Before we get to the heart of this blog, where we’ll take a quick look at evolving OTT technology supplier payment models and, more widely, the possibilities afforded by different commercial relationships, first something that really caught our eye recently.
We have all known for years the changing nature of video consumption, moving gradually away from traditional linear pay-tv/subscription models to on demand. Of course, the speed of this change – the rise of cord-cutting, as it’s often referred to, especially in the US – varies dramatically around the world.
But a recent Washington Post story slammed home the scale of the situation across US cable. In the article, author Paul Farhi, says, “As recently as 2016, when Trump was narrowly elected president, just over 70 percent of all households with a TV had cable or satellite TV subscriptions. Today the figure is just under 40 percent, according to S&P Global Market Intelligence, a research firm. And it’s dropping fast.”
He adds, “During the first quarter of 2023, another 2.3 million customers (or 7 percent of the total) cut the cord to traditional cable — the fastest cancel-my-subscription pace ever recorded, according to MoffettNathanson, another research firm. The company estimates the number of homes receiving TV via cable is now about the same as it was in 1992, when the industry was still on the rise.”
The article is framed around the threat this poses to cable news – Fox News et al. – and of course it highlights that this doesn’t mean content will disappear, rather these services will move online, cutting out the middleman – the cable operator in this case. This further serves to highlight that for channel and content owners, the game has forever changed with the way consumers and pay for and consume content forever altered.
This comes to the wider point of this blog. The technology supply side of the Media and Entertainment sector is also experiencing a significant change, moving away from CAPEX to OPEX models. This is powered by the ongoing move to virtualised and cloud technologies, allowing services to be created, spun up and spun down or altered, far more quickly. Cloud playout is a very good example of this where rather than having to purchase and install hardware to create or alter services using a CAPEX model, now these can be virtualised, based on backend services like AWS or Azure. This means things like pop-up channels can now be spun up and spun down very cost effectively with capacity available on demand.
This move to OPEX models is something we’ve noticed in the OTT space. Of course, the fundamental modularity and virtualised technology approach of much of what we do comes to the fore here. This gives us and our customers tremendous flexibility in the way that we can approach projects from both technical and business angles. An example with which many will likely be familiar is Adobe Creative Cloud, which uses a monthly subscription model rather previously having to buy each piece of software. Models like this lower the barrier to entry and provide an easier life in terms of automatic updates, new products and so on. People have become more and more used to only paying for what they use – this applies right across life. And this applies in our sector, too, vastly lowering the barrier to entry.
Of course, there’s still CAPEX business out there and that’s generally where there’s some hardware or specific services involved. We were asked earlier this year about building a custom launcher for an Android STB, as one example. But overall, the trend is clearly to OPEX models.
Casting our net more widely – and for commercial sensitivity reasons, we can’t go into too much detail here – we have also looked at other revenue models. In one example there are three main players: the content provider; Switch Media providing the OTT technology; and a distribution partner who deals with the consumer and handles the service branding and marketing. This is already proving to be a very successful model with each party absolutely handling what they are best at doing.
The distribution partner brings the marketing and access to customers, the content provider does just that and we bring the technology and the integration and ongoing operational effort. We integrate with a billing platform and away we go. Get in touch to find out how we can help you across the on-demand content space.