Study says international growth, original content will fuel increases

PricewaterhouseCoopers predicts that over-the-top revenue, which grew 15.2% in 2017, will rise at an 8.8% annual clip from 2018 to 2022, fueled by increased growth internationally and the focus on original content.

According to PwC’s Global Entertainment and Media Outlook 2018-2022 report, the researcher said total OTT revenue reached $20.1 billion in 2017, a 15.2% increase over the prior year. That pace should slow slightly to 12.2% in 2018, when total revenue is expected to reach about $22.6 billion. By 2022, PwC predicts total OTT revenue will grow to $30.6 billion.

While the sector is largely dominated by Netflix, Amazon, and Hulu – PwC said SVOD revenue accounted for 79.6% of OTT revenue in 2017 – niche players are increasingly making a dent in the overall business. PwC noted that anime and manga service Crunchyroll reached 1 million subscribers in 2017, streaming more than 1.5 billion minutes of content per month, while U.K.-centric BritBox reached 500,000 customers.

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“Investment in original content, exclusive programming and marketing means this trend is set to grow, with the SVOD segment accounting for 81.6% of the total in 2022,” PwC said in the report. “…The challenge for OTT providers is to balance the high costs of original content production with pricing that continues to attract subscribers without squeezing margins.”

TV advertising, down nearly 3% in 2017 is expected to begin clawing back toward growth in 2017, with total revenue reaching $71 billion, according to PwC.

“TV remains a premier advertising destination for marketers, who are willing to spend large amounts on ad campaigns, and use it as the primary vehicle for new product launches and for mass audience appeal,” PwC said. “But, as audiences continue to shift to digital and advertisers pursue more multichannel campaigns, there is a need to develop new TV ad formats that are more likely to catch and keep viewers’ attention.”

Cable networks ad revenue is expected to be steady, rising to $21.5 billion in 2018 (up 2%) and reaching $22.7 billion (up 5.6%) by 2022. Broadcast networks are expected to do about the same, up 1.6% in 2018 to $18.6 billion, rising 9.7% to $20.4 billion by 2022.

PwC expects ad loads to shrink in the coming years as more consumers get used to ad-free options and pointed to Fox Sports’ six-second ad experiment earlier in the year. PwC expects advertisers and networks to continue seeking out new ways to target and measure audiences, pointing to NBC Universal’s $1 billion annual commitment in ad inventory to data-based targeting.

“As people continue to change the way they access content across increasingly sophisticated devices, more robust data is required to build a deeper understanding of consumer habits,” PwC wrote. “There will be a shift toward selling ad spots based on detailed consumer patterns rather than basic demographic data as audience- measurement and audience-segmentation tools become more complex.”

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