Recently, there was an article citing that Netflix will fall from 85 percent to 50 percent of the market in 2018, yielding ground to the various OTT players that are popping up with regularity.
Alphonso does not contest the fact that the market will get crowded. However, we do not think that Netflix will lose its preeminent position and lose a chunk of the market by 2018. There are several reasons why we don’t think this will happen:
- Netflix has a pricing advantage that others do not: Even today, they are one of the least expensive OTT services out there. And with a massive customer base, Netflix can easily amortize any costs over a larger base, thereby keeping their entry fee low. And did we even mention that they have not started monetizing by advertising yet? Even if they do turn on the tap for ads, it will only add to their ability to keep prices low, and possibly even offer their services for free.
- Netflix’s ability to create original content is exceptional. While much of the content is not premium, Netflix has an ability to leverage its consumer data treasure trove and come up with new shows that hit the mark perfectly. If the success of Orange Is the New Black and House of Cards show is any indication, they can fine tune this to a science (data science, to be precise) and we can only expect them to do this more frequently.
- First mover advantage: Netflix has a massive first mover advantage. Others will just try to catch up (and fail, mostly).
- Breadth and Depth vs Niche: Netflix, by virtue of being a pioneer and based on the strength of the custom crafted media deals, has massive breadth and depth of content and users. Any new OTT player has to fight to gain both depth and breadth of content and consumers. That is a herculean battle. Very few OTT players have the resources and the grit to fight a battle like this.
What we feel will happen is that the rest of the market will be splintered across several properties, each providing value in a small niche.
Based on the data we gather at Alphonso, we’ve noticed that consumers spend enormous amount of time watching Live and Sporting Events as compared to any other category. This makes sense, as live events have an element of surprise that gets lost unless you view it as it happens. Even for sports, team loyalty and preferences trumps the need to be entertained for a vast number of viewers, with the result that sports draws in a lot more viewers than any other category.
From our knowledge base, the market will get segmented into four parts:
- New Shows
- Live events
- Other content
The other OTT players and traditional TV channels would own Live Events and Netflix with ownership of Re-runs and Other content.
The market for new shows is where there will be an interesting fight with traditional TV channels and their OTT brethren having the lead and Netflix fighting hard to gain ground. However, with Netflix’s strong analytical data, we are certain Netflix will come up with good original content to help retain its preeminence in the OTT space for a very long time to come.
All in all, it will be an interesting few years.