What Is OTT and How Does It Work?

If you are a Netflix or Amazon Prime Video viewer (or similar services), you’ve got a sense of what OTT does. Yes, it relates to the internet. Of course, it’s a new way of watching TV. And yes, it’s also about watching video anytime, anywhere. But I bet you’ve come to this page looking for a more extensive answer on what OTT is, haven’t you?    

If you want to understand how OTT services work, why they have become so successful in recent years, and how this concept helped content giants emerge, buckle up! Here’s everything you need to know.  

Jump to:

• What is OTT (Over-The-Top)?
• How Does OTT Streaming Work?
• Examples of OTT Services
• The Advantages of OTT
• The Future of the OTT Industry
• How to Choose an OTT Platform
• How Can Kaltura Help?

What is OTT (Over-The-Top)?   

OTT is a means of providing media content over the internet without any third-party operator controlling the delivery. The term equally applies to audio, video, messaging, and voice, although OTT is most well-known for its usage in video and TV programming.  

In simple terms, OTT Television leverages a video delivery method where anyone using an internet-connected device (smart TV, laptop, tablet, smartphone, or game console) can access videos over the public internet. All users need to enjoy a content stream is to pay for internet service (either broadband or mobile data) and a subscription to the OTT service if required. 

OTT bypasses traditional broadcast, cable, and satellite gatekeepers. It is the essence of the video “anytime, anywhere” motto. Are you a binge-watcher of series to wind off from a tough day? Have you seen all the people on the subway heading to work while enjoying a TV show? Do you know someone who tunes into meal prep videos at home? All those are splendid examples of what OTT is about! 

How Does OTT Streaming Work? 

OTT services are content providers that rely on a free transmission system (the public internet) to distribute their video content. They deliver content only upon request and in a unicast or one-to-one transmission method. This means that each end-user device has a unique connection to the content source, serving one stream to one single device or recipient every time.  

Internet Service Providers (ISPs) are only responsible for providing the infrastructure through which OTT services stream content. They do not control anything about the OTT service’s video delivery, viewing, or content copyrights. Still, some limitations derive from this flexible approach to content distribution. First and foremost, adjusting to a wide range of networks and devices to serve content over the public internet.  

OTT performance depends on the internet connection speed, the available bandwidth, and the connectivity speed supported by the end-user display device. Therefore, image and audio quality might be affected whenever the OTT application adjusts to network performance – and that’s why you may sometimes see a spinning wheel appear on your screen. One of the methods that OTT services are using to mitigate the network conditions’ impact on the viewing experience (to prevent long buffering and latency issues), is the adjustment of the stream quality to accommodate the available bandwidth and user’s device.    

Examples of OTT Services   

There’s a wide range of OTT services out there, but you’re probably most familiar with popular names such as Netflix, Amazon Prime Video, Disney+, Hulu, HBO Max, YouTube, or Pluto TV, to name a few. And speaking about remarkable examples, Netflix requires a special mention. 

Netflix has led nothing short of a revolution in the entertainment industry. It could be crowned as the founder of the OTT ecosystem from 2007 onward, coinciding when the company first went OTT barreling through like a bullet. Even Blockbuster, the DVD rental giant, didn’t expect its massive success when they turned down a $50 million offer to buy Netflix in early 2000. How was that even possible? Well, few could blame their decision back then. As the CEO of Netflix himself points out in the book No Rules Rules: Netflix and the Culture of Reinvention, “what did [Netflix] possibly have to offer that [Blockbuster] couldn’t do more effectively themselves?”.  

Netflix rattled the content delivery principles primarily because of two main reasons: they recognized the monumental shift in how people consumed content and, most importantly, weren’t afraid to embrace changes. And guess what? Now approximately 2.28 billion people use OTT platforms – and by the way, there’s only one Blockbuster store left in the world.  

The Advantages of OTT  

A few of them have been suggested already, but let’s quickly go through the essential benefits OTT services bring. 

Consumers can benefit from: 

• Variety of content   

Viewers of traditional Pay-TV (cable, satellite, IPTV, etc.) usually lack content variety because of limited catalogs or content bundles’ limitations. OTT services, however, provide a wide variety of original and licensed content, including VOD titles, linear TV channels, and live streams to pick and choose from.       

• Affordable price   

Since the overall infrastructure and cost of deploying an OTT are reduced, their prices tend to be more attractive and affordable. These can go as low as $4.99 per month or even be “free” in the case of ad-based services. That’s why viewers do not usually make either-or choices in OTT. They would rather subscribe to assorted services to fulfill their content needs. 52% of US households already subscribe to 3 or more OTT services, and 29% to 5 or more. 

• Greater consumer freedom   

Consumers like the ability to choose and control their media diet. With an OTT service, they can exactly decide what to watch, when to watch it, and on what device. This broader consumer choice leads to higher content engagement and user stickiness. 

