What's the right OTT video strategy?

What’s the right OTT video strategy?

By January 3, 2016OTT, Video

No, your Uncle Irving did not just announce his new OTT video service, but you’d be forgiven for thinking he might have. The releases have been coming fast and furious in recent weeks, including new offerings from big names such as Showtime, Lifetime and Comcast, following on the heels of HBO Now‘s launch in April.

But not all digital-video services are created the same, and not just because we can’t seem to agree on what to call them. Companies have varying motivations for launching these services, and those differing strategies are reflected in the attributes of their offerings. At the same time, there seems to be a fundamental divide between those going all-in on OTT and those hedging their bets. The former is a “bet the company” kind of move that could easily go wrong and endanger core revenue streams. But the latter, even if it seems “safer”, carries its own risks: moving too slowly to adapt a business model that is undergoing a radical transformation.
OTT Video Strategy

HBO

HBO has been very explicit about its goals for HBO Now: the channel hopes to gain “access to a whopping 10 million more subscribers — the ‘cord-cutters’ and ‘cord-nevers’— who [have] remained beyond the reach of even the most successful pay cable channel.” But the only way to do so is to offer a product that competes directly with the cable and satellite operators who provide 75 percent of the company’s revenues. HBO is, in essence, trying to avoid the mistakes of the recording industry, which stuck with its “customer-driven” revenue stream of selling through retail outlets such as Tower Records — and tried to hold off the digitization of music by suing services like Napster out of existence — but never developed a meaningful direct-to-consumer product until Apple did it for them and captured most of the revenue (a development which, incidentally, could end up repeating itself).

In this period of turmoil, where everything is up for grabs, HBO is betting that the safest position to be in is one where it has a direct relationship with its viewers. But even if that’s the right OTT video strategy, in theory, it doesn’t guarantee HBO’s success.

For one thing, HBO is making a huge bet on the value of its content. HBO Now is priced at $15 a month, double what Netflix charges for a vastly bigger catalog. (Forbes’ Merrill Barr argues that the price represents a bit of a hedge, since if HBO were to undersell the average price viewers pay for the channel through their cable company, it would be an open declaration of war on its traditional revenue stream.)

Second, just because HBO has the right OTT video strategy doesn’t mean it can execute it. It has spent the past four decades pursuing a retail business model, and now it’s turning on a dime and going direct to consumer? That’s a huge shift in mindset, as well as in-house skills required. Indeed, it’s not hyperbole to say that HBO execs are betting their jobs on the success of HBO Now, considering that a failure to deliver a viable product on deadline has already cost former CTO Otto Burke his.

lifetime

LIFETIME

If HBO Now represents a bold leap into the unknown, A+E’s Lifetime Movie Club is more of a mincing baby step, or what Variety’s Andrew Wallenstein calls it “an oar into the OTT waters”. For $4 a month, subscribers get a rotating selection of just 30 movies, all of which will be at least a year old. Wallenstein thinks it may be “a beachhead from where the company can eventually pivot into something that may be a more compelling consumer proposition,” but it could have the opposite effect. If the Movie Club is seen as a failed experiment, it may be that much harder to push through a more disruptive product.

COMCAST

Unlike HBO and Lifetime, Comcast isn’t a content producer. Instead, it owns the pipes. And its recent OTT announcement is very much an effort to leverage that asset. The company’s new Stream offering is really just a “skinny bundle” consisting of the broadcast networks, PBS and HBO (more hedging!) for $15 a month. As explicit as HBO is being about targeting new viewers with HBO Now, Comcast is making the opposite bet: Stream is only available for existing Comcast broadband subscribers. In other words, Comcast is deploying its OTT offering not to embrace cord-cutting, but to reverse it. The hope is that Millenials — who absolutely must pay someone for reliable broadband — will get used to paying Comcast for their TV watching needs, and eventually upgrade to a full cable subscription. As befitting a defensive maneuver, Comcast execs don’t see Stream as a major revenue stream any time soon.

ESPN

ESPN

And then, to paraphrase the Passover fable, there is the channel that cannot even launch an OTT product. OK, not really; Disney CEO Robert Iger said that ESPN could launch one eventually, although it has no immediate plans to do so. Still, the Wall Street Journal recently laid out in excruciating detail the bind ESPN finds itself in: The market power ESPN commands as the most valuable cable channel is actually a bit of a golden albatross. Even as the network continues to shed over-the-air subscribers (3.2 million in the past year), it is strongly disincentivized from launching an OTT service by contracts that allow MSOs to kick it out of their most widely sold bundles and sell it a la carte as soon as it does so.

The takeaway from all of this isn’t that there is any one “correct” OTT video strategy. Especially given all of the legacy relationships still in place, media companies will often find their OTT options constrained. (ESPN has historically moved smartly and aggressively into new technologies, and I’m sure if it made financial sense to create an OTT service, it’d be a good one.) What will be interesting to watch in the coming years is which companies, given their constraints, are able to navigate the roiling media landscape.

If I had to guess, I’d say HBO is probably best positioned to succeed. But I’m sure glad my job doesn’t depend on that hunch being correct.

If you need help figuring out an OTT video strategy that fits into your business model, drop us a line!

About Greg Horowitz

Greg Horowitz is Nomads' VP of Marketing. He is a former cord-cutter who recently became a cord-reattacher.

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