OTT: Gaming’s Next Unlock

With 3.2b gamers globally (Newzoo), gaming is already one of the most widely adopted forms of media due to innovations in business models, technology, and content distribution. We have written about new distribution platforms before (Browsers: An Answer to Walled Gardens) but there is another opportunity within the “over-the-top” (OTT) space that offers access to in-home play through existing TV devices.

What is OTT? OTT is a term used to describe the process of media being delivered over the internet. This includes services like Netflix, Hulu, HBO GO, ESPN+, and more. These companies are distributors of content directly to end-users. If you have a Smart TV, the applications available on your TV are considered OTT media services.

While they are effectively commonplace today, televisions have a long and interesting history. Since their consumer introduction in the 1920s, TVs have improved as a medium for content consumption and consistently fallen in real (not just nominal) price over time. This combination has resulted in one of the most widely adopted consumer hardware devices.

Brief History of Televisions:

Early 1800s: Mechanical televisions scanned images and transmitted those images onto a screen. These early televisions had 18 lines of resolution.

1927: The first electronic television, created by 21-year-old, Philo Taylor Farnsworth. He famously transmitted a dollar sign after a prospective investor asked “When are we going to see some dollars in this thing?” By 1934, just 7 years later, all TVs had been converted into the electronic system. By 1938, the first commercially produced electronic televisions.

1948: The first “remote control” called the Tele Zoom was released, which at the time only allowed for viewers to zoom in to the picture on the television. The first true remote control (changing the channel, turning on and off the TV) was produced by a company called Zenith in 1955.

1954: The first color televisions began to be sold across America by RCA. CBS has actually created the first color television before but it was based on mechanical televisions and wasn’t compatible with the widely adopted electronic televisions. In 1953, the FCC acknowledged that the RCA system was superior to the CBS television leading the way for RCA.

Early 1980s: “Intelligent” television receivers were introduced in Japan. With the introduction of an LSI (Large-scale integration) chip. This allowed for TVs to be linked to data networks and automatically download necessary software routines.

1993: 98% of American households owned at least one TV, with 64% owning two or more sets.

1994: The first patent for a Smart TV was registered by Fast France Advanced Systems (Patent).

1996: Digital satellite dishes hit the market.

2004: DVDs outsell VHS for the first time.

2005: Flat screen TVs and HDTVs are introduced.

2007: The first Smart TV was released by HP called the MediaSmart.

2012: The first consumer 4K (2160 lines of resolution) TV was introduced by LG. The list price was $20,000.

2015: Most manufacturers exclusively make Smart TVs

As you can see, in the last 20 years, TV infrastructure has innovated quickly. This is important to note as televisions have a -97.62% inflation rate since 2000 (see chart below).

Why Now?

Smart TVs are already widely adopted today: 83% of US households (40% of households in UK, Germany, France, Italy, and Spain) have a Smart TV. These users have internet enabled TVs, which is why the average American household has four subscription video on demand (SVOD) services. Real-time media consumption for TV and movies is already a core part of at-home lives for millions of households and a gaming service fits into that mold.

Certain genres already cater to a co-op and local play environment: Watching TV and movies together is a family pastime. Now that TVs are internet-enabled, TV-specific genres like game shows, couch co-ops, party games, can all be accessed through your TV without the need for extensive hardware requirements. These games can also offer multiplayer functionalities that would bring together multiple households at the same time.

The TV medium suits the growing aging gamer demographic: According to the AARP, “[American] gamers 50-plus are now 52.4 million strong” (AARP). 45% of these gamers play games every day. These gamers are not traditionally hardcore gamers, though. They are far more casual and use it as an outlet to have fun (86%), relax (79%), and pass the time (70%). These individuals also are going to be more likely to have children and playing games is a great way to spend time with their kids. In America, parents only spend an average of 55-125 minutes per day with their children. Making the most of this time will be integral to family lives and games can bridge that gap (Financial Samurai).

Processing speeds will drastically improve: Most Smart TVs have slow processing cards and no graphical processing unit (GPU). This is because little processing power is required to stream pixel content and display it on screen, which is the main requirement for most Smart TVs today. These processing units pale in comparison to those within traditional consoles, PCs, and even smartphones. To support games and other interactive entertainment, depending on the levels of demand, Smart TVs will need to be built with better internal processing units and potentially with GPUs as well.

Alternatively, aftermarket processing unit add-ons could be sold by manufacturers (by themselves, or in partnership with traditional games console providers) to enable more extensive gameplay functionality on existing Smart TVs. Additionally, Smart TVs could partner with cloud gaming providers like NVIDIA GeForce Now or Microsoft Xbox Cloud Gaming to fully offload processing.

Takeaway: Gaming has a clear opportunity in the OTT space as a potential distribution channel as well as an unlock for TV-first genres. Whether it is consumer trends, changing gaming demographics, or an evolving society, OTT via in-home Smart TVs is a natural opportunity for game distribution. This is not about distributing AAA-quality, or massively multiplayer experiences, but it could create a new medium for consumption that increases accessibility for non-traditional gamers.