Video-on-demand, or VoD, is the ability to watch what you want, when you want, where you want. It was the holy grail of digital video for a long time and it’s now a reality, a very hyper-competitive reality.  

This competitive digital video battle of our day is being waged on three fronts. First, the technology of delivering video has advanced from DVDs in your physical mailbox to fiber optic cable and 4G wireless networks. A Next Generation Mobile Networks white paper predicts that the coming 5G network will be released in 2020, and carriers will keep fighting to master that tech. Second, the political battle will set the terms of the regulatory environment in which delivery networks compete. And third, providers are battling to win subscribers and mold their viewing habits.

No Shortage of Consumer Choice and Revenue Models 

The question is, who pays for it, and how? If you subscribe to a service such as Hulu or Netflix, and it’s paid for with a monthly bill, that’s subscriber video-on-demand, or SVoD. If you already have a cable TV provider, you may already pay for Internet access, a phone landline, and/or television. Odds are you can download a cable provider app to watch TV anywhere you go (like Xfinity’s) — that’s the idea behind “TV Everywhere.” There’s also advertising-supported video on demand (AVoD), like YouTube, that thrives selling access to eyeballs. And there’s transactional video on demand (TVoD), like Walmart’s Vudu, where consumers pay by the show or by the movie, not on a subscription basis. The mix of jargon can get confusing, but for the consumer, it means a wealth of choices. Witness the myriad options available to consumers, who are willing to try just about anything:

(Source: Ofcom via Statista)

The takeaway here is that content delivery — in this case, and especially, in streaming video — remains a morass of innovation, with technology, distribution, payment, and other options all still very much in play.

That’s especially true as cord-cutter customers turn toward VoD services such as Netflix and Amazon Prime and away from their local cable providers.

(Source: TiVo)

Device Flexibility Will Be Critical

As mobile device use pushes toward 70% of all Internet consumption, the cord cutting trend becomes literal as users enjoy video on mobile devices.

As far as video goes, TVs are still king for now, according to CableFax:

• The device on which respondents preferred to watch SVOD services was overwhelmingly connected TVs (43%), followed by laptops (15%), smartphones (15%) and gaming consoles (12%).

However, user demographics based on age show that evolution is still ongoing:

• Delving deeper … millennials prefer laptops (23%) and smartphones (16%) but 30-44-year-olds like smartphones (18%) and tablets (12%).

The tech battle is not just tablets vs TVs, though; it is also a conflict among high-speed internet service providers (ISPs). Coaxial cable giants such as Comcast and Time Warner Cable were first on this battlefield, and they worked hard to dominate their markets and become monopoly providers of services. But technology has allowed other providers to emerge, including Verizon’s FiOS and Google Fiber, using fiber optic cables; mobile phone companies, using 4G wireless; and DirecTV Now, using satellites. Speaking of which, do not discount Elon Musk’s plan to launch 4,425 satellites into low-Earth orbit to offer true low-latency global Internet service.

Net Neutrality and VOD

But for content providers, the ISP used by subscribers does not matter. That’s the beauty of the Internet: provider agnosticism, also known as “the free and open Internet,” also known as network neutrality, is the idea that a user’s ISP does not matter; that the user experience is the same no matter which ISP is used to access the Internet. This gets into the political battle, because technology allows ISPs to preferentially slow, prioritize, or even halt data delivery, for example, depending on the originating content providers, and only regulation can stop that.

This kind of possibility tends to create two sides: On one, those who charge tolls for the use of Al Gore’s “Information Superhighway” — that is, ISPs who provide Internet access who would also like a share of the content pie — and on the other side, those who offer only content “Over The Top” of that high-speed road. That phrase is known commonly as OTT, and an OTT content service is one that offers users content over the Internet, without owning the coaxial cable, fiber optic cable, mobile phone tower, or satellite hardware.

That distinction — ISPs versus OTT content providers — is not always clear cut. Many ISPs are huge companies with holdings that also create media, for example, the way Comcast owns NBCUniversal. When a user on a Verizon mobile network logs into a Comcast app to watch an NBC show, lines are blurring.

The other side can be blurry too. HBO offers an OTT service called HBO Now, which is ISP agnostic, but it also offers a service that is linked to a cable provider, called HBO Go. Both offer the same content, and users sometimes need help figuring them out. Speaking broadly, though, when people refer to OTT services, especially OTT video services, they are talking about non-ISP companies that offer content, such as Amazon Prime, Hulu and Netflix.

Competitive Marketplace

Let’s take a deeper look at the competitive market in which these content providers are jockeying to offer subscription-based video on demand (SVoD). To begin with, consider the possibilities if a cable company or a mobile phone company could selectively choose to favor one content provider, say YouTube, over another, say Amazon. The technological capability to let ISPs offer preferential treatment to some OTT providers and not others opens the door to scenarios such as ISPs charging content providers for faster throughput, ISPs prioritizing data transfer from content-offering subsidiaries and partners, and ISPs offering different service plans that selectively emphasize or deliver limited subsets of the Internet. Those kinds of scenarios can be regulated, and have been, as part of the policy of “net neutrality,” in which all packets of content traveling online are given the same priority.  When net neutrality is the law of the land, ISPs must treat all data distributors equally — whether they distribute kilobytes of text, megabytes of photos, or gigabytes of video.

