Top OTT companies

The top OTT companies offer a wide range of services, and boast impressive revenue and market caps. They also enjoy very robust financial health as seen in EBITDA and margins. This, combined with their massive user bases and technological capabilities, has created very high barriers to entry for smaller players. As a result, little by little, the global OTT services market has become an oligopoly.

Internet giants dominate on all financial indicator

It is the combined thrusts of GAFAM (Google, Apple, Facebook, Amazon, Microsoft) and BAT (Baidu, Alibaba, Tencent) that shape the oligopoly that is the OTT market. They dominate in most segments (search, social media, communication, e-commerce, video) They have very few real competitors, and the ones they do have typically operate in a single segment (Netflix, Uber, Airbnb, JD.Com, Expedia), aside from generally local exceptions (Yandex and Mail.ru in Russia, Naver and Daum in South Korea, Rakuten in Japan but also internationally). Aside from Baidu, all of the GAFAM/BAT players have market caps of more than 500 billion USD, and so making tech companies (and not just of the Internet) the world’s most valuable corporations.

There are also sizeable disparities in terms of financial performance between GAFAM/BAT and other OTT companies. The GAFAM quintet outearns other OTT companies by a ratio of several dozen to one, while the BAT trio is on an extraordinary growth trajectory: +30% on average per annum for the past several years. Plus the EBITDA-to-revenue ratio for these behemoths exceeds 30% in most cases (the exception being Amazon which is investing heavily in physical properties), and once again enjoy profit levels well above those of other OTT companies.

Where performance enables diversification through acquisitions

In both GAFAM and BAT capex is relatively low. This is in fact one of the few traits they have in common with smaller Internet companies. With the exception of Google and Facebook, which are moving into datacentres and submarine cables, most invest less than 10% of their revenue in infrastructure (compared to 18% for telcos).

Because of their low capex, GAFAM/BAT players have massive free cash flows. This is especially true of Facebook and the BAT trio whose cash flow represents around 30% of their revenue. These war chests allow the Internet giants to make dozens of acquisitions a year, and so shore up their core business and further fortify their oligopolistic positions. Getting their hands on start-ups and veteran players alike allows them to move rapidly into new sectors, including non-digital ones. A good example is the Amazon spend of 13.7 billion USD to acquire Whole Foods, which opened the way to acquiring physical shops to add to its own Amazon retail stores.

 
Chinese tech company market caps catching up to US giants'
Source: IDATE DigiWorld, based on data from ycharts.com, January 2018
 
Impressive margins for most OTT companies
Note: data based on 2016 Q4 – 2017 Q3
Source: IDATE DigiWorld based of annual reports