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SVOD Surge

A heavy influx of specialized OTT services aspires to grab traction with targeted audiences, but can they survive in a crowded market? 1/30/2017 8:00 AM Eastern
The Amazon Channels platform has become a major source of subscription over-the-top content.
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A surge of niche OTT services is flooding the subscription VOD market in a bid to super-serve fans of various genres.

Netflix, Amazon Prime and Hulu have all but locked up the mass-market entertainment options for subscription video-on-demand services.

 

In their wake, a flurry of more targeted services have surfaced. Today, there’s no shortage of over-the-top SVOD services from startups and well-heeled media conglomerates trying to gratify individual desires away from the traditional world of pay TV.

 

Turner is trying to appeal to film aficionados with FilmStruck. NBCUniversal’s Seeso is shooting for laughs. And Shudder, owned by AMC Networks, hinges on horror.

 

Even Amazon, which is becoming an SVOD kingmaker of sorts with its ever-expanding Amazon Channels aggregation service, has launched a niche service of its own, called Anime Strike, that takes aim at Crunchyroll, a standard bearer in the OTT sector.

 

But consumer buying habits indicate that many of these focused SVOD services face an uphill battle as they look to lure in enough customers to drive significant scale.

 

This struggle for scale could, ironically, play into the hands of traditional MVPDs, which are starting to integrate and monetize complementary OTT services and already have direct relationships with millions of consumers.

 

The average U.S. broadband home now subscribes to between one and two SVOD services, according to a new study from Parks Associates. And though 60% of those homes subscribe to some sort of video-streaming service, just 10% of those households — a group of “avid viewers” — take more than two, Glenn Hower, senior analyst at Parks Associates, said.

 

Simply “finding the audience” is a big challenge for any SVOD service that’s not Netflix, Hulu or Amazon Prime, Hower said.

 

Another complication is creating a business with a competitive price that can turn a tidy profit. Parks’s research pins the average spending on an OTT SVOD service at about $8 per month.

 

“There are some instances where services are getting more creative with their business models,” Hower said. OTT services such as Hulu and CBS All Access, for example, offer both ad-free tiers and ones that are supplemented by commercials.

 

SVODs are using an array of tactics and strategies to help them stand apart, creating new forms of aggregation services, service packaging and bundling, special perks, and forging a sense of community among like-minded viewers.

 

“For us, a big learning has been that you kind of have to do everything,” Matt Hullum, CEO of Rooster Teeth, a digital-first content studio focused on comedy and gaming, said. “We’ve embraced the concept of making our service more of an experience … a more well-rounded, holistic experience for our audience and our community.”

 

Rooster Teeth has also doubled down on offering ancillary benefits that are fine-tuned to its viewership. Last year, it launched a two-tier strategy, with subscriptions tailored to its core fans and to “superfans” willing to pay a premium for extras, such as VIP tickets to Rooster Teeth events.

 

The higher-end offering, called Double Gold, costs $34.99 per month and offers 10% discounts on Rooster Teeth merchandise and a monthly box of goodies that’s valued at more than $60.

 

The approach appears to be working, as Rooster Teeth’s paid subscriber base has about doubled in about a year and now sits above 200,000. That’s in addition to the 28 million who subscribe to its YouTube network and the 3 million visitors to its RoosterTeeth.com hub.

 

“We have a definitive audience, but I wouldn’t say it’s a niche audience. It’s not a small group,” Hullum said.

 

Developing and offering strong content is still critically important, but interacting with the community and offering opportunities that go beyond that content is key to establishing a stickier experience, he said.

 

SVOD services are also trying to stand apart by allowing users to download videos so viewers can watch without a high-speed Internet connection, Dan Taitz, chief operating officer of Penthera Partners, said. “It’s not a replacement for or substitute for streaming, but a great add-on for consumers,” he said.

 

And it’s an add-on that’s getting added on more frequently. Amazon Prime has been offering downloads for years, and Netflix recently added that option for certain pieces of content, including many of its original series.

 

“The tide is shifting so that it [downloading] is more standard,” Taitz said. Penthera, which makes a video-downloading platform called “Cache & Carry” that counts Comcast among its customers, is in talks with several SVOD services about adding offline viewing to the mix, he said.

 

While those players will need to integrate a downloading capability into their streaming platform, obtaining the rights for downloading is the bigger issue for some OTT services. “But I think the content owners are coming around,” Taitz said.

 

SVOD In the Age of Aggregation

 

While a sense of community and special perks are luring SVOD subs, those services are also looking to a tried-and-true tactic from the traditional pay TV world — packaging and aggregation — to help move the needle.

 

Among the standout examples of this are Amazon Channels, an option from Amazon Prime that debuted in late 2015, and VRV, a newer offering from Ellation (a portfolio company of Otter Media, the OTT joint venture of AT&T and The Chernin Group) focused on a core anime audience with adjacencies into areas like gaming, science fiction and animation.

 

Amazon Channels has already expanded to about 100 SVOD partners, including recent additions of HBO and Cinemax, from the 30-plus that were on board at launch.

 

Amazon hasn’t put an exact figure on the performance of Amazon Channels, but said Prime members now have “millions” of video subscriptions through the service.

 

The performance of Amazon Channels so far is “a validation of this platform idea,” Michael Paull, vice president, digital video at Amazon, said, noting that it presents consumers with “one simple, integrated experience” that does not require subscripers to hop from app to app.