Rather than focusing on the merits of free competition among Internet content providers, the debate around net neutrality has become politically polarized in the United States, with Democrats in favor and Republicans opposed. Take the first three Google results to a search for “Net Neutrality Is Bad”: Brietbart, Heritage.org, and Jeffrey Dorfman in Forbes. On the other side, pro net neutrality forces are rallying in the face of recent Trump administration actions, for example, with the coming July 12 Internet blackout protest. For a more balanced look, consider this article in respected trade journal IEEE. Here’s Amy Nordrum:

• Major tech companies have also lined up on opposing sides of the debate. Google, Apple, Amazon, and Netflix support net neutrality, while Internet service providers (ISPs) including Comcast, Verizon, and AT&T have long railed against it. Everyone argues that their position will spur innovation and economic growth. So who’s right? … Unfortunately, there is no clear answer. Economists have done plenty of modeling on net neutrality over the past eight years, but there isn’t a strong consensus about whether keeping it or throwing it out would be best for consumers, innovation, or the economy.

When you look at the companies on the side of net neutrality, it is not surprising to see subscription-based video on demand (SVoD) companies. Just how big a market are we talking about?

(Source: Statista)

Note that the SVoD component is forecast to grow from $5.1 billion in 2015 to $7.1 billion in 2021, greater and faster growth than pay-per-view (transactional-VoD or TVoD) and digital purchases via download or permanent cloud-storage (electronic-sell-through or EST).

That’s in a global economy that remains dramatically dominated by the United States. According to Statista, the United States is a $10 billion market, followed by the United Kingdom at US$1.35 billion and China at US$1.31 billion. Online video rental and subscription-based services (SVoD) such as Netflix, Hulu and Amazon Prime Instant Video are expected to account for 30 percent of the total video ecosystem worldwide, with forecasted revenues of around US$16 billion by 2021.

The number of SVoD users is also forecast to rise in the United States:

(Source: Statista)

And that aligns as one would expect with the revenue growth seen above.

Technology is in flux and regulation is up in the air, but subscribers are not worried. In a Q4 2016 survey, TiVo found that video on demand is growing in adoption, viewership, and spending. When subscribers were asked why, the top five reasons given were:

• “Convenience” – 36.0%
• “Ability to watch certain TV shows and whole seasons” – 32.1%
• “No commercials or ads” – 32.1%
• “It’s cheaper” – 29.2%
• “Ability to watch TV/movies on your computer” – 24.0%

Undaunted by a chaotic market, subscribers are jumping in. By 2018, predicts Activate, 53% of Americans will subscribe to at least two VOD services.

So where is all of this going? Consider these trends.

— SVOD companies and other content creators become even more open to trying multiple strategies. For example, John Harran, svp of business development, digital distribution and strategic partnerships at Turner (the new name for Turner Broadcasting System) says that experimentation is a good term:

• “What we’re trying to respond to is just the general trends we’re seeing in the marketplace around consumers’ consumption of video in general and their general behavior around certain types of video, including certain formats. We’ve done that in a couple forms.”

— In an era of widespread mobility, set-top boxes are becoming less important for newer competitors who are happy to fight for the phone and tablet sub-market. According to a European SVoD exec, “We don’t want to be on devices that can’t use our key features, so we are not present on any set-top boxes in the Nordics … Developing apps [for each box] was not worth the price.”

— Original content grows in importance to gain and keep subscribers. According to a Business Insider report on 2016 research,

• Original content is becoming more important to retain users. In 2016, 45% of survey respondents said that original content was extremely or quite important for keeping a Netflix subscription, an increase of nine percentage points from 2014.

— Hunger for content will encourage content providers to offer original video to SVOD companies and even launch specialty SVOD brands. Third party solutions providers, such as BrightCove and Muvi, are eager to help content providers launch their own SVoD services. Other content providers are looking for partners and deals.

Look at this quote regarding an acquisition: “the deal helps satisfy Wow’s goal of “building the triple play – bringing linear together with OTT and mobility.” “

Here’s another, in a press release about a new partnership: “we have successfully extended the characters and storylines across multiple online and offline channels, including YouTube, SVOD and OTT platforms, iTunes, PopJam, Musical.ly, and at specialty, mid and mass retailers, to touch virtually every aspect of our audiences’ lives.”

Insider Take:

There is a huge existing demand for SVoD services in the United States (and a growing one everywhere else). That’s good news for content creators, but those creators have to be flexible and willing to experiment as the battle over how to deliver and pay for streaming video continues. Meanwhile, research shows that compelling content and convenience are the two biggest drivers that keep subscribers happy.