Egta Insight Over-The-Top Television Services: a European Perspective March 2015

egta insight over-the-top television services: a european perspective March 2015

Celebrating

www.egta.com / / Defining OTT services

In the field of audiovisual services, egta has cho- sen to work with the following definition for OTT: services accessible over the Internet via specific applications (on PCs, mobile apps, Smart TVs, games consoles or through hybrid boxes).

This report considers OTT platforms and services that exclusively offer premium television programming and/or movies. Services such as You- Tube, Dailymotion and other video sharing sites do not form part of this report, although it should be noted that YouTube in particular has taken on some of the characteristics of a premium OTT service in the past couple of years, developing executive summary a presence in set-top boxes and other devices, offering some original, professionally produced, content and live streaming of sports and music events. This report addresses the landscape of over- the-top (OTT) television services, with an em- / / Overview of linear and non- phasis on the most digitally advanced Euro- linear services in Europe pean markets. The evolution of OTT subscribers and revenues is also placed into a wider global OTT services exist in a variety of forms context. egta’s objective is to allow readers to throughout Europe, with different funding and better understand the strategies of different business models in place. Broadly speaking they stakeholders in the delivery of OTT, including the can be classified as seen on the opposite page, response of broadcasters to evolving viewing with examples of each type listed in figure 01. patterns. OTT services may be linear or on-demand (video- Intended as an overview of existing services, the on-demand, VOD), and many offer a combination business and revenue models behind them and of both. The former allow live access to existing their actual and anticipated impact on the linear or online-only channels offered by broadcasters television industry, this report focuses primarily and in some cases telecoms providers or inde- on the French, Dutch, German, Belgian, United pendent companies. On-demand OTT services Kingdom and Nordic markets. In that respect, it allow viewers to choose from a library of movies is not an exhaustive examination of the rich and and TV shows. varied OTT offer currently available throughout Europe. / / Business models in place

The report draws on multiple data sources, in- The business models behind OTT VOD services cluding published reports, forecasts and esti- can be broadly classified as direct and indirect; mates, surveys of egta television members and direct funding, in which the user pays for access, interviews with experts in the field. may be by subscription (as a standalone service

Page 2 figure 01: Overview of linear & non-linear services in europe

services developed services developed services developed by newer entrants by telecoms by broadcasters to the market providers

Netflix BBC iPlayer Telenet VOD Zattoo Sky Go Numéricable VOD Amazon Prime Instant Video 4oD Vodafone Videothek Voddler HBO Go Ziggo On Demand Apple TV apps MYTF1 Entertain Google Play CanalPlay Proximus TV Viaplay Maxdome Stievie RTL à l’infini NLziet figure 02: business models

Revenue Model

direct indirect

S-VOD T-VOD A-VOD subsidies Subscription Pay-per-view Advertising

© Copyright egta 2015. All rights reserved. Page 3 or as part of a telecoms bundle) or pay-per-view. • The volume and quality of the content on offer Indirect funding takes the form of advertising (size of library, how recently the content was or subsidies, such as taxation or licence fees. In produced) some cases, the business model may involve a • The availability or otherwise of HD and Ultra HD combination of direct and indirect funding, and in the case of services provided by some public • The number of screens on which content can be service broadcasters, their OTT platforms may be viewed simultaneously free to access and free of any advertising (figure 02). Customer response to OTT service pricing can be very sensitive, as evidenced by the experience of The funding of OTT VOD may take the following Netflix in the US in 2011. Following a period of very forms: strong expansion and growth in revenues, Netflix altered its business model in the territory, splitting • Transactional VOD (T-VOD) – pay-per-view, or its physical DVD rentals and streaming services “rental” of an episode/movie for a limited time and introducing a sharp price increase. In the third • Subscription VOD (S-VOD) – monthly (or other) quarter of the year, the company shed 800,000 payment for unlimited access to a library of TV subscribers amid widespread discontent, and series, movies, etc. the New York Times reported that its share price slumped to $53 from just under $3001. • Advertising-supported VOD (A-VOD) – access to VOD content is free at the point of consump- The company has since turned its fortunes around, tion, funded only by advertising notably by investing in original content and expanding into new territories, including Europe. • Subsidised VOD – access to VOD content is More recent price increases of $1 (US), £1 (UK) and free at the point of consumption, funded only €1 (NL) in 2014 have not resulted in noticeable de- by subsidies such as television licence fees or creases in subscription levels. other taxation In a further indication that direct-funding from the In some cases, content is made available in catch- consumer’s pocket remains a difficult market to ex- up free of charge for a set period, such as seven ploit, the consultancy firm Kurt Salmon2 found that days, after which it can only be accessed by pay- the price of VOD and pay-TV packages in France per-view or rental as part of the channel’s VOD has brought viewers back to the country’s free-to- offer. air DTT channels. As a result, French households The pricing and subsequent positioning of European cut their average annual video budget from €95.8 subscription OTT services varies considerably, for in 2011 to €60.20 in 2013. The strength of terres- example from €49 per year for Amazon Prime trial television in France, comparatively high costs (including Instant Video) in Germany to roughly €15 for paid video content and the long period of time per month for HBO GO in the Netherlands. Some that must pass before new cinema releases can be operators, such as Netflix, offer a range of prices, made available on S-VOD – 36 months as opposed with its French pricing of €7.99/€8.99/€11.99 per to just 6 months in the US or UK – mean that the month being a typical example of the company’s French market is seeing something of an opposite European offer. Broadly speaking, the pricing of trend to other countries. OTT services is dependent on: This difficulty in developing scale in paid services is further supported by data from Russia, where ad- Page 4 The streams for NLziet subscribers have a higher quality than the A-VOD streams. The list of available content on RTL, SBS and NPO’s own platforms mainly depend on programme rights.

