OTT’s Troubling Trend: Is Anyone Actually Making Money?
With all the discussion of how popular OTT services are, the one thing no one seems to be talking about is how any of these OTT providers are actually going to make money and become profitable. 多年来, many said the key to the success of any OTT business was simply to get enough scale and subscribers to cover the costs of licensing and distributing content. But as we have seen with even the largest OTT service in the world, 网飞公司, scale doesn’t get you to profitability when the cost to license/create content is so high and the price you can charge the consumer each month is so low.
网飞公司’s subscription rates haven’t grown as fast as it needs them to, and the company can’t raise prices each year the way pay TV providers do. When content costs go up in the pay TV world, providers pass those costs on to the consumer with higher rates. But when content costs go up for 网飞公司, Amazon, Hulu, Sling TV, PlayStation Vue, etc., the providers end up eating those additional costs and rarely raise their monthly rates to consumers. Viewers have become accustomed to OTT packages in the $6– $10 per month range for VOD, and that remains the sweet spot. Each time 网飞公司 has raised rates, it has lost subscribers.
With more competition entering the market, content licensing costs have skyrocketed as additional OTT platforms have been bidding up prices. 截至2016年第三季度, 网飞公司 has streaming content obligations that total over $13 billion, and its licensing costs have grown by more than 50 percent from 2010 to 2015. Revenue, on the other hand, has only grown 26 percent compounded annually. While 网飞公司 used to use the breadth and depth of its catalog to promote its offering in the market, now it has so many competitors that original content is the only way to differentiate the service. 网飞公司 spent nearly $5 billion in content licensing/creation costs in 2016 alone, and the numbers simply don’t work in 网飞公司’s favor. The company could literally run out of cash before achieving the number of subscribers needed to support the business.
And it’s not just video. Spotify’s revenue grew 81 percent in 2015, but royalty fees jumped 85 percent to nearly $2 billion, taking up 84 percent of Spotify’s revenue. CBS said it lost money on its content licensing deal with the NFL last year for eight Thursday night games—and that was for pay TV, 不在线. 和内部, people at Twitter who don’t want to go on record confirm that the company will lose money on its deal with the NFL as well. Content licensing costs aren’t just a 网飞公司 problem, or one tied to VOD content; they’re a systemwide issue across music, 电影, 和广播电视, for both VOD and live linear. That’s why no standalone company can ever afford to offer a live linear service; it has to be owned by an ISP, 航空公司, multiple system operator, or large company in the ecosystem like Google, 索尼, 苹果, 或微软. Sling TV would not survive if it wasn’t owned by Dish, and the DirecTV Now service could not afford to be in the market if AT&我不拥有它. These OTT services either are loss leaders for other products and services these companies are selling, or they’re enablers to generate revenue from other services tied to them, as in the case of Amazon and its Prime service. But even then, it’s no guarantee that OTT will make these companies more money in other ways. That’s why so few of them are willing to break out any actual numbers on their OTT offerings or the impact they have on their other lines of the business.
In 2015, Microsoft disclosed that it stopped all plans for live TV service to the Xbox because the content licensing costs were so high it could never create a profitable business at the price point consumers would pay. Hulu’s $12 monthly fee with “almost” no commercials isn’t enough to offset the cost of licensing content, as the company isn’t profitable. When I spoke with people who saw the 2015 Hulu term sheet, they said Hulu has had over $1 billion in cumulative losses since 2008. And then we have companies like Yahoo, which lost $42 million in 2015 on licensing and original content creation. There are plenty of examples like that to go around.
In any other segment of the industry, we typically judge the success or failure of a company based on its profit and loss statement. Yet when it comes to OTT services, many want to judge their “success” based on the number of subs they have, without looking at profitability. Why are so many giving these OTT services a pass? And even if we do look at the number of subscribers, if we strip out 网飞公司 and Hulu, none of the other major OTT services can claim even 2 million subscribers. Many have well under 1 million. CBS All Access, HBO NOW, and Showtime each have around 1 million subscribers. Sling TV and PlayStation Vue won’t put out numbers, but without a doubt they have fewer than 2 million subscribers. I suspect both have fewer than 1 million. DirecTV Now is new in the market, but the company’s own internal projections are for 1 million to 2 million subscribers by the end of 2017. Hulu reported 12 million subscribers in mid-2016, which was up from 9 million at the same time period. Yet, its growth slowed from 2014 to 2015, when it was growing 50 percent.
The trickle-down effect of what is happening, to everyone in the video food chain, is that 网飞公司 and many of the other OTT service are bidding up content prices so high that even some cable channels and studios think they won’t be able to compete. So while we have a lot of choices right now as consumers, the business of licensing content has to change if any of these companies want to make it long-term. The current process of licensing content and the costs that go with it don’t support profitable business models. As a result, many of these OTT services are going to be impacted. They will probably get repackaged through an aggregator like Amazon, which we are already seeing take place. 在某一时刻, all of these companies are going to have to reckon with the profit and loss of their OTT businesses.
This article appears in the March 2017 issue of 流媒体 magazine as "OTT’s Troubling Trend."
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