"Over the Top" (OTT) technically refers to compatible Internet-connected devices that rely on the consumer's existing ISP to deliver or stream content. It's called OTT because the Internet-connect device (Roku box, Blu-ray player, Wii, Smart TV, Xbox 360, PlayStation 3, Tablet, and more) "rides" on top of the pre-existing Internet connection.
TWO MAJOR CONSULTING FIRMS FORECAST GROWTH
Two major consulting firms confirm that the Over-The-Top is expected to grow substantially.
Arthur D. Little in a November, 2012 report said "OTT video is a mere $2 - $3 billion market in 2011 but is expected to account for approximately $15 billion by 2016, which would be roughly equivalent to today's in-store video rental market."
Internet players include Hulu, Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN). Consumer electronics companies include Apple (NASDAQ:AAPL)and Samsung. Pay-TV operators include Comcast (NASDAQ:CMCSA) and Sky.
Accenture's research (Accenture Video-Over-Internet Consumer usage survey 2012) said that a growing number of people in Europe and the United States already watch Internet video on their TV sets-and more regularly, and OTT-TV services have a steep growth potential.
The report said "Video over Internet is nothing short of an industry revolution. This offers service providers a huge opportunity-and challenge-to match quality and choice expectations, while still remaining profitable."
CONTENT IS KING
Content is king, of course, and that's the basis of strong competition in the sector. The majors all advertise a large selection of streaming TV shows and movies.
In the last year and a half, the three major companies (Hulu, Amazon, Netflix) have each announced at least 9 content licensing deals--some exclusive, some not. But it's not simply a matter of who has the biggest library; it's about the kind and quality of content in the library.
Competition, therefore, is being driven by consumers who want the best content, and the best content for a consumer is the one that offers programming in which he/she is uniquely interested. In other words, OTT vendors try to micro-target niche customers.
There are hundreds of film libraries, content owners, production companies, and individuals that possess both new and older niche content that want to play in the OTT space.
For example, a production company may own 20 political documentaries; another may have a library of more than 100 black and white TV comedies; and yet another content provider may have 200 grade-B horror movies.
OPTIONS TO ACCESS THE INTERNET
The cost to convert a single film for 10 Internet delivery channels (to provide broad distribution) is in the range of $6,000-8,000. Amazon could be, for example, channel one; Hulu two; Netflix three and so on. So the cost for a content provider that wants to convert only a fraction of their films-- say 10 out of a library of 100 -- could be $60,000 or more in upfront fees.
For niche content providers who believe conversion fees are cost prohibitive for them, there are several options. One option is for them to enter the OTT market very slowly, converting a single film at a time for a single channel.
Another option is to search for conversion partners, such as Digital Development Group (DIDG.OB), which seems to provide a solution for content providers unable to pay large upfront fees to convert film and TV libraries for Internet distribution. The company charges no upfront fee to convert content, making it cost-effective and possible for content providers to have their titles streamed through the plethora of Internet-connected devices.
Instead, Digital Development Group takes a piece of the back end, effectively sharing the revenue with the content owner. Digital Development also provides a platform for billing and administration to any company that owns content.
With the Internet TV Universe projected to grow at triple digits for the foreseeable future, the OTT is a space to watch.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.