As for the OTT service providers, they take advantage of:   

• Simplified content delivery   

The video is being delivered using an open network without any infrastructure investment or necessary carriage negotiations. Likewise, it only requires a compatible device connected to the internet to work. These make OTT services far easier to deploy, manage, and update than other TV services, such as cable.  

• Flexible monetization   

With OTT, service providers have full ownership to decide the monetization model they want for their video content for maximum uptake, whether it is a subscription-based (SVOD), a transaction-based (TVOD), or an ad-based model (AVOD).  

•  Data transparency and viewing control   

Some content providers still wonder if their own OTT service (also referred to as Direct-to-Consumer, D2C) is worth it to their business instead of distributing content through third-party platforms or social media like YouTube and Twitch. The truth is that both can be great allies if you are after a massive following or all up for selling your content rights and forgetting about the harsh of managing a D2C service. But what control do you have over your content, brand, user experience, or audience data? Simply, none. 

OTTs aren’t just beloved for their content; it’s also about the curated experience they deliver to the customer based on their viewing habits and consumption data. 86% of people are already willing to pay more for a great customer experience. Therefore, the more control you have over it, the more you can learn how to keep entertaining your audience. With an OTT, you are in control. 

The Future of the OTT Industry

It’s a little jarring knowing 2021 is the first time OTT overtook linear TV as the leading source for watching TV and movies. We’ve experienced a paradigm shift where the traditional TV and cable dynasty stopped enticing the modern consumer. And what’s more, market experts predict the unstoppable growth of the OTT market is far from being over.

Check out these five mind-blowing statistics: 

• The OTT segment could reach $273,190 million in revenue and 3,777.9 million users by 2025, with a global penetration of 48.3%. 

• In Q1 2021, live streaming accounted for 24% of global OTT viewing, a 14% growth compared to the previous quarter.  

• There hasn’t been a single year without a major global OTT service launch as the likes of Netflix, Disney+, or Amazon Prime Video, since 2013. 

• OTT TV and video subscriptions are expected to grow to 2 billion by 2025. That’s a 65% increase from 2020 to 2025! 

• Adults spend almost a full work week per month on OTT subscription services (1:12 per day), and OTT subscribers, in general, even more! (1:50 a day).  

So, what’s next? As a TV service provider, there’s no choice but to accept the inevitable surging of video streaming and jump on bandwagon so as not to fall behind. Even though competition intensifies, with consumers having more video platform choices at their fingertips than ever, there are ways you can successfully compete in this market.  

Start by searching for the content offering that will make your service stand out. Whether you’re up for building a “niche” content community, live streaming exclusives like local sports or music festivals, or reviving viewers’ nostalgia with some old movie titles, it’s an era for video streaming of all kinds to thrive! Once the decision is made, select the business model and distribution strategy that work best for your target audience and content catalog. And finally, wrap up everything with probably one of the most delicate decisions of all: selecting the appropriate technology platform to make it all work. 

How to Choose an OTT Platform

Choosing the right OTT platform to conquer your viewers’ living room is not a minor issue. There are dozens of professional OTT solutions out there, but not all are suitable for delivering professional top-tier TV services worth a subscription. If you are a TV service provider currently on the lookout, watch out!  

As you start comparing OTT platforms to find your perfect fit, we recommend you research the feature set and capabilities that best pair your company’s business goals. Here’s a checklist of key features you can weigh in. It may seem like a thorough list, but I assure you every minute you spend comparing these between providers is worth the effort: 

• Reliable and scalable infrastructure  

• Video hosting capabilities  

• Centralized Content Management System (CMS)  

• Content Delivery Network (CDN)  

• High-performance video player   

• Live streaming tools  

• Video monetization  

• Multi-device support  

• Content protection and Digital Rights Management (DRM)  

• In-depth analytics  

• Customization options   

• Custom SDKs and APIs  

Added to this, consider broadening your search scope with Cloud TV solutions. If you are embarking on your TV service’s migration to the cloud, they’ll probably be a much better fit for your professional TV needs than a regular OTT platform. 

Hang On! OTT and Cloud TV Platforms Aren’t the Same?  

Not exactly. They differ in the service scalability and stability you can obtain. 

We established that OTT platforms enable simplified content delivery, flexible monetization, and personalization beyond traditional cable or satellite TV possibilities. However, scalability and robustness are not some of their strongest points. 

Cloud TV platforms, instead, merge the flexibility and agility of OTT with the robustness and scale of Pay-TV so that broadcast-grade service availability and high-quality video are uncompromised. They have been specifically built to cover all TV industry needs, supporting millions of concurrent users accessing the service at the same time. That’s why Cloud TV is a more suitable solution to build and launch professional internet TV services and D2C platforms. 

How Can Kaltura Help?

Launching your own OTT service has never been so easy, and Kaltura can help you materialize it. Whatever business goals you’re after, our full-fledged Cloud TV solutions can power your TV transformation, combining the best of OTT and Pay-TV worlds.  

Are you ready to launch your own custom-tailored TV service? Get in touch if you want to make your live and VOD content shine across devices, countries, third-party platforms, and business models.