On the NLziet platform, most of the programmes are available for a whole year after they have been broadcast on their respective channels. On RTL, SBS and NPO’s platform, they are usually only available for 7 days. NLziet also offers some pro- NLziet (Netherlands) grammes in preview, and this service is part of the subscription fee. Niels Baas, Managing Director of NLziet, talked to egta about a new service in the Netherlands, which egta: Which devices and viewing platforms can be was launched in July 2014. used to watch NLziet?

Niels: Currently, NLziet is available through PC browsers, mobile apps and Chromecast, allowing egta: What is the strategy behind the subscription- viewing on two concurrent streams, in and out of based business model of NLziet? Why did you select home. The objective is to make the service avail- this route instead of an ad-funded model, for exam- able across as many devices as possible over time, ple? and discussions are underway with set-top box providers, Smart TV manufacturers and others. Niels: NLziet is a Dutch service that resembles Integration with Samsung SmartTV is planned by Hulu in the US. As the platform involves all of the the second quarter of 2015, with other television main broadcasters in the Netherlands, bundling manufacturers to follow. Apple AirPlay support is this power together on the advertising market expected in Q3. could have led to competition issues. Therefore, the parties involved chose a subscription-based – egta: Can you explain how the broadcast partners are and therefore advertising free – service. remunerated?

The service is priced at €7.95 per month, with a Niels: The duration of all streams is measured, free month’s trial, and the subscription can be can- and NLziet divides the revenue to the broadcaster celled without a notice period. partners based on market share in viewing time. egta: How does NLziet fit in into the context of the NLziet is an open cooperation, meaning that other Dutch television market? linear broadcasters active on the Dutch market are welcome to join the service. Niels: Besides NLziet, each of the broadcasters involved has its own platform, and these are operated independently. They could therefore be considered “competitors to themselves” on the NLziet service. The broadcasters’ own standalone platforms offer viewers A-VOD content sometimes combined with T-VOD.

© Copyright egta 2015. All rights reserved. Page 5 vertising-funded VOD outstrips paid VOD by 73% for OTT services delivered to a television screen – to 23% in revenue terms3, and Poland, where 99% are present in a smaller percentage of European of VOD is supported by advertising4. homes. The EU28 average broadband penetration was 78% in 2014, with the Netherlands topping the / / Devices on which OTT services list at 95%, the United Kingdom at 88%, Germany at are available 87%, France at 77% and Italy at 71%6. Central and Eastern European countries currently lag well be- OTT services are available via set-top boxes (DVR/ hind the more mature markets in the West. As the PVR), PCs, smart/connected TVs, smartphones/ rate of increase in broadband penetration is show- tablets and game consoles. On mobile devices, ing a slowing trend, this will naturally limit the ease content delivery may be through the device brows- with which OTT services can attract new users. er or a dedicated mobile application, and some services also feature mobile app control. It should be Digital TV Research recently published a report that noted that not every service is available across all forecast Pay TV subscriptions to reach 171.6 mil- these screens and devices. lion in Europe by the end of 2014 (including Russia and Belarus), having grown from 154.5 million in / / Penetration statistics 20107 (see figure 03 for top ten pay TV countries in Europe). This indicates a large and growing ad- Television, whether delivered by terrestrial broad- dressable market of households that are accus- cast, cable, satellite or IPTV is virtually ubiquitous tomed to paying for television content directly and throughout Europe, with household penetration in which Pay OTT services may offer an attractive rates typically at 95% or higher5. By contrast, alternative (or complement) to traditional Pay TV. fixed broadband connections – a pre-requisite

