The industry is entering the post OTT era which among other things will mean fierce competition and reduced overall growth with business monopolised in the hands of FAANG (Facebook, Apple, Amazon, Netflix, Google), predicts analyst Ovum.
Outlining a pessimistic mid-term outlook for the media and entertainment industry, the analyst presenting at TV Connect said payTV broadcasters had launched direct to consumer defensive plays to face down the existential pressure from massive scale digital multinational platforms.
“We are entering a challenging period with too many services in most markets added to the competitive impact from FAANG and the operating environment is likely to be harsh over the next 2-3 years,” he said.
Barton defined the Post OTT era as one where all service types and content are becoming available across all types of distribution technology.
In the post OTT era (a term coined by NAGRA) OTT is no longer a useful designation, Barton said.
“It’s not just Hulu, Netflix, YouTube. We see newer types of service, particularly around virtual MPVD and skinny bundles.”
Alarmingly, this strategy may not be working. Growth in the US of skinny bundled services has been “disappointing” said Barton. “If this is to compensate for declines in linear in some markets then it needs to accelerate.”
He expressed concerned about the MPVD model in Asia and MENA especially where traditional payTV tends to be much cheaper than comparative services in Europe/US. “There’s less wriggle room on price in those markets,” he said.
In the UK – taken as a signpost for the rest of Europe – TV advertising will hold strong over the next few years but will not experience dramatic growth rates. By contrast OTT subscriptions are forecast for a 12% CAGR with OTT advertising a 15% CAGR to 2022.
“Growth in this area is dominated by FAANG in Europe,” he said. “They have opened up a strata of entertainment spending almost impossible for national broadcasters or payTV providers to compete against.”
In response, traditional media is seeking “epoch defining transactions” such as the union of AT&T with TimeWarner, Disney with Fox and Vodafone’s €18.4bn (£16.1bn) scoop for cable networks in Germany and eastern Europe owned by Liberty Global, regulation permitting.
“These transformative giant scale M&As are driven by the need to scale up to drive down content costs on a per subscriber basis,” said Barton. “It’s about scaling up to sustain loss making business lines, the aggregation of larger more diverse audiences and mass scale data capture.”
The move shows that Liberty’s focus is on higher value western European markets, especially the UK, and the billions of cash windfall are likely to be invested in next generation wireless networks.
“It’s unashamedly premium multiplay offering predicated on high speed cable broadband, high value content, and increasingly, mobile,” Barton said.
He suggested that Vodafone would look to scoop up the rest of Liberty Global’s European assets.
On Disney’s move to launch direct to consumer SVOD, Barton said the mouse house would not pivot exclusively away from payTV; “However Disney must own the D2C alternative audience in countries with low pay TV penetration or stalled subscriber growth.
He added, “Disney’s strategy regarding its own content and windowing will have a significant impact on all distributors as we head into 2020s.”
“We’ve yet to see evidence that [mega-mergers] is a viable strategy for competing against FAANG.”
He added that one should keep an eye on telcos launching into video with what he termed ‘evolved bundles’. A lot of mobile operators are keen to take a stake in entertainment of all stripes. What is interesting is how you launch a multiplay proposition when you start with an individual mobile contract rather than a household contact.”