The Fundamentals
Netflix, Amazon Prime, CraveTV, ICI Tou.tv, club Illico… Online video—also known as over-the-top (OTT) video—delivers on-demand, live and long-form content over the Internet. Canada has access to several global and Canadian providers. A number of large US-only services are exploring global expansion, including CBS All Access, which is going direct to consumers in Canada.
A growth industry that is currently in its investment phase. The biggest pure-play online video players are largely driven to leverage the economies of scale that come with their global operations. This global element, however, also means that providers must make massive investments in technology to effectively deliver content to consumers in multiple geographies on multiple devices. These providers use algorithms to help consumers discover content and analytics to help the provider understand market and technical performance. The other significant cost for online video providers is the major expense associated with creating original content with global appeal. More than ever, this original content is not a nice-to-have, but a business fundamental.
Principally subscription driven, for now. Advertising may be part of the revenue mix in the future in Canada, but subscriptions with monthly fees are currently the foundation of this model. Despite all of the investment associated with this model, it must also offer users very low retail prices to draw them from traditional video services and create scale. With Netflix, for example, the monthly cost for subscribers may vary somewhat based on the number of simultaneous streams and video quality but is generally about $11.
Morphing into broad-based video competitors. The online video space is evolving to meet consumer needs. In the U.S., some online video services are expanding their offering to provide consumers with on-demand content as well as packages of traditional linear TV channels. The retail price point for these services is about $40USD/month. These services, like Hulu, SlingTV and DirectTV Now, are looking to be more directly competitive with traditional cable, satellite and fibre TV subscription services, and research suggests that they are stemming cord-cutting. This industry trend is not yet evident in Canada.
Dependent on competitors to access consumers. Broadband Internet subscribers are upgrading to faster, more expensive packages mostly to watch online video services, which now represent the largest component of broadband consumption. Online video providers are in an unusual position: they are dependent on access to subscribers through last-mile broadband infrastructure, and also compete with those broadband competitors’ TV service offerings.
Future Viability: Growth