Don’t Count Out International Markets in the Growth of OTT Video

/ Jan 28, 2015


Over-the-top, or OTT, is the big buzzword in entertainment, largely due to recent announcements from a few major TV networks and film studios to build and launch digital video services that would bypass pay-TV. Certainly, though, much of that conversation has been centered on what these companies plan to do in the US, which remains the biggest market for producers and distributors of film and TV.

But what about international? The opportunity is strong there, too, according to a new study from Pyramid Research.

Per the report, paid OTT revenue in emerging markets is expected to triple from $1.9 billion in 2014 to $6 billion in 2019.

Some of that growth will come from established SVOD services like Netflix, which were only available in 1.3% of emerging market households in 2014, accounting for a user base of 19.4 million, according to Pyramid. That number is expected to grow to 6.4% by the end of 2019, equalling a user base of 102.7 million. (That sounds NetflixAUincredibly bullish. But then again, Netflix, which already has 18.28 million members in international markets, wants to be in 200 countries by the end of 2017; so who knows.)

It seems the true opportunity is really in paid OTT platforms, with ad-supported streaming becoming “difficult to sustain, given the high cost of content,” according to Pyramid senior analyst Daniele Tricarico. “In many emerging markets, we are witnessing the emergence of hybrid models, whereby services offer free content to expand the user base, but at the same time position premium SOVD and transactional video-on-demand services to generate additional revenue,” he said. (US streaming platforms that offer international content, such as DramaFever and Crunchyroll, already employ such strategies.)

But which emerging markets are ahead of the pack? According to Pyramid, Asia-Pacific and Latin America accounted for 90% of paid OTT revenue in emerging markets in 2014 — and remember, Latin America is the only emerging market that Netflix currently operates in. Pyramid believes these two regions will only see small dips in shares over the next five years, still accounting for 86% of revenues in 2019.

China is one market to keep a close eye on. “4G, fiber broadband, and e-commerce will support growth of OTT, but content regulation may hamper evolution in the near term,” said Tricarico.

For its part, Netflix is still cautiously optimistic about the world’s most populous market. “For China, we are still exploring options — all of them modest,” said Netflix CEO Reed Hastings and CFO David Wells in a Q4 letter to shareholders. “We’ll learn a great deal if we can successfully operate a small service in China centered on our original and other globally licensed content.”

In Africa and the Middle East, Pyramid expects total paid OTT revenue (including SVOD and TVOD) to represent 7% of the regional pay-TV revenue in the next five years. In Central and Eastern Europe, paid OTT revenue should account for 5% of pay-TV in 2019. The growth will come as more paid services launch in these regions, the research firm said.

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