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Insert Coin to Play: OTT Is Booming, But It's a Seller's Market

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Ever feel like you’re being chased through a maze, looking for that one game-changing event that suddenly gives you the advantage ... at least for the moment? Welcome to “Online Video Industry 2016—OTT Time.”

Our industry’s ebbs and flows are so cyclical I can pretty much set my watch by them. This time, it’s a seller’s market. Netflix has created tremendous pressure for just about every company with premium content to get its act together online. The reality has set in and this pressure is not going away. But you shouldn’t panic. Take a deep breath and realize we have a long way to go, and the business case isn’t as simple as just starting a channel on Roku or Apple TV. And for what it’s worth, I’m very happy that companies will be spending on our industry like they never have before. In fact, subscribers to this magazine alone have earmarked a budget in excess of $5.7 billion for 2016. That’s an incredible 60 percent jump from 2015—it’s real money.

The problem is how to make good choices with that money, and there will be a lot of impulse buying and then the inevitable do-overs, which is a worry whenever we see this kind of buying cycle. Whenever there’s money to be spent, “companies” come out of the woodwork—big ones, small ones, spin-offs from existing companies, some without a product to sell—all looking for a piece of the pie.

And then there’s all this noise about creating original content. Don’t get me wrong, I think it’s a great play. Loyalty is a big deal, especially since pricing models are coming apart so you can buy a single episode on Apple TV, rather than a series, much less a subscription to a network (here I include Amazon, Hulu, HBO, ABC, and others that charge a subscription fee for access) that might only have one golden goose. Publishers are spending more on technology and content than ever before, but they charge less per subscriber. Something’s got to give.

Netflix has pretty much reached capacity for subscriptions in the U.S., so it’s turned its attention worldwide. In doing so, Reed Hastings indicated 2016 is going to be a “break-even” year for Netflix while the company bears the rising cost of content and international expansion.

The folly that many content companies must try to avoid is trying to emulate Netflix’s business model and joining the race to the bottom (getting more content for less). Experimenting with second-screen and full-season releases, as well as other new delivery strategies, can contribute to subscriber loyalty. But wait—season two of Better Call Saul is now on Amazon in the U.S. and Netflix in other countries, but it’s only delivering one episode a week! So much for binge-watching that one.

Surely the age-old business model of paying the most for the best content and then monetizing that opportunity still applies here. When push comes to shove, and shareholders put pressure on Netflix for profits, don’t be surprised if ads start showing up, unless you want to pay for a new premium account level. Now, those ads could be something actually worth watching. Wouldn’t it be cool if Netflix struck an exclusive deal with Marvel to create a 25-minute Deadpool trailer? I’d open up my wallet for that. Yeah, an advertorial. A commercial you’d pay good money to watch. You read it here first.

For those of you looking to invest in the online video industry and choose a vendor this year, there are really good companies to look at in this Sourcebook. If you want to win big at this game, read it cover to cover; we’ll help you get a high score. We love to see innovation, so with the help of this Sourcebook, go make some news!

This article appears in the 2016 Streaming Media Industry Sourcebook.

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