WTF is OTT?

This is the latest in a series of articles that explains, in plain English, new technology tools and platforms that are changing the face of digital media. See other entries here.

Are you down with OTT?

“Over-the-top” is the sexiest term in entertainment right now, not the least of which because it sits at the center of the inevitable and unstoppable merger between the worlds of television and digital video. But what, exactly, does it mean and why the hell does it matter?

Seriously, WTF is OTT?
OTT stands for “over-the-top,” the term used for the delivery of film and TV content via the Internet, without requiring users to subscribe to a traditional cable or satellite pay-TV service like a Comcast or Time Warner Cable.

Oh, that must suck for the cable companies.
Not necessarily. Because OTT apps and services are delivered over the Internet, users still need a broadband connection, which they usually get from their cable providers. The likely outcome: traditional distributors will continue to play an important role in the growth of OTT because they also specialize in areas that TV networks don’t have an expertise in, including sales, marketing and customer management.

“Part of the reason OTT didn’t develop more quickly than it did is that for a lot of content owners, they were able to solve the tech challenge [of delivering content over the Web], but they didn’t have the DNA to sell directly to consumers,” said Simon Jones, vp of marketing at Conviva, a video analytics company.

So what’s the hullabaloo about then?
Well, it’s still far more lucrative for pay-TV providers to keep the existing model in place, which centers on selling bundles of cable channels to customers even if they don’t need or want most of them. For a long time, this model was also what worked best for major media companies that own TV networks. They would be able to bundle their most popular channels with less popular ones and turn a pretty profit.

What changed?
Netflix. TV networks and studios were happy to license their older programming to Netflix as it ramped up. While that was a great short-term solution, the move has played a role in the gradual erosion of TV ratings. People were increasingly watching their favorite shows on Netflix and Hulu instead of the live initial broadcast.

HBO, meanwhile, watched Netflix surpass it in terms of domestic subscribers, ending the year with 31.4 million (according to research firm SNL Kagan) compared to Netflix’s 37.7 million. Recognizing a need to evolve its business model and reach the 10 million US broadband subscribers who don’t pay for TV, HBO launched HBO Now, an over-the-top subscription video service that offers full access to its library and original programming.

“HBO Go became such a strongly branded destination for video content that it got people thinking, ‘Hm, this brand can live anywhere outside of the traditional [TV ecosystem],’” said Mike Green, Brightcove’s vp of marketing and business development, media.

 

I’m assuming there’s more to OTT than Netflix and HBO.
Of course. CBS, Showtime and Lifetime have all announced or launched over-the-top video services. And those are just the TV networks. Online video companies such as YouTube, Vimeo and AOL are also hoping to play a greater role in the new OTT landscape.

What about Sling TV?
Sling TV is still a pay-TV service, except it’s cheaper and delivers smaller bundles of channels over the Web. Apple’s rumored Web-TV service will likely do something similar.

I’ve heard other acronyms associated with OTT: SVOD, AVOD…
Ok, this is where it can get confusing. OTT can largely be broken down into three different revenue models: SVOD (subscription-based services such as Netflix and Hulu); AVOD (free and ad-supported services such as Crackle and Hulu); and TVOD (transactional services such as iTunes, Vimeo On Demand and Amazon Instant Video that allow users to pay for individual pieces of content). While none need to die for the others to survive, how content owners approach these options will go a long way in determining which OTT apps break through the clutter.

Is OTT the same as “TV Everywhere”?
That isn’t really OTT because TV Everywhere still requires users to pay for traditional TV.

What are some other growth issues for OTT?
Distribution is a big one. For instance, Internet-connected TVs are becoming important. A recent report from FreeWheel said that streaming on OTT devices was up 380 percent from the previous year. Here, an OTT device can include anything from streaming set-tops like Apple TV and Roku to gaming consoles like the Xbox to Web-enabled TV sets.

“What some content owners are doing is essentially a land-grab: getting their content out there across platforms and figuring out business models later,” said Green. “They don’t want to miss out on not having their app on the home screen [of a popular OTT platform].”

How will measurement fit into all of this?
In some ways, measurement will be tied to distribution. “There needs to be a common rubric in which everyone can evaluate how the [distribution] relationship is running,” said Jones. “We have to build this aeroplane midflight. In a perfect world, we would have established the rules before the endgame. But everybody is already engaged.”

“Game of Thrones” image via Shutterstock; HBO Now image via Apple