 

“As we’re seeing this evolution of the TV space, we’ve been very, very focused on providing a great experience and reducing pain points,” he said.

 

DISCOVERABILITY IS KEY

 

Amazon Channels will continue to expand, Paull said. “I don’t see a ceiling on the number of services that we would want on our platform,” he said, saying Amazon is in a unique spot because it has a large customer base and access to data that enables it to craft targeted marketing messages and match consumers to SVOD services that fit their interests.

 

Bundling SVOD services and being able to match them to the consumer “is a tremendously powerful marketing concept,” Colin Dixon, founder and chief analyst of nScreenMedia, said. “Discoverability” is a major issue that new and more niche-focused SVOD services need to overcome, though, he added.

 

“Our vision is to offer a complete over-the-top video solution, where we provide the most choice through the widest selection of the best content all in one experience,” Paull said.

 

That strategy varies greatly from the one being implemented by VRV, which focuses on services that connect with fans of anime, gaming and animation.

 

In addition to selling those SVOD services individually, VRV also offers a deeply discounted bundle though a “Combo Pack” that combines eight services for $9.99 per month — Crunchyroll, Mondo, Funimation, Rooster Teeth, Cartoon Hangover, Nerdist, Geek & Sundry and Tested. Those networks would cost a total of more than $33 if purchased individually.

 

VRV is also selling those services, as well as Ginx, Machinima, Rifftrax, Seeso and Shudder, on an a la carte basis. Of that group, Cartoon Hangover and Mondo are exclusive to VRV.

 

VRV soft-launched its service late last year and expects to ratchet up marketing efforts this year. It hasn’t disclosed any subscriber numbers.

 

“We’re definitely exceeding our expectations,” Mike Aragon, VRV’s general manager, said. “We’re seeing great usage across all of the channels.”

 

The budding SVOD aggregation service will also be looking to gain more traction in the coming weeks by adding an account-linking feature could help to expose existing subscribers from services like Crunchyroll to VRV’s broader subscription slate and bundle.

 

Dixon is also a fan of VRV’s decision to stay focused with a service that’s designed to “superserve one set of consumers.”

 

But one lingering question hanging about VRV’s approach — and all newcomers to the space — is how it makes money through its deeply discounted bundle.

 

“We have a very unique way of looking at the economics,” Aragon said, adding that the plan for now is to band together with partners and focus on growth and engagement with the new platform. “We’re confident that we’ll have a healthy and profitable business. SVOD services are about scale. Our message to our partners is: ‘Let’s get to scale and let’s get to scale together.’ ”

 

VRV is initially offered in the U.S., but has plans to launch internationally, “With the fan base we’re targeting and serving, there are no borders for that,” Aragon said.

 

Some SVODs see bundling as an ancillary, but not necessarily core, method to bring more subscribers on board.

 

Rooster Teeth is among the first SVODs to work with VRV. “We really like it in the sense that it gets us on a lot more platforms instantaneously that we aren’t able to access right away,” Hullum said. “It helps us get connected to new audiences that may not have noticed us before. For us, [VRV] is a good first opportunity to try out bundling.”

 

CuriosityStream, the nonfiction-focused SVOD service launched in mid-2015 by Discovery Communications founder John Hendricks, sells its service directly and through Amazon Channels.

 

Most subscribers are still being obtained directly, though a smaller portion of them find the Amazon Channels process easier, Elizabeth Hendricks North, CuriosityStream’s CEO, said.

 

“It’s been a healthy partnership for us,” she said of the Amazon Channels deal. “It’s been positive on our end.”

 

Despite the benefits of bundling, having a direct relationship with customers remains critically important. Prescription: Nutrition, a docuseries from CuriosityStream that went live earlier this month, was created because it was the top vote-getter when customers were asked to weigh in on possible new series.

 

“This direct relationship [with the audience] … is important because you can create content that speaks directly to them,” Hendricks North said.

 

DramaFever, the U.S.-based SVOD service that specializes in Korean TV and films and other international fare, has also turned to Amazon Channels to help drive more exposure. But instead of tapping Amazon Channels to offer the full SVOD service, it’s using that conduit to market DramaFever Instant, a version that offers a subset of the service’s full library.

 

The idea there is to provide a smaller sampling of the service, and hope it also entices some to upgrade to DramaFever’s primary SVOD service, Tim Lee, DramaFever’s director of licensing, said.

 

DramaFever on Set-Tops?

 

The surging SVOD market has largely been the domain of the retail OTT platforms. But pay TV providers are starting to get into the act.

 

TiVo, for example, already integrates services like Netflix and Hulu into its MSO-supplied platform. Dish Network has also taking similar steps on its broadband-connected Hopper DVRs, and Comcast has started down that path by integrating Netflix with X1.

 

DramaFever, acquired by Warner Bros. last year, is also in talks to integrate its SVOD service on MVPD set-tops, Lee said.

 

Dixon believes that pay TV operators must open up their platforms to OTT because consumers can and will go outside that universe to seek out the content they want. “Operators have an excellent opportunity to do what Amazon is doing for their customers,” he said. “But to do it, they have to move to a more open model. In my mind, the most important thing Comcast could do is … to get [its] guide on everybody’s television. That’s their anchor. If they’re not the guide, then Amazon is the guide, and they get all the incremental revenue.”

 

Although two to three over-the-top SVOD services appears to be where most households max out, the threshold may rise as more video dollars move away from traditional pay TV.

 

“Then, it’s a different calculation,” Dixon said.

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