figure 03: top 10 european pay tv countries in 2014

Country Penetration (%) Country Revenues ($ mil.) Netherlands 99.0% UK 7,845 Belgium 96.3% Germany 4,609 Norway 95.6% France 4,525 Malta 94.5% Italy 4,010 Sweden 94.0% Netherlands 2,366 Denmark 92.0% Poland 1,823 Estonia 90.0% Spain 1,757 Hungary 89.6% Russia 1,699 Finland 86.2% Belgium 1,572 Switzerland 86.2% Sweden 1,551

Source: Digital TV Research, 2014 Page 6 figure 04: ESTIMATED Netflix paying subscribers by country (000)

Country Launch date DEC 2011 DEC 2012 DEC 2013 DEC 2014 USA / 20,153 25,471 31,712 36,265 International / 1,447 4,892 9,722 14,389 Canada Sept 2010 1,138 2,050 3,180 3,475 Latin America Oct 2011 309 857 2,942 4,854 Ireland Jan 2012 0 80 150 190 UK Jan 2012 0 1,400 2,250 2,850 Denmark Oct 2012 0 120 245 420 Finland Oct 2012 0 85 205 400 Norway Oct 2012 0 95 210 380 Sweden Oct 2012 0 205 440 800 Netherlands Sept 2013 0 0 100 700 Austria Sept 2014 0 0 0 30 Belgium Sept 2014 0 0 0 30 France Sept 2014 0 0 0 100 Germany Sept 2014 0 0 0 125 Luxembourg Sept 2014 0 0 0 10 Switzerland Sept 2014 0 0 0 25

Source: Digital TV Research estimates from Netflix totals, 2014

Worldwide, subscription OTT VOD (OTT S-VOD) ed its European operations by launching in the UK, currently stands at over 124 million households, Ireland and the Nordic countries, followed by the and this is projected to increase to 249 million in Netherlands. In 2014, the service was made avail- 20188. North America makes up the largest share able in Austria, Belgium, France, Germany, Luxem- of this base, with 59.8% of worldwide subscrib- bourg and Switzerland. As of early 2015, Netflix is ers, followed by Western Europe and Asia-Pacific. present in about 50 countries, and the company Eastern Europe’s share is much smaller at 1.3%, al- stated that it had exceeded 50 million subscrib- though it is expected to show dynamic growth over ers in July 20149. Although per-country subscriber the next five years. numbers are not available, Digital TV Research has made a number of estimates, including a forecast Netflix has made the greatest gains in Europe in for TV household penetration in 202010. The accu- recent times. Having expanded from the US into racy of this longer-term vision is of course difficult first Canada and then South America, Netflix start- to predict with any certainty.

Subscribers TV households Subs/TVHH Country Launch date (000) (000) (%) Austria Sept 2014 1,103 3,678 30% Belgium Sept 2014 1,422 4,739 30% Denmark Oct 2012 870 2,559 34% Finland Oct 2012 856 2,518 34% France Sept 2014 8,298 27,659 30% Germany Sept 2014 11,325 37,750 30% Ireland Jan 2012 572 1,635 35% Luxembourg Sept 2014 71 237 30% Netherlands Sept 2013 2,507 7,596 33% Norway Oct 2012 776 2,282 34% Sweden Oct 2012 1,620 4,766 34% Switzerland Sept 2014 1,308 4,360 30% UK Jan 2012 9,495 27,128 35% International / 103,939 308,525 34%

