How Effectively Can YouTube TV Compete With Other OTT Providers?

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Google (NASDAQ: GOOG) continues to explore avenues to boost YouTube’s revenues. In 2015, the company launched ad-free video streaming subscription service YouTube Red, while last year it announced its plans for a paid subscription cable service that would offer customers a bundle of cable TV channels streamed over the Internet. On February 28th, the company formally announced the launch of this service, YouTube TV, for $35 per month across major cities in the United States over the next few months. Through the launch of these services, the company is trying to disrupt the multi-billion dollar over the top (OTT) industry and the $200 billion TV advertising industry. This announcement also marks the growing importance of the OTT video streaming service. Below we take a look at the market as a whole, and how YouTube TV is likely to stack up to competitors. 

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Current OTT market

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The over the top (OTT) television market is primarily composed of subscription based video on demand (SVOD), Transactional VOD (TVOD) and Ad VOD (AVOD) services. The combined market size of the OTT market was estimated at $29.4 billion in 2015, and is expected to grow to over $64 billion by 2021, a CAGR of over 14%.

The Subscription VOD space, whereby users subscriber to streaming services, makes up over 40% of the OTT market, with most of the revenue coming from the US.  The dominant player in SVOD is Netflix, which reported streaming revenues of $8.3 billion in 2016. Transactional VOD services allow customers to purchase content on demand, from pay-TV providers or third party platforms such as iTunes, Amazon and Google Play. TVOD currently makes up a small portion of the total OTT market. Lastly, the AVOD model lets users view content for free, while the content platform and generator makes money by showing relevant ads. While YouTube is by far the industry leader, this model is gaining traction among other players in the industry.

YouTube’s Foray In Live TV To Challenge Pay TV

YouTube forayed into SVOD with the launch of the Red subscription service in 2015. This service provides advertising-free streaming of all videos hosted by YouTube, offline and background playback of videos on mobile devices. Now, in launching its YouTube TV service, the company is trying to disrupt the existing pay-TV model and compete with services such as DirecTV Now and Sling TV. To start, YouTube TV will offer 40 channels, including major broadcast networks – Fox, ABC, CBS and NBC – regional sports networks and cable channels such as ESPN and Fox News. For an additional fee, subscribers can also get Showtime and Fox Soccer Plus. However, popular channels such as HBO and AMC will not be available at launch. YouTube’s TV service is also going to include a Cloud DVR service which allows subscribers to record and store shows online.

YouTube faces tough competition from incumbents such as Direct TV and Sling TV, but the company’s massive cloud infrastructure and back-end systems – which deliver over a billion hours of video every day – should allow it to provide a seamless viewing experience. Furthermore, the intuitive and relatively familiar interface of YouTube could help the company attract users. While YouTube hasn’t shared plans regarding international expansion of the service, given the ubiquity of YouTube, we expect that the service will be launched internationally as well.

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