands on their website. The apps are developed for various platforms, both mobile (iOS and Android) and other devices such as smart TVs, Chromecast, Apple TV and gaming consoles.

The apps and online presence make the broadcasters less dependent on ‘cable’ (the operator), but this can put pressure on the long-standing partnership with carriers. In some cases, the broadcasters are working together to develop OTT services, such as NLziet (NPO, RTL, SBS) and the Flemish service Stievie (VRT, VMMa, SBS), similar to the Hulu service run by US networks. Hulu is a pioneer in this type of service and already developing its own original content. NLziet and Stievie may follow a similar path, assuming their parent companies allow them enough autonomy.

The broadcasters have a double role, as they also work as production companies, ensuring their hold on original content. To attract viewers to their apps, some content may be offered exclusively to OTT customers or be available earlier than on broadcast channels.

Studios: Disney taking the lead

A third category is film studios. The same as broadcasters, they are developing the direct-to-consumer route. Examples include Film1 (Sony) and DisneyLife. The Disney service has launched initially in the UK, and China will follow. Targeted at children, DisneyLife includes a wide range of the company’s content: films, series, soundtracks, games, e-books and audio books.

Disney offers a family subscription for GBP 10 per month. This allows up to six viewer profiles to access the service on up to 10 screens. The service is planned to expand in Europe this year, but likely not in the Netherlands. Disney has signed content deals with various parties, including YouTube Red (see below) and Netflix. The latter signed a content deal with Disney in late 2012 and since this year offers productions from the Disney studios Walt Disney, Pixar, Marvel and Disneynature. Netflix has exclusive SVOD rights to Disney content in the Netherlands.

Film1 uses a different model, showing not only content from the Sony group (Sony Pictures, Columbia), but also films and series from other studios. It differentiates using release windows; most often it has films before they are available on services like Netflix.

Sports producers also fall into this category, but this is an area more developed in the US market (MLB, NFL, NHL WWE). Finally, there are the independent providers, internet companies that act as aggregators, such as Netflix, Amazon, Wuaki, YouTube Red, Vimeo etc.

Netflix: global rights

Netflix is market leader worldwide in VoD content and now active in almost every country (except China, North Korea and Syria). Nevertheless, we shouldn’t forget YouTube and also Facebook as major providers on the video market. With the launch of its services in another 130 countries in early January, Netflix is preparing for content rights to be negotiated on a global basis. This is an important advantage for Netflix and a step towards preventing illegal streaming and downloads. The company has been able to arrange third-party content across its footprint while also keeping its prices the same, at USD 8, 10 or 12 per month, dependent on the image quality and number of screens. Its distribution strategy includes integration in operator set-top boxes (for example, KPN) and remote contols (a special Netflix button). It also sells prepaid cards in local supermarkets.

Netflix first started with original content in 2012, with the TV series ‘Lillyhammer’. According to its latest plans, Netflix will offer this year 10 films, 30 children’s series, 12 documentaries and 31 TV series from its own production (following up hit series such as ‘Orange is the New Black’ and ‘House of Cards’). At the start of 2015, Netflix set aside USD 3 billion for content, as part of its goal to have eventually half its available content coming from in-house. Netflix is also working on adding more local content, even in neighbouring Canada, where it’s working with the cable and media companies Rogers and Shaw. In 2015 it also started making original feature-length films, and these were added to the offer in October. Netflix attracted eight Golden Globe nominations in December 2015, ahead of HBO (7), Starz (6) and Amazon (5).

The recommendations engine is also a key part of Netflix’s strategy. This is designed to encourage customers to watch more, increase satisfaction and help Netflix acquire relevant content. By monitoring what customers watch and what interests them, the company can avoid paying for excess material that no one watches. Netflix’s technology is developed using the latest data techniques, such as artificial neural networks and deep learning.

Amazon: large library calls for expansion

Amazon’s Prime Instant Video has a limited reach so far: the US, UK, Germany, Austria and Japan. Given its intensive efforts to develop content and the fact that Netflix is now aiming for global content rights, Amazon is likely to expand soon. The most obvious countries are those where it already has a retail storefront: Canada, Australia, France, Italy, Spain, Brazil, India and China. Possibly also in the Netherlands, although there it only has a Kindle Store (e-books).

The Prime Video service is ‘free’ for subscribers to Amazon Prime, which is estimated to be approaching 100 million subscribers. The annual subscription fee for Amazon Prime (USD 100, GBP 80, EUR 50 or JPY 4,000) comes with free delivery for all Amazon purchases and the video service, as well as a number of other services, some of which are only available in the US (unlimited photo storage, streaming music, access to the Washington Post and additional delivery services). Prime Instant Video also includes a download function for offline viewing, something not available on Netflix.

The Amazon service mainly offers TV series, but also films. According to the latest rumours, Amazon may also bid for sports rights and offer Prime Video as a standalone service, separate from the delivery subscription.

Amazon previously reported how much content was available on the video service; mid-2013 it counted around 41,000 films and episodes. Since then the total has only increased, including its own productions. In 2015 it offered original productions from well-known directors like Woody Allen and Spike Lee. The original plan was 12 productions per year, and this has since been increased to 16.

The company also made headlines when it signed up Jeremy Clarkson and the ‘Top Gear’ team, after the presenter was let go by the BBC. The Amazon version of the show is expected to launch this year. Amazon reportedly paid USD 250 million for 36 episodes. Given the growing costs and weight of its portfolio, it appears only a matter of time before Amazon expands to new countries, in order to maximise the return on its content.

While its content portfolio is significant, usage is not high, according to the regular reports on internet use from Sandvine. Netflix accounts for 36.5 percent of peak-time internet traffic in North America, but Amazon Prime Instant Video is good for no more than 2.0 percent. Consumers appear to be subscribing to Prime more for the delivery service, leaving lots of room for growth still on the video market.

The latest development at Amazon may be extremely significant: the start of its Streaming Partners Program. From the start, Amazon tied in both smaller and bigger providers, such as Showtime (CBS), Starz, A+E Network and AMC. Amazon takes over billing, customer service and infrastructure for these third-party SVOD services, which are offered at a discount over the Amazon platform.

Big players such as Netflix, HBO and Hulu are not included, and the question is whether they will join the Amazon platform. Will they choose to cooperate, even through the ‘back door’, or does this represent a major stand-off between the largest rivals on the US market?

Vimeo, Wuaki and YouTube Red

Vimeo, part of IAC, offers a platform for filmmakers, similar to what SoundCloud does in the music market. It has a two-sided business model: both the uploaders of content pay, as do consumers who buy or rent the content. There is no advertising. Last October it introduced the first content exclusively produced for Vimeo.

Wuaki, part of Rakuten, works under a different model. Active in a number of European markets already, Wuaki did not quite meet its goal of a presence in 15 countries (including the Netherlands) by the end of 2015. At last count it had 3 million subscriers. Wuakia offers a combination of SVOD and TVOD, but does not have any exclusive content.

YouTube Red is the advertising-free paid subscription offered by YouTube. It also includes music and games. For the moment it is only available in the US, for USD 10 per month. At its launch, there was talk of adding original content in the course of 2016.

How many services will a consumer take?

Video providers can no longer do without exclusive content. In this sense, video differs from the music market, where the focus is more on offering a complete library (a few exclusive deals aside, such as Beatport at Spotify or Taylor Swift on Apple Music). The question is then: for how many subscriptions are consumers prepared to pay?

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