Source: Digital TV Research, 2014

Other S-VOD platforms available in several mar- figures for the use of subscription, transactional kets include HBO Go and Amazon Prime Instant and indirectly funded OTT services is very difficult Video. The former launched in the Nordic countries to come by, as providers release limited data to the in 2012 and is now available in several Central market. and Eastern European markets. Whilst it currently lacks the scale of Netflix in the markets where both / / Revenues generated by OTT are present, the application of ActiveVideo’s cloud platforms virtualisation technology will allow HBO Go to be integrated into legacy set top-boxes, offering the Increasing investments in OTT services – either potential to increase adoption by users. Amazon through subscriptions, transactions or advertis- acquired LOVEFiLM in the UK in 2011 and folded ing – come at a time of slowing advertising growth the service into its Instant Video platform in Febru- across the wider television industry in 2014, with ary 2014 and is estimated to reach 7% of UK online GroupM forecasting that traditional television households11. would lose market share in the US for the first time in 201512. It should be noted that reliable and comparative

Page 8 figure 06: VOD subscription forecasts in 2018 for UK, Germany, France & the Netherlands (millions)

10.0

8.0

6.0

4.0

2.0

0.0 UK germany france netherlands

Total 10.253 8.942 3.148 2.060

Netflix 7.235 3.557 1.472 1.647

Amazon 2.087 3.161 0 0

Others 0.931 2.224 1.676 0.413

Source: IDATE, Netflix en Europe, December 2014

Worldwide OTT S-VOD revenues reached $8.4 bil- growing. Research consultancy MTM predicts the lion in 2014, and SNL Kagan predicts that this will premium OTT market in the UK to grow from €150 rise to $18.7 billion in 201813. Western Europe fol- million in 2013 to about €490 million in 201714. lows North America as the second largest region Growth in the Dutch market is expected to be even in terms of online video subscribers and revenues, greater, from €15-20 million in 2013 to €190 mil- with a much smaller share of the global S-VOD lion in 2017, whilst the German market is expected market going to Eastern Europe (1.1% of worldwide to grow more modestly, from €30-35 million to volume). around €115 million over the same period.

The arrival of Netflix in Europe has stimulated The report by MTM found Germany to be the other international OTT providers to increase their weakest of these three markets due to its relative- investment in marketing their products to wider ly low “digital sophistication” and lower broadband audiences, and the range of premium services is penetration. The report also states that Germans

2017 € 490 mil. 500

400

300

 34% 2017 € 190 mil. 200 2013 € 150 mil. 2017 € 115 mil.

100  2013 80% 2013 € 18 mil. € 33 mil.  37% 0 UK NETHERLANDS germany

Source: MTM, 2014. Prospects for Premium OTT in Western Europe are traditionally more reliant on the high quality / / Advertising formats on OTT free-to-air TV content that is widely available and services less inclined to pay for content. This is highlighted by the discrepancy in the size of the German and With some notable exceptions from the UK and UK Pay TV markets, which are worth €3.7 billion France, advertising forms a secondary funding and €6.3 billion per year respectively. stream for the majority of commercial OTT services in Western Europe. However, video advertising A forecast by the European research and consul- as a sector is growing quickly, offering digital media tancy organisation IDATE projects that by 2018 buyers a high quality, premium alternative to online Netflix will hold a quasi-monopoly of S-VOD rev- display. Engagement with online video advertising enues in the Netherlands and the UK (80% and is high, and data-driven, programmatic trading of 70% market share respectively), and it will be the this inventory is fast becoming a European reality. market leader in France and Germany (46.8% and 39.8% market share respectively)15. IDATE expects Advertising may take the form of pre- or mid- rolls, Amazon to be the main challenger in the UK and with or without interactivity, as well as a range of Germany, whilst locally developed offers will put innovative social, sponsorship and banner formats. up strong resistance in France. The advertising that had been inserted into the terrestrial broadcast of a given programme is usually removed when accessed via Paid-VOD, as the user is in a premium environment. Page 10 launched in Belgium, there was a very small drop in the number of customers, but these were re- placed very quickly, suggesting the services are essentially complementary. On the one hand, Net- flix offers a greater volume of older content, whilst on the other RTL à l’infini has a smaller library of more recent content.

