Five global companies capture 50% of OTT revenue

Internet “Over the Top” Video Expands and Redraws Global Market for Content Production

NEW YORK — Internet video and over the top (OTT) video platforms have boosted global video production, especially in English-speaking countries, but they have had a mixed impact on content production in individual countries. Perhaps the most striking impact at the local level has been the enormous surge in semi-professional and amateur content production and distribution enabled by OTT.

A new report by The Boston Consulting Group (BCG) in its Future of TV series, The Impact of OTT on Video Production Around the World, takes an in-depth look at the impact of OTT on domestic video production markets. The analysis highlights a series of important takeaways as business leaders and policymakers reconsider long-standing domestic content production quotas and robust tax subsidies in an increasingly competitive multiplatform video market.

The report includes new data on the content production ecosystem:

• The global OTT market has added $25 billion in revenue to the video industry, representing ~5% of the ~$500 billion video business.

• However, value is relatively concentrated despite massive competition: of the more than 500 OTT providers, five global companies (including Google, Facebook, and Netflix) capture 50% of the revenue.

• At the local level, OTT has enabled the development of a content production ecosystem: there are today nearly 1 billion amateur and pro-am content creators with unimpeded consumer access.

• Within English-language markets, like the US and Canada, production spending is growing at a healthy rate: 7% annually in the US and 5% in Canada.

• However, in non-English-language markets, such as Sweden and Germany, the impact has been much more muted; 3% annually in Sweden and less than 1% in Germany.

Consumers have welcomed the alternatives to traditional pay TV and broadcast, as OTT has unlocked new ways to watch (out of home, binge viewing) as well as new competition through a wide range of business models. It has also driven a surge in the volume of high-quality production – for example, the number of original productions in the US has risen to over 400 in 2015, from approximately 200 in 2009.

“The biggest impact of the OTT market on the television and film industries is the removal of barriers—strategic, economic, and national—to the distribution of video content,” said John Rose, a senior partner at BCG and a coauthor of the report. “The demand for quality video content from consumers, and the number and variety of new services that OTT enables for meeting this need, is both increasing the market value of content and destabilizing the roles and market values of linear networks and traditional aggregators.”

These impacts, according to the report, are reshaping the economics of content genres. In entertainment, OTT is driving tremendous growth in such categories as serialized dramas and children’s content; content suitable for time-shifted and “binge” watching; and content that is cross-cultural or travels well across markets.

Producers in English-language markets around the world are benefiting the most from the shifts driven by OTT because content can travel across these countries. In Canada, for example, front-end co-production from foreign distributors is the biggest driver of content production increases, growing 14% per year from 2011 to 2015.

In non-English markets, the growth of professional content has been more muted because language constraints hinder content mobility. At the same time, local content remains a key to differentiation for both OTT and traditional players; and the “democratization” of content creation and consumer access, enabled by technology advances and social media, has enabled almost 1 billion content creators to enter markets around the world.

The impact of OTT on local jobs and culture is mixed. Jobs are not growing at the same rate as production dollars in professional content. Semi-professional and amateur activity is on the rise, but this represents mostly a hobby rather than a professional endeavor. There is some risk to local producers as professional content, backed by big money, focuses on huge hits with global appeal. At the same time, semi-professional and amateur content creation, much of which is hyper-local in focus, has become a significant factor in the cultural landscape.

“The long-term impact of OTT is an evolving story,” said Martin Kon, a BCG partner, and a coauthor of the report. “Content expenditures are strong and production revenue is increasing, driven by increasing investment in both traditional and amateur content creation. But the impact on jobs and culture is not as clear. Policy makers can no longer regulate supply in today’s unconstrained environment as they have in the past, as consumers access unlimited on-demand catalogues. Rather, they need to look at the demand side of the equation in order to determine the appropriate long-term support for local production and storytelling.”