Digital Players are Expanding Their Offer in the Race for Killer Content

As noted in the second chapter of our previous Trends reportsocial networks have accelerated their acquisition of live broadcasting rights, whereas over-the-top (OTT) television platforms continue to invest in drama series and youth programming.

In their ongoing quest for new audiences, the giants are now adapting their strategies by investing in new content verticals. This article presents an excerpt from our Trends Report: 2017 Mid-Year Update.

"It’s about the diversity. We’d love to get a couple shows in some key genres that are smaller cable-size swings, a few in the middle range and then a couple of really big swings."

- Brandon Riegg, Director, Alternative Programming, Netflix

Online Video Consumption is Increasing Exponentially

Breakdown of peak period internet traffic in North America by application The viewing of online videos continues to grow. In 2016, the consumption of audio and video content amounted to 71% of evening online traffic on fixed broadband networks in North America according to Sandvine. This proportion has doubled in the past five years. It is no surprise to learn that Netflix, YouTube and Amazon Video score highest in the list of applications that monopolize this traffic.

The same goes with respect to the global mobile network: video took up 60% of data traffic in 2016, and that percentage should reach 78% by 2021 according to Cisco. Here at home, close to 80% of Canadians watch online videos (close to 100% in the 18-to-34 age bracket).

Consumers not only view more and more videos online, but they also appear to be more and more inclined to pay for content. According to IDC, consumers are now spending more and more money to access online content, and proportionally less on the devices used to consume it.

Consumers’ content expenses around the globe will increase at an annual rate of 12.6% between 2015 and 2020, whereas spending on devices will increase at an average annual rate of 1.6%.

The device-based economy is rapidly transforming into a content-based one, and video streaming is becoming the method of choice for consumers. The digital giants are redoubling their efforts to carve out their share of this market.

Live content, and now originals

The battle to secure live broadcasting rights waged by social media has accelerated in the past months, especially when it comes to sporting events.

Twitter lost some ground to Amazon when the latter won the bid to live broadcast the NFL’s Thursday evening games. However, Twitter has not been left behind seeing as it has reached several major agreements, including partnerships with sports leagues and a contract with Bloomberg Media to live stream news 24 hours a day, 7 days a week.

Annual video content growth on selected social networks from 2015 to 2016 In their quest for audiences—and advertising dollars—technology giants now seem willing to diversify their content offer and are betting on original productions. This could accelerate audiences’ transition from television to the web.

At NewFronts, YouTube announced a new skewer of original content showcasing stars like Kevin Hart and Ellen DeGeneres and viewable free of charge. Snapchat has ordered original content and reached deals with several media groups for the creation of content based on existing intellectual properties.

In June 2017, Apple officially jumped on the original content bandwagon with its first TV reality show, Planet of the Apps, which Apple Music subscribers can view for free.

For its part, Facebook has announced its intention of ordering original content to generate loyalty among its two billion users. According to Ricky Van Veen, Facebook’s head of global creative strategy, the giant intends to cast a wide net and produce several types of contents.

“We’re exploring funding some seed video content, including original and licensed scripted, unscripted and sports content, that takes advantage of mobile and the social interaction unique to Facebook. Our goal is to show people what is possible on the platform and learn as we continue to work with video partners around the world.”

Although Facebook has yet to make a formal announcement, some observers say that the social network may start distributing original content on its platform by the end of this summer.

Over-the-top (OTT) Television Service Providers Expand Their Content Offer

OTT services are today’s champions when it comes to high-budget drama productions.

They have increased drama’s value to the point that traditional players are now focusing on unscripted content instead. It’s the case of A&E which, after the finale of its successful Bates Motel series, decided to stop producing drama and focus on non-fiction.

There again, the competition risks intensifying seeing as OTT services have conquered the drama and youth programming segments and now have their eyes set on non-fiction, including reality TV, docusoaps, talk shows and comedy shows.

Amazon is slowly building up its non-fiction catalogue by investing in several formats, including the highly publicized Grand Tour. As for Netflix, it took its first steps with the Chelsea talk show in 2016. Efforts have accelerated since then: no less than 20 original non-fiction programs have been announced for 2017, and a new comedy show will be launched weekly.

Several reasons explain OTT services’ sudden rush toward non-fiction. The format allows them to diversify their original programming offer and thereby secure and widen their subscriber bases.

Non-fiction is also a real bargain for platforms seeing as it is less costly to produce than dramas. Given their global scope, platforms generate major economies of scale by adapting formats to suit the tastes of local audiences. For example, Netflix is producing six localized versions of its obstacle race competition Ultimate Beastmaster.

As they once did with drama, OTT services are entering the non-fiction market and taking out their chequebooks, thereby positioning themselves as fierce competitors. Celebrities and well-known brands are essential to generating public interest for non-fiction content in the VOD universe, and OTT services are willing to pay the price.

“It’s a feeding frenzy to get the best people.”

Jeff Greenberg, casting director

OTT services only invest a minute portion of their production budgets in non-fiction, but these investments could nevertheless cause costs to explode throughout the industry as the battle for talent rages on: executives, performers, stage technicians, producers, etc.

Price paid by HBO and Netflix for the rights to a comedy show

Netflix has already charmed over several experienced non-fiction producers by offering them upfront deals for the full run of a show. It is a model that is appreciated because it eliminates some of the financial risk traditionally taken on by producers.

Faced with escalating costs, traditional players will need to redouble their efforts to discover new (and less expensive) talent. NBCUniversal, for example, reached a deal with Toronto-based Wattpad, a social media site where users can share their stories with the community. The idea is to search through the platform’s 300 million online stories for the most popular and promising ideas for new TV shows.


Streaming Wins Over Audiences

There is every reason to believe that streaming has become the preferred mode of consumption of online content in North America.

In the United States, a new threshold has been reached: there are now more adults who use paid or free streaming services (68%) than there are pay TV subscribers (67%). Also in the US, there are more     households     that subscribe to Netflix (54%) than there are that possess a personal video recorder (53%). Furthermore, Netflix now is the television brand that Americans are most hesitant to abandon.

The spending shift towards streaming services can also be observed in Canada, where spending on Internet access has been higher than spending on cable TV subscription since 2015. According to the CRTC, this situation is due to the soaring demand for streaming video and music services.

To ensure they stay on top, on-demand video giants are investing massively in original content and have global ambitions. At the end of 2016, Amazon took on Netflix in the conquest of international markets by expanding its video service to 200 countries, including Canada.Estimated annual video content budgets of Netflix and Amazon

Posted in: Business Practices, Industry Transformations

Tags: ott, social media, streaming, trends, tv, vod

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