Marc Lellouche, Head of Digital Sales & VOD at IP Belgium, the sales house for RTL, explained to RTL à l’infini (Belgium) egta that the platform is currently operated by the telecoms distributers (Proximus TV, Telenet, VOO, Numericable, etc.) under a revenue share model, and that RTL’s strategy is to some extent RTL Belgium has two main monetisation models dependent on the telcos in terms of strategy and within its OTT VOD offer: Transactional and Sub- technical development. However, the broadcaster scription VOD. Long-form content is only avail- is considering opening the service on the Internet able through set-top boxes, whilst some extracts in order to allow it to manage the service end-to- of shows as well as news, weather and political end. Content – particularly recent American series programming can also be accessed free of charge – is expensive to acquire, and he does not believe through OTT platforms. RTL offers access to TV this part of the business would be sustainable series and RTL programming, but it does not cur- under an advertising-funded model. “Viewers will rently offer movies. pay for quality content, and the €4.95 we propose for Series Pass is a reasonable price, the lowest T-VOD includes both programmes (immediately on the Belgian market. Today, advertising is not after broadcast) and series (catch-up and previews my preferred model of VOD funding, certainly for three weeks before they are due to be broadcast). series, although it could be a model for other types S-VOD is split into two packages under the RTL of programming.” à l’infini brand, comprising Sélection and Series Pass. Priced at €5.95 per month, Sélection offers RTL’s programmes, such as magazine, entertainment shows, comedy, sports programmes, etc., whilst the monthly subscription of €4.95 for Se- ries Pass allows viewers to watch US series just after they have been broadcasted in the States as well as current and catch-up viewing. All paid VOD content is free of advertising.

The RTL à l’infini package has proved very popular with consumers, with usage increasing month by month and reaching more than 3 million VOD views in 2014. From this, about 60% were for Se- ries Pass, and the majority of these views come from S-VOD rather than T-VOD. When Netflix

© Copyright egta 2015. All rights reserved. Page 11 / / Measurement of OTT subscription from Pay TV are likely to face higher platforms charges for online access, and the compounding cost of multiple standalone subscriptions may yet Whilst it may be a key concern for the industry, the protect the cable and satellite distributors against measurement of television across all platforms – further erosion of traditional viewing. including broadcast and online – is in its infancy, Currently, European operators of advertising-sup- both in the US and Europe. The establishment of ported VOD offers can only take their own data to robust hybrid measurement methodologies that the market, rather than the independent metrics will allow broadcasters to effectively monetise on which the television industry has been built. The their content across all screens and devices will pressure to introduce fit-for-purpose measure- be the subject of a future egta report, and the is- ment regimes for television content beyond linear sue has been the main focus of egta’s AV Currency has therefore become acute. Working Group since 2011.

Measuring television content beyond the first / / Audience figures and usage screen has been brought sharply into the spotlight data in the US in recent times. In response to viewership Independent OTT providers are extremely reluctant declines of 18% for Viacom, 17% for Nickelodeon to provide viewership data. Ted Sarandos, Netflix’s and 14% for MTV in the fourth quarter of 2014, Chief Content Officer, stated in January 2015 that coming just after a weak upfront for television, the there was “no real business reason to report those American television industry is now putting pres- numbers.” The company plans to keep these data sure on ratings provider Nielsen to capture digital unreported as long as it can, and even withholds and non-linear viewing more effectively16. Whilst it from the creators of its most popular shows and Nielsen is launching new tools to address this is- its product placement partners, such as AB Inbev. sue, the announcement of several new OTT platforms – including offers from Verizon, Dish/Sling Even if the true extent of streaming cannot be TV (including ESPN), CBS, HBO, Sony and Nickel- known, the US has seen a 3% decline in television odeon – suggest that content providers will seek a viewing in the final season of 2014, as reported by direct route to the consumer’s pocket when weak- David Poltrack, Chief Research Officer at CBS. Re- nesses in audience measurement start to trans- search by CBS has found that a significant share late into lost advertising revenues. of Netflix viewing is of popular current television series, including from NBC, whilst less than 10% The announcement of standalone OTT services by of adult viewing was for Netflix’s own original se- Dish, HBO and Sony are particularly significant, as ries17. they reflect a marked change in the way people can access television channels in the US. Access to HBO The data and research available from European and ESPN has long been considered a key reason markets suggest that streaming in its various behind Americans keeping their Pay TV bundles, forms is seeing significant increases whilst there so uncoupling these channels from traditional is evidence of declining viewing of linear television cable and satellite subscriptions clearly opens the in some markets. door for an increase in cord-cutting, and a younger generation of cord-nevers that have never, or will A November 2014 report from the Institute for In- never, subscribe to traditional TV may emerge. formation and Media Science at the University of However, consumers who unshackle their Internet Bergen identified that 25% of Norwegians watch

Page 12 Metrics from IPTV are now delivered by measurement body Médiamétrie on a daily basis, offering better profiling of the inventory. 54% of MYTF1 viewers on IPTV are between 25-49 years old, and 65% are women, making the MYTF1 audience highly attractive for advertisers.

