British television viewers of a certain age will recall OTT fondly (or maybe not). An anarchic 1980s late-night version of the popular ITV children’s show Tiswas, it cemented the star status of presenters Chris Tarrant and Lenny Henry, and disrupted conventional thinking about scripted content and the boundaries between TV for kids and adults.
Four decades later, the term OTT (over the top) has become synonymous with disruption in the global broadcasting industry of an altogether greater magnitude. The rapid growth of OTT media services in recent years – particularly their acceleration during the COVID-19 pandemic – has turned business models across broadcasting on their heads. It has also prompted a wave of M&A transactions.
Critically, OTT services – Netflix, Amazon Prime, Disney+ and Hulu, for example – bypass the platforms that have traditionally controlled distribution of television content. All you need to watch their content is an internet connection, and you get to watch it whenever you want. The giants of TV – the cable, satellite and broadcast platforms, with their linear programme schedules – are losing control.
“Technology has often been a disruptive influence in broadcasting, but we’ve never seen a wave of disruption quite like this before,” says Graham Sharp, a US-based director of Media Asset Capital, a strategic adviser to the media sector. “It represents a total blurring of the lines between content owners, content distributors (broadcasters, cable operators and telcos) and technology companies.”
In this new world, Sharp points out, Apple has entered the content business along with Netflix and Amazon, and they are all now commissioning programming. “The debate used to be about whether content or distribution was king,” he explains. “With OTT, distribution is becoming less important, so traditional technology and distribution companies are piling into the content business, and content owners are doing their own distribution.”
Moreover, although the rise of streaming services may now feel like a fait accompli, it has happened remarkably quickly. As recently as five years ago, many in the broadcasting industry were really unnerved by the idea that younger people were giving up on television altogether, instead favouring bite-sized chunks of content on platforms such as YouTube.
Alfonso Marone is UK head of deal advisory for technology, media and telecom at KPMG, and a former corporate development executive at American mass-media conglomerate NBCUniversal. He says: “The worry was the competition posed by other types of media, but the move from linear to streaming services has turned out to be a much bigger threat to broadcasters.” This has transformed the dynamics of the marketplace, he points out. “When Netflix was still sending out DVDs by mail, while quietly hoarding unmonetised digital libraries for pennies, US studios and mainstream UK broadcasters thought Sky would be the gorilla in the room. It hasn’t turned out that way.”
New ventures that have attracted significant funding but made the wrong call, have fallen by the wayside. Most notable was the short-form streaming service Quibi, which raised $1.8bn to sell YouTube-style quick bites of content, but produced to a higher quality. It shut its doors last year after only six months. Critics argued that founder Jeffrey Katzenberg, now in his 60s, had misread the shifting appetites of younger viewers, although the Disney veteran responded that COVID-19 had put a stop to activities such as commuting and queuing in coffee shops, which might have given ideal opportunities to watch Quibi’s content.
Certainly, the COVID-19 pandemic appears to have cemented the shift to OTT, with locked-down viewers around the world turning to streaming services. In the UK, the amount of time people spent watching television rose by a third during last year’s first lockdown, according to the broadcasting regulator Ofcom. But streaming was the big winner, with viewers doubling the amount of time they spent watching those services.
About this article: cover story of Corporate Financier May 2021
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