When we talk about disruption in the pay-TV sector, OTT video is often at the top of the threat list. And no surprise - OTT video services like Netflix, Hulu, Hooq and Amazon Prime have become viable sources of video entertainment. Even Twitter is getting in on the act - in April it signed an exclusive rights deal with the US National Football League (NFL) to livestream Thursday-night football games. (The Washington Post’s clickbait headline: “Twitter is basically a cable company now”.)
OTT video has certainly been disruptive in terms of its impact on the way people watch video, especially the younger demographics. Straight linear TV is boring - the future is TV Everywhere, with single sign-on across multiple devices (TV sets, smartphones, tablets, laptop and eventually your car dashboard), single-touch control, on-demand viewing and flexible billing options. Put simply, watching TV is no longer just a lean-back experience in the living room, and broadcasters and pay-TV service providers had better deliver what viewers want.
Interestingly, however, there’s one area in which OTT video is not much of a disruptor: the bottom line.
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At the recent Broadband TV Connect Asia conference in Jakarta, several speakers made the case that OTT video isn’t the major threat to the traditional TV industry that some have made it out to be - not if you go by market share and actual revenues. Market forecasts suggest that by 2020 OTT video will only account for a fraction of the overall pay-TV revenue base in APAC, and the majority of that will be driven more by ads than subscriptions.
In fact, for all its reputation as a disruptor of pay-TV, OTT is actually the industry’s future - or at least a key and lucrative part of it. Business models and strategies will vary, of course, but at the very least OTT video players are emerging more as potential content partners than serious competitors for a slice of the pay-TV revenue pie. Some OTT players are already positioning themselves as programmable premium channels that deliver TV everywhere and - thanks to big data analytics - will take TV viewing to the next level.
A small slice of the pie
The last year has seen a sudden spike in OTT video services across Asia-Pacific, with Netflix entering Australia, New Zealand and Japan via telco partnerships, and almost globally as a pure OTT service. Meanwhile, we’ve seen the emergence of new regional players like Hooq, iflix, Klix and PCCW’s Viu.
But while it may feel like a full-on invasion of the pay-TV space, David Ratner - digital specialist at Pioneer Consulting Asia - says some perspective is needed.
For a start, he says, “The overlap between people subscribing to pay-TV services and OTT services is still pretty high, so it’s not necessarily a case of viewers choosing only one or the other.”
Also, while OTT SVOD services are growing very fast, that’s from a small base, he notes. “The numbers are indicating that they’re going to reach about $340 million by 2020 in SEA, excluding Hong Kong. That’s compared to a $5 billion pay-TV market, so it’s still relatively small on that side.”
One reason OTT SVOD services aren’t generating all that much revenue in SEA is because there’s still a reluctance from consumers in those markets to pay for content, especially in markets like the Philippines and Indonesia where piracy is rampant. The other problem, says Ratner, is that even people who want to pay find it difficult to do so.
“For example, how do you pay in Indonesia?” he says. “There are something like ten million credit cards in Indonesia and you can’t necessarily use all of them. It’s the same with the Philippines.”
Krishnan Rajagopalan, co-founder and chief content and distribution officer at OTT video service provider Hooq, adds that it’s hard to be a revenue disruptor in Asian markets where pay-TV ARPUs aren’t all that high to begin with.
“The scope for disruption is much lower, because you can’t really disrupt a $3 ARPU market unless you give it away,” Rajagopalan says. “It’s different in developed markets like the US where they’re charging anywhere from $75 to $150. There’s a lot of scope for disruption there because you can take it all the way down to $10 and still make a lot of money. That’s not the case in Asia.”
This is why OTT video is more likely to be advertising (AVOD) driven than subscription (SVOD) driven in terms of revenues. By some estimates OTT video will be around an $8 billion revenue opportunity by 2020 - and AVOD is expected to account for around two-thirds of that.
OTT as a premium channel
Wherever the revenue comes from, the real takeaway is that OTT video demand is real and growing, and pay-TV players have to figure out how to incorporate that into their strategy, says Ratner of Pioneer Consulting.
“As customers opt to watch more OTT services, whether it’s SVOD or AVOD, pay-TV operators really need to think about how to curate OTT services on their own platforms, offering multiple services at the same time to meet the customer demand,” he says.
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Telcos are already starting to do this, he notes. “We’re seeing that essentially they’re packaging multiple OTT services and creating electronic EPGs for this, so you can choose to watch Netflix, or iflix, or Hooq or other kinds of services all in one spot, and through carrier billing you pay for everything in one bill.”
In that sense, OTT video is less of a competitor to pay-TV and more like another premium video channel to add to the pay-TV bouquet. So, for example, a basic cable package gets you linear-only TV and streaming services like YouTube, DailyMotion and Vimeo; a mid-tier package includes one or two OTT services; and a premium package includes access to all of the OTT platforms available in your country.
That’s certainly how Hooq sees its role, as well as the role of OTT video in general, says Hooq’s Rajagopalan.
“As an OTT service I can tell you we are not competing with any of these players,” he insists. “We tend to work with all these players to augment their offering. Free-to-air broadcasters are some of my best content sources and we spend a lot of time talking to them.”
