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Buddy movies have been an entertainment staple for years. Like Felix and Oscar in The Odd Couple (1968) or Murtaugh and Riggs in Lethal Weapon (1987), the buddy film genre shows how two people can overcome obstacles, and each other, to produce a happy ending. Today, we are seeing over-the-top video services buddy up with others in the market to find their own happy endings.
OTT video services have partnered with a number of entities within the video ecosystem since their emergence, particularly content producers and advertisers. With competition in OTT video services intense worldwide, the number and diversity of partnerships has only increased since late 2016, particularly in the crowded U.S. OTT video services market.
Due to the increased competition and number of partnerships, OTT video service penetration will increase by more than 85 million households from 2017 through 2022, Parks Associates has estimated, and volume of subscriptions will increase by more than 140 million.
New services have emerged, while existing services have expanded internationally. Relatively few services have shown signs of failing and falling out of the market. However, with many unique video options available to consumers, it has become apparent that success in the market will require partnerships to spread awareness of video service products.
Amazon Channels’ effectiveness as a distribution channel was perhaps the most impactful change to the video market in 2017. For video services, partnering with an aggregator such as Amazon Channels offers increased visibility while minimizing risk and marketing costs.
Several factors have been driving the heightened push for partnerships, including high fragmentation of content, the success of bundling, polarization in subscriptions and revenues, a low cost threshold for survival, and low awareness of OTT service brands. These factors reflect the OTT video landscape’s current point in its overall lifecycle.
The influx of competitors and high adoption among customers demonstrate that the U.S. market now is firmly in the high-growth stage of the traditional market lifecycle S-curve. Evidence of widespread consolidation has not yet arisen, suggesting continued opportunity for OTT video service growth.
The most common partnerships currently being formed in OTT video are with operators (including pay-TV, broadband, and mobile service operators), aggregators of OTT video services, device makers, advertisers, and other OTT video services.
Internet-connected device makers were some of the first partners for OTT video services. Apple TV, Roku, game console makers, and smart TV manufacturers provided a marketplace for consumers to find, purchase and play content from their favorite service.
Aggregation has expanded with subscription-based Amazon Prime and new market entrants like VRV, ad-based Xumo and Pluto TV pulling multiple services into the same interface. While these categories of companies have unique approaches to and motivations for partnering, they all provide alternative channels of distribution and marketing for OTT video services to reach consumers.
They also all take a share of service revenues in exchange for participation as a content/service partner, while all working with services offering on-demand content or live/linear channels.
Despite fears of competition, operators and OTT video service providers are natural partners due to complementary capabilities, mutual connections to consumers, and brand-leveraging opportunities. High-resolution video streaming drives demand for broadband and mobile data services, and high-quality data services are necessary for a good OTT video user experience.
Operators have established ties to massive numbers of customers, but their pay-TV subscriber bases have been eroding. OTT video services have enjoyed fast consumer uptake, but most lack the consumer awareness and scale of operators. Both seek consumers willing to spend time and money on connected entertainment, and both are eager to capitalize on current consumer trends in multiscreen viewing.
Several types of partnerships have been emerging between operators and OTT video services, as these parties find mutually beneficial opportunities to cooperate. These partnership types include promotion and distribution partnerships, broadband bundling, set-top box integration, zero-rating and billing.
Relationships between OTT providers exist primarily among complementary services seeking to leverage each other’s strengths in order to drive improved awareness, use and revenues. These partnerships typically involve agreements for distribution, bundling, or service promotion.
The diversity of OTT video services and the number of participants in the entertainment ecosystem allow opportunities for a wide variety of partnerships beyond those outlined here. Whenever they can drive awareness, usage, purchasing or brand image, companies have experimented with partnerships. Examples include OTT device maker partnerships and OTT music partnerships.
When HBO Now launched in the U.S. three years ago, subscriptions were available exclusively through Apple TV for the first three months. Apple announced the arrangement, along with a price drop for Apple TV, from US$99 to $69.
Both initiatives were designed to drive purchases of Apple TVs, which had lagged Roku in the U.S. market, though Roku’s lead continued despite the promotional program.
HBO gained Apple’s marketing support at launch, but the program may have slowed the program’s success by delaying its availability across all connected platforms.
Hulu last year announced a new partnership with OTT music streaming service Spotify. The two companies offered college students a joint subscription to Hulu and Spotify at a promotional price of $4.99 per month. That approach provided the attractive discount of bundling while targeting young consumers, many of whom were considering subscribing to entertainment services for the first time.
Future of the Industry
With many new services emerging and few players exiting the market, it is becoming increasingly difficult to capture consumer attention, much less viewership or subscription revenues.
OTT video services without the known content brands face the greatest challenge in gaining awareness, but even recognized brands must find new ways to reach potential customers. If OTT video services want to capture a share of the 265 million OTT subscribing households or 400 million OTT video service subscriptions Parks Associates has estimated by the end of 2022, they will need to partner with each other or with other market players in order to achieve success.
So, given the size of the opportunity, OTT video services have been asking themselves and others, “Hey, want to be my buddy?”
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