There are historic reasons for this advertising- supported VOD model in France, as the strategies of Internet service providers (ISPs) in France has MYTF1 (france) been to include free catch-up within their bundled telecoms and television offers, and this type of access is now a basic expectation of French viewers.

MYTF1 is a multi-platform OTT service that offers live streaming and VOD across a range of screens and devices, including IPTV set-top boxes, with access free to viewers at the point of consumption. IPTV is highly developed in France, with about half of homes using an IP box to deliver triple play subscription services.

Fabrice Mollier, Deputy General Manager, Strategic Marketing Innovation at TF1 Publicité explained to egta that MYTF1 has two revenue streams:

• On IPTV: B2B revenue from Internet service providers (ISPs) • Advertising: pre-rolls and mid-rolls delivered via an ad server Catch-up has proved to be highly successful in France. MYTF1 has 15 million monthly unique visitors across all screens, and in February 2015 the platform registered 7.5 million unique viewers on IPTV – its fastest growing platform – with an average daily viewing time of 1h07.

IPTV (via a set-top box) represents 45% of MYTF1 viewing, PC 41% and tablets and mobile 14%. Rev- enues are growing strongly, with a 30% increase for 2014 over the previous year. Driven by an im- proved marketing offer and roadshows in agencies to show ratings, this performance has increased in the first two months of 2015, with a 60% increase over the same period in 2014.

Sweden (Age 3+) Norway (Age 12+)

Denmark (Age 3+) Finland (Age 10+)

200

150

Norway: Nov 2013: integration of online TV viewing into TAM

100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Note: TV-meter-data, yearly averages. Sources: TNS Gallup Danmark, Finnpanel, TNS Gallup Norge, MMS Sweden.

Netflix at least once a week, which is equal to the became the first country in the world to integrate usage of NRK’s popular online platform18. Be- web TV viewing into its TAM, with reporting start- tween 2009 and 2013, the channels of the main ing from 1 November of that year. The result- broadcasters – with the exception of SBS Discov- ing positive impact on viewing figures highlights ery’s Norwegian channels – have all seen declines the importance of measurement evolution to the in viewing time per household in the age groups health of advertising-supported broadcasters (see 12-19 and 20-34, as measured by TNS Gallup. A figure 08). number of other services, such as HBO, Viaplay, Denmark’s DR Media Research estimated that TV3 Sumo and TV2 Play also attract significant au- Danes actually watched as much television and diences, but this report puts them some distance television-like content in 2014 as they did in 2013, behind Netflix and NRK Nett-TV. but that traditional viewing decreased at the ex- It should be noted that whilst all of the Nordic pense of streamed viewing, which rose to a 17% countries registered declines in TV viewing times share of television viewing from 12% the year be- over the whole of their populations from 2012 fore. to 2013, the story from 2014 is mixed: Denmark This picture is matched in the UK by BARB’s fig- and Sweden saw further falls, but Norway saw its ures for 2014. Daily TV viewing declined by 4.5% viewing time bounce back, and Finland enjoyed its in 2014 over the previous year, a fall of some 10 highest ever viewing figures19. In 2013, Norway Page 14 market, with over 60,000 titles to choose from, an offline mode to allow viewers to watch programmes when on the move, previews of new US series before they go on air (unique to maxdome) and integration across a wide range of devices and screens. This includes integration with all the main smart TV manufactures, meaning that maxdome is available on virtually every OTT device in Ger- man households. The ProSiebenSat.1 Group has a significant advantage over its international com- maxdome (Germany) petitors, as it has a long history of knowing exactly what works on the local market. Great German content, a strong image on the market and the power of advertising support through the group’s maxdome – a premium OTT service from the Ger- terrestrial channels also reinforce this position. man ProSiebenSat.1 Group – was the first S-VOD to launch in the world. The broadcaster’s portfolio The Live pay-per-view offer in partnership with includes free-to-air and pay-TV stations alongside WWE (Worldwide Wrestling Entertainment) is an a wide range of digital platforms. maxdome has a interesting example of a specific product for a par- very strong position in Germany, holding the high- ticular target group that is both very loyal and has est market share of subscription VOD in the coun- a high affinity for paid online events. try at 40% (full year 2014) and the highest aware- ness among consumers. In 2014, maxdome almost doubled its subscriber numbers over the previous year, and the platform The service has four funding models, comprising is delivering increases in video usage of over 150% T-VOD to buy or rent films and series, electronic year-over-year. Linear TV viewing in Germany has sell-through (EST) purchases, S-VOD for unlim- remained stable in recent years, whilst overall ited library access priced at €7.99 per month video usage is continuously growing. (with a month’s free trial) and Live pay-per-view. maxdome does not use advertising as a funding Höfer sees that in the long term the German mar- stream, as all access is paid. ket will consolidate, and the broadcaster expects maxdome to be a top-three player through to For Thomas Höfer, Director Business Develop- 2020 and beyond. ment at maxdome, the reason for a paid model over advertising is straightforward. “Within the ProSiebenSat.1 Group we have three very strong A-VOD assets, which are MyVideo, 7TV and the multi-channel network Studio71, so we have the free segment covered. An A-VOD model would be insufficient for very premium studio content with leading blockbusters and leading series we provide on maxdome.” maxdome differentiates itself from its competitors by offering the largest content library on the

