The connected entertainment space is evolving alongside a number of industry trends. The rise of streaming and the resulting fall of pay-TV, shifting consumer preferences in terms of viewing devices, and the rising adoption of smart speakers have changed the connected entertainment space permanently. With these changes have come changes in the structure of the market and the power dynamics of the players.

The connected entertainment space is moving towards a smartphone model, in which a handful of platform players control the operating system, UX, and consumer access to services and features. Many of these platform players initially offered their own hardware and services storefronts, but later branched out to license their platforms to other companies in the entertainment space. Many also offer their own services to consumers. While these services are primarily used to increase the attractiveness of these platform players’ own ecosystems, players are increasingly realizing that there is value in reaching consumers on the platforms of others.

While hardware sales remain the primary monetization method for platform players, these players are also building software and services businesses as well. Platform players are licensing out their operating systems and app stores to both hardware companies and pay-TV providers, gaining revenue from companies that would have once been their competitors. Platform players are increasingly rolling out advertising and paid promotions within the UX of their devices, as well as implementing revenue sharing models with the services running on their platforms. To date, this has included both sharing in advertising revenue, as well as taking a cut of subscription revenue.

Increasing adoption of connected entertainment devices by consumers – streaming media players, smart TVs, smart speakers – has shifted the balance of power in the connected entertainment space in favor of those who control the platforms. Outside of the major OTT services, many consumers may not be willing to purchase new hardware in order to access services.

Consumers care about the openness of platforms to the extent that they are able to access the content and services they wish to access. However, with so much fragmentation in the content services market in order to gain mindshare among consumers, services must meet the consumers where they are.

Expect to see hardware exclusivity decrease as companies put their services on as many platforms as reasonable. The next evolution in the connected entertainment space will see the platform players seek to partner with more players in the smart TV and set-top box markets.

Consumer electronics manufacturers face lengthening product replacement cycles and tightening margins on many devices. Hardware has become less profitable for all but a handful of players. Major players in the connected entertainment space have responded with a variety of strategies, including branching out into software and services, exclusive hardware-content bundles, and completely open ecosystems with support for all major players, including competitors. While each strategy has its benefits and pitfalls, the connected entertainment market is slowly but steadily moving in favor of open ecosystems.

The companies that own connected entertainment platforms – smart TVs, streaming media players, gaming consoles, smart speakers and displays – have unprecedented reach into consumers’ homes and viewing habits. They have become the new standard for how media companies and services deliver content to end users. However, these platforms seldom operate independently – many of the largest platforms are owned and operated by tech giants, which integrate these platforms with their services – and oftentimes the services of their competitors. But how are these connected entertainment ecosystems structured? And how do the tech giants determine whether to put their services on the platform of a competitor – or to allow competing services onto their own platform?

This is an excerpt from Parks Associates research library, by Kristen Hanich, Research Director. We love feedback - please share any comments you have.

We hope you can join us in December 12-14 at our annual event. Future of Video: OTT, Pay TV, and Digital Media brings together senior leaders to share insights on new trends in the video and connected entertainment industries, with insights on consumer adoption, churn, and spending. The event provides insight into successful OTT strategy deployments, challenges for pay-TV providers, the role of connected CE in the growth of video viewing, new content formats, and the overall impact to the video market. 

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