Right now, we’re in the midst one of the largest shifts to the television industry in decades. In fact, new research published by Parks Associates found that users are switching their over-the-top video streaming services at an unprecedented rate, with 50% of OTT subscribers eventually cancelling.
It’s no surprise that in the long term, that’s an unsustainable level of churn.
[IPG Study Finds Roku Ads More Effective Than Linear]
So, as the production costs of content continue to rise, media companies must increase revenue and reduce the endless — and some may say inevitable — cycle of signing up and cancelling. If they don’t, they’ll never be able to grow and stay profitable.
Luckily, a solution is already in sight. By connecting with users directly, OTT service providers have the ability to unlock a treasure trove of data beyond old-school broadcasters’ wildest dreams. That data is the key to building sticky, massively monetizable streaming video that will solve the churn problem for good.
With all of that in mind, here are my three predictions for how this transformation will take shape in 2018.
[Study: U.S. OTT Revenue Climbed 41% in 2017]
Ads will become more valuable: In some ways, it’s not a shock that OTT service providers are facing high levels of turnover. Satellite and cable TV companies, on the other hand, have infrastructure literally wired into each and every customer’s home, making it much harder for them to shift between services — that is, if the consumer even has choice at all in their area. By contrast, unsubscribing from a streaming service requires little to no effort, accomplished by a mere click of a button. The landscape of OTT solutions is in turn incredibly fragmented, meaning users might need to subscribe to five or six different streaming services to watch all of their favorite shows. And after all is said and done, who wants to keep track of all those separate subscription fees?
In this climate, return to ad-supported content seems likely. There’s no question that advertising will have a big play as online video ad values rise, due to its dynamically targeted nature.
Today, primetime broadcast TV ads command prices in the hundreds of thousands, dwarfing OTT ad spend by comparison. But, as audiences continue to migrate to OTT, so will the money — it won’t have a choice. Ad revenues at major cable networks are already declining as of 2017, while video ad spend has grown 67% since 2015. Advertisers want to be where the audiences are, and content owners want to earn the highest revenue per ad spot for bringing that audience to the advertiser.
All of that said, I predict that we’ll be seeing a major rise toward equality for OTT and broadcast ad prices in 2018, with actual parity being reached over the next few years.
Data will drive new shows: It’s no secret that the video content pipeline today is distorted and no one is taking full advantage of the data at their fingertips. This especially goes for players on the production side of the video ecosystem.
On the distribution side, however, broadcasters and OTT service providers mine rich user data to target advertising and optimize video delivery, among other things. This type of targeted personalization also benefits the consumer, as they’re exposed to content and advertising that actually applies to their interests and needs. In turn, data on content performance and user engagement usually remains siloed away from content creators, who rarely know where their content is being used, how it’s performing, or what ad revenue it’s generating.
In 2018, this is about to change.
Aided by end-to-end content intelligence platforms, content creators will start to utilize that data to create “stickier,” more engaging video content. For example, if a film editor knows that a particular clip from a trailer performed extremely well on social media, they will edit more of that particular scene into the movie itself. Video content optimized in this way will in turn generate more stable and predictable content creation, lowering the risk inherent in creating new content.
A return to scheduling: In today’s age of ubiquitous video-on-demand, actually waiting for a show to come on might seem archaic.
But believe it or not, linear TV has not gone away. It is, however, changing and being updated in an agile, streamlined way. In the near future, we’ll see OTT service providers start to use data and artificial intelligence to create schedules of linear content personalized to each user, incorporating both live video and VOD. This never-ending stream would be optimized to prolong viewing. Whether its end goal is to serve more ads or to drive more subscriptions, scheduling will help alleviate the effects of churn by grabbing and sustaining viewer attention.
In 2018, the OTT solutions industry is due for a reckoning. Taking into consideration the 50% churn rate, streaming video services won’t be able to survive off subscription-based models much longer. By tapping into the power of data and the savviest content creators, broadcasters and OTT service providers will be able to mold this transition into an opportunity to improve their programming and bolster ad revenue. And with stickier, more engaging, highly personalized content streaming to their living rooms, viewers will benefit, as well.
Jason Friedlander is senior director, product marketing at Verizon Media Services.