Rajagopalan says that as far as he’s concerned, OTT is simply an extension of what pay-TV players already offer. “Pay-TV operators already pay for a lot of different channels. They have a lot of content licensing, they spend a lot of money acquiring rights, and they deliver it to one thing, usually a set-top box. OTT really represents the opportunity to take that set of channels and content and deliver it to every other stream that the viewer has. OTT as a tool provides a lot of value to the players.”
The telco advantage
That’s good news for telcos who have been looking at things like, say, Netflix’s global push and wondering how in the world they can compete against that.
Jim O’Neill, principal analyst at Ooyala, advises telcos who want to know how they can compete against OTT players to have a better understanding of the playing field they’re competing on.
“Everywhere I go in Asia, I come across a lot of the same concerns from operators: ‘How do we compete against Netflix? How do we do this? How do we win?’ And my answer is: Define what ‘win’ means,” he says. “Does Netflix necessarily win because they’re the biggest? Or can you win by offering better content that’s more relevant and in tune to what your viewers need?”
And Asian telcos are in a great position to play in the OTT video space, says Rajagopalan of Hooq (which, after all, counts Singtel as a co-founding member), not least because of their billing capabilities.
“If you look at the payment landscape in Asia, compared to developed markets, there are very few opportunities for players who can deliver a consistent frictionless payment method for users,” he says. “Telcos are pretty much the only business besides utilities that have mastered the art of collecting money from consumers every month. When you think about bundled services, churn, customer acquisition and retention, these are issues that OTT services face but telcos are masters of solving those problems. Telcos have a very significant role to play, and we want to partner with them, and enable them to find the right partnership model to enable a paid ecosystem.”
As for just what the “right” partnership model is, there are several options, such as integrating OTT players into the bouquet or pursuing a white label strategy, for example.
Ooyala’s O’Neill says we’re likely to see a little bit of everything. “In Asia we’re seeing a little bit more experimentation, but some players here are taking slower steps than in the US, for example, being more cautious, which is where partnering or white labeling may seem a more prudent option.”
O’Neill adds that some telcos will still opt for a more DIY approach to OTT video. “It’s difficult to do totally DIY, but sometimes you have to because you’ve already built part of the infrastructure and just throwing it out the door doesn’t make any sense. But even there you need to find partners who can use what you have, improve on it or just modularly plug into what you have and make it work.”
The next step: big data
Whichever strategy telcos pursue, one crucial requirement will be a change in mindset about the role of consumers in this ecosystem, O’Neill cautions.
“The industry needs to stop thinking that content is king and recognize that really consumers are king - consumers are driving this,” he says. “They have to make sure that the content has a great user interface, good discoverability, and increasingly they will need to use analytics to do something with all that data they’re collecting.”
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O’Neill says the role of big data analytics for any OTT video service cannot be underemphasized, because anytime-anywhere streaming TV isn’t the only way that TV consumption is going to evolve.
“You need to be able to know who’s watching,” O’Neill explains. “The companies out there that are basically panels and doing surveys aren’t giving you enough information, so how do you get the information you need and how do you make sure you can target advertising, transition into the OTT space and make it something that generates revenue and not just conversation?”
This is especially critical since much of the projected revenue from OTT video is expected to come from ads, not monthly subscriptions, he continues. “It’s a big deal being able to serve up ads for things that people are going to buy or pay attention to. This will be a big part of the success of OTT. Without it, is SVOD going to pay its way? If you’re Netflix, sure, and maybe some other companies to an extent, but in the end you have to finance it somehow and advertising remains the best way, though that could change.”
Why OTT unicast isn’t ready for prime time
One of the tropes of OTT video is that its default model of time-shifted on-demand viewing is making “prime time” broadcast viewing irrelevant. Steve Christian, SVP of marketing at Verimatrix, says that’s wrong, and that it matters because buying into that trope can lead pay-TV players to assume that unicast solutions for OTT streaming are sufficient to serve demand.
“A combination of multicast, linear and streaming provides the best user experience and also the best scalability of the network,” he says.
Christian cites this year’s Super Bowl sports event in the US as an example of why prime time isn’t dead, and why unicast alone won’t cut it.
“The households served by broadcast [during the Super Bowl] were roughly 100 million. The households served by unicast were 1.3 million peak - that’s several orders of magnitude between those two audiences,” he says. “That situation requires a combination of technologies, a synthesis of broadcast and multicast technologies and streaming technologies to best serve these kinds of situations.”
The Super Bowl also demonstrated how unicast streaming introduces latency issues, he adds “I actually measured the difference between the satellite transmission in my household and the unicast stream coming through my Amazon Fire TV stick. What do you think the difference was in terms of time? Thirty seconds. That may not seem like a huge amount to some people, but when you’re tweeting along with the game or you hear your neighbors cheer before you can even see what’s happening on the field, it’s a big difference.”
Christian admits the Super Bowl might be an extreme example, “but sports, reality TV, news, all kinds of things like that are still ultimately delivered in real time and consumed in real time. So despite the naysayers who would say that there’s only on-demand with personalized viewing now, there is still a prime time TV market, and we need to design solutions that meet those kinds of needs as well as the personalized delivery situations with OTT. Live unicast streaming doesn’t solve all the problems you have in real-world situations, and we have to live in the real world because we’re trying to serve real consumers with real content.”
This article was first published in Telecom Asia OTT Insights May 2016 edition