Over The Top (OTT) is a media distribution model whereby television, film, and/or video content is streamed directly to viewers over the Internet, sidestepping traditional distribution channels like broadcast, cable, and satellite TV providers.
Why is OTT Important?
OTT media services began to emerge in the mid-2000s, as innovations like broadband Internet and cloud computing made it possible for early movers like Netflix, YouTube, and Hulu to deliver high-quality video content over the Internet at scale.
Over the next decade, widespread adoption of mobile phones and connected devices (e.g. tablets, Smart TV, etc.) skyrocketed the demand for OTT content. This led to massive success for early OTT service providers, the development of new OTT monetization strategies (e.g. AVOD, SVOD, TVOD, FAST, etc.), and the proliferation of new OTT media platforms.
OTT services have been the driving force behind cord-cutting, a phenomenon that has seen major US cable and satellite TV providers lose 30M+ subscribers since 2012, as consumers move towards lower-cost online streaming services.
OTT has grown into a valuable revenue source for both content owners (licensors) and distributors (licensees), with Americans watching over 21 hours of streaming content per week and spending $46 per month on streaming services.
How Does OTT Streaming Work?
OTT streaming services deliver content over the Internet
OTT media services provide mobile and web-based applications that enable their users to stream content over the Internet on a variety of connected devices (e.g. computer, mobile phone, Smart TV, tablet, etc.)
OTT service providers store TV and video content on a network of servers in data centers around the world, often leveraging public cloud infrastructure. When a user requests a video, the OTT provider streams the video from the closest server to the user to minimize any latency and maximize video quality.
OTT streaming services use various distribution models
As OTT streaming services have proliferated, providers have innovated and adopted a range of new distribution and monetization strategies for OTT content. OTT distribution models can be grouped in two general categories:
- Video-on-Demand (VOD) Distribution Models– A VOD distribution modelmeans that users are interactively selecting which content will be presented next. VOD distribution models include:
- Advertising Video on Demand (AVOD) – Users can access and stream AVOD content for free. The platform is funded by advertisements presented to users before, during, and after viewing content.
- Subscription Video on Demand (SVOD) – Users pay a monthly subscription fee for unlimited access to ad-free content on demand.
- Transactional Video on Demand (TVOD) – TVOD services allow users to buy or rent specific titles and view them via OTT streaming.
- Linear Distribution Models– Linear distribution feels a lot like TV – but distributed over the Internet. Linear distribution means that content is presented on a schedule that’s determined by the service provider. Linear distribution models include:
- Virtual Multichannel Video Programming Distributors (vMVPDS) – vMVPDs allow users to stream linear TV content over the Internet for a low monthly subscription fee that typically includes 50-100 channels.
- Free Ad Supported Streaming Television (FAST) – Users can tune in to a live stream of linear television content for free. Just like with AVOD, FAST services are supported by advertisements presented to users as part of the viewing experience.
OTT streaming services compete with content
OTT service providers compete for market share by connecting audiences with the content they want to see.
OTT service providers can get their hands on new content in three ways:
- Purchasing Content – OTT service providers can purchase distribution rights for existing films and television shows.
- Producing Content – OTT service providers can produce new films or television shows, after which they will own the exclusive distribution rights for those properties.
- Licensing Content – OTT service providers can license content from content owners in exchange for royalties, for a flat fee, or for a share of the revenue generated by the content.
OTT streaming services are data-driven
OTT streaming service providers have the ability to monitor, track, and measure everything that happens on their platforms.
By capturing and carefully analyzing user behavior data, content performance metrics, and transactional data with the right tools, OTT service providers have found innovative ways to increase OTT customer retention and winbacks, valuate their content, and optimize investment in new content assets and licensing.
3 OTT Examples You Should Know
Netflix
Since launching its streaming service in early 2007, Netflix has grown into the largest SVOD OTT platform with more than 260 million subscribers. Netflix expands its content catalog through a mix of purchasing, licensing, and producing new content.
YouTube
YouTube launched in 2005 and is now the world’s most popular AVOD OTT service and second-most popular website after Google.com. YouTube allows even the smallest creators to publish videos to the world and monetize them with YouTube advertising. YouTube also offers an SVOD service (YouTube Premium), a vMVPD service (YouTube TV), and TVOD distribution for select titles (YouTube Movies & Shows).
Amazon Rent or Buy Video Store
Amazon Rent or Buy is a TVOD OTT service where users can pay a one-time fee to rent or purchase a given movie. Renting a movie gives the user 30 days (48 hours once started) to watch the film, while purchasing the film provides unlimited OTT access to stream the content.
OTT Content Licensing Explained
OTT content licensing agreements can vary widely, depending on the OTT service provider’s distribution model and monetization strategy. The most common fee structures are:
- Flat Fee Licensing – In a flat fee licensing or buy-out agreement, the OTT provider pays the content owner a flat fee in exchange for full distribution rights to the content.
- Revenue Sharing – In a revenue sharing agreement, the OTT provider receives distribution rights for the content and the content owner receives a share of the revenue it generates. Revenue sharing is typical of ad-funded platforms like YouTube. Some SVOD OTT platforms offer a Subscriber Sharing licensing model, where content owners are paid based on the number of subscribers who watch their content.
- Royalties – Royalty licensing agreements are most common for TVOD OTT platforms. Under such an agreement, OTT platforms are given rights to rent or purchase content on their platform, with content owners receiving a fixed fee or a percentage of every transaction.
Will OTT Replace Traditional Media Distribution?
Viewership in traditional media channels has been steadily declining since 2012. Pew Research Center reported that the number of Americans receiving TV via cable or satellite at home fell from 76% in 2015 to 56% in 2021 – a 20% decline in just six years.
But despite the “cord-cutting” phenomenon and the rapid widespread adoption of OTT streaming services, there’s no indication that traditional media distribution channels like broadcast, cable, and satellite television will disappear.
Instead, traditional TV providers are experimenting with new content distribution models including ATSC 3.0 and differentiating themselves by featuring live events like concerts, sports, and award shows.
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