• by Alex Weprin , March 13, 2018

Over-the-top streaming video bundles will need a robust advertising environment to stay financially viable -- and players in the space may need to team up to achieve this goal,  according to a 2018 advertising outlook report from JPMorgan.

The report notes that OTT virtual multichannel video distributors (vMVPDs) have surged in popularity over the last year, adding 2.7 million net subscribers, with around 5 million subscribers between the existing services.

While that growth is expected to continue, a hard-fought battle over pricing means that their business models will need to evolve.

“Given the limited gross margins of virtual MVPDs and cost escalators built in programming contracts, we believe the sustainability of current retail prices depends largely on developing a viable advertising model,” the report says.

While there are some obvious solutions, like supplementing the current two minutes per hour ad load with new ads delivered through cloud DVRs and on-demand programming, other options may need to be considered.

“We think the platforms in aggregate lack the scale to attract serious advertiser demand,” the report said. “We believe the disparate services will need to cooperate with each other and with agencies in order to offer a scaled platform that will draw marketer interest.”

That lack of scale also serves to put OTT services in a confusing in-between sort of state. They aren’t traditional TV, where a single ad buy can reach tens of millions of viewers, and they aren’t exactly digital, which has platforms with billions of users, and the ability to micro-target specific audiences. Advertisers that deal with digital teams for digital ad buys and TV teams for TV ad buys may likewise find OTT fits neither role comfortably.

“Advertisers we think prefer to deal with a single point of contact, but it’s unclear in many cases who is supposed to take the leading role in serving them,” the report says. “While this seems like it should be an insignificant problem, we think internal politics remain a real roadblock in getting advertisers to shift dollars from incumbent allocations.”