It’s clear that 2020 was an exceptional year, for bad in most of the world, but for good in the OTT industry. At the beginning of the year, I predicted that OTT growth would be more measured, with some challenges due to the industry fragmentation causing scalability problems for many providers. One Covid-19 pandemic later, and the growth of the OTT industry has instead accelerated compared to previous years. While we have seen a few discontinued services like Quibi and HOOQ, we have also witnessed many OTT services taking a huge step towards critical mass during the past 12-month period.
At the same time, we’re in an unprecedented global recession, and while the OTT industry is generally healthy, many players have been forced to rapidly transform. Many of these changes have the capacity to impact the industry in the years to come.
While there will be a number of trends emerging over the coming months, below are three we think will be particularly interesting to watch.
This might not seem too surprising, but let’s dig a bit deeper and look beyond the obvious conclusion. We’ve all seen the global movie market falling off a cliff, with many theatres being closed, and tentpole releases pushed forward in the hope that audiences will return to the cinemas' post-Covid. While it’s very likely that 2021 will show a significant increase compared to 2020, I believe that this is the start of a fundamental shift away from the theatrical content window, ultimately changing the core of the entire video industry. Drama, comedy, and similar genres have already seen a gradual shift to the small screen, and this will be accelerated further by the current market upheaval. We will see more high-quality movies going direct to streaming, or theatrical windows shrinking significantly in an effort to capture the maximum value of both a cinema and streaming release.
We’ll likely see diminishing returns from big-budget blockbusters. I believe that this will mean a reduction in production budgets for the foreseeable future. At the same time, the streaming wars between the global OTT services will push budgets even higher for high-quality TV productions. Consumer attention and release awareness will shift toward these streaming releases, and it’s unlikely that blockbuster movies will come back to their pre-pandemic levels in the foreseeable future.
2020 was the first time in many years that we saw an overall growth of video service subscriptions in mature markets. While the industry has been growing overall, the revenue decline for pay-TV providers (cable, DTH, etc.) has so far exceeded the growth of OTT in the mature North American and Western European markets. This accelerated growth in OTT means that the video subscription spending per household is once again increasing after a long period of stagnation.
We believe that this trend will continue; certainly in 2021, but we are likely also seeing a long-term shift in consumption patterns of home entertainment. The abundance of new attractive OTT offerings, and a renewed focus on high-quality productions for these services, will continue to drive interest. In 2020, mass market and late adopter consumers have been pushed into the OTT market, driving up registrations for new services and lowering churn for existing subscriptions. This step change in consumption will be reflected in the overall spend on home entertainment services in general and video services in particular.
Not all types of video services have had a successful year. While SVOD models have generally seen an uplift, advertising funded services have been faced with more challenges. Economic downturns tend to impact advertising markets, but this year they’ve been unproportionally impacted since discretionary consumer spending has been almost frozen solid in periods, significantly impacting revenues and profitability for AVOD companies.
At the same time, consumption patterns for ad-funded services have seen the same usage growth as SVOD services. Some of the catch-up services which have limited library rights and have a dependency on reality productions have not seen the same rise in consumption but as a general rule, viewers have continued to use the advertising-based offerings, despite subscribing to more SVOD services.
A crisis is the mother of innovation, and we’re seeing that the AVOD companies are emerging from the 2020 recession leaner, smarter, and with a mindset focused on success in the OTT market. At the same time, the move towards OTT advertising will accelerate and with its exceptional targeting abilities, I believe that this business model will be one of the winners in 2021.
To summarize, despite the global economic challenges we have seen in the world in 2020, the OTT market has received a shot in the arm, which will be felt during all of 2021. If anything, the consumer shift is accelerating, and many of the companies struggling with profitability over the past years will turn the corner in 2021.
Accedo’s latest products and solutions help all of our customers to better compete in this market. We are continuing to invest in innovative functionality that will allow our clients to maximize the potential from the market trends we’re seeing.
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