© Copyright egta 2015. All rights reserved. Page 15 minutes 30 seconds, and the drop was greatest for decline and revenues will be hit by ad-skipping on heavy TV viewers and young people20. This drop set-top boxes. This in turn will have a negative ef- is compensated somewhat when the figures in- fect on the quality of content available on demand. clude 8-28 day time-shifted, rather than the live A number of respondents also expect OTT provid- plus seven days data used for the trading currency. ers such as Netflix to develop more of their own Viewing on screens such as tablets and laptops original content in the future. grew year-on-year by 17%, and BARB’s Project This belief is backed up by the recent announce- Dovetail is currently being developed to incorpo- ment by Netflix that it has committed to 320 new rate viewing on these devices into the currency. hours of original programming in 2015, roughly In Germany, a 2014 survey by Bitkom Research three times the amount it released in 2014. With and Aris found that 73% of Internet users over the original content seen as a key driver of subscriber age of 14 – representing more than 40 million Ger- growth, this strategy appears likely to strengthen mans – stream videos21. Furthermore, the study Netflix in the markets where it has already estab- found that 33% of video streaming users replace lished a foothold. conventional television completely or partially, and One strategy for ensuring viewers remain loyal 18% of streaming video users would be prepared to to incumbent Pay TV and Pay VOD providers lies abandon TV completely in the future. in retaining the exclusive, high quality and locally However, whilst these findings may appear to be produced content that differentiates them from alarming, audience data from the measurement international competitors. These newcomers body AGF/GfK Fernsehforschung actually show naturally take the position of complementary ser- listening across the population as a whole to have vices rather than viable alternatives in the eyes of risen consistently year-on-year between 2009 potential subscribers if they do not carry the best and 2013, and viewing in younger target groups locally produced content. has also remained very stable22. Several of the egta members surveyed do not see A report by Goldmedia found Amazon Prime In- the entry of OTT providers as a direct threat, and stant Video to be the market leader in VOD in Ger- in fact believe it could encourage the use of their many, with roughly three times the frequency of own OTT services, which dominate market share in use as its nearest challengers, iTunes, Maxdome some countries. These companies view indepen- (ProSiebenSat.1), Google Play and Netflix23. dent OTT services as complementary to TV viewing, and the most pressing challenge is to ensure / / Should broadcasters fear the that all TV content, whenever and however it is entry of OTT services on their viewed, is properly measured. markets? UK broadcasters have had some time to gauge the impact of new OTT services, Netflix and Amazon In 2014, egta carried out an extensive survey of its Prime in particular, on their market. On the one members to better understand how broadcasters hand, Danny Cohen, the BBC’s Director of TV noted and their commercial arms see the possible effects to The Financial Times in December 2014 that Net- of OTT services on their markets. A small majority flix has deeper pockets than the BBC for acquiring of respondents to the survey do indeed consider content, which alongside greater investment in that international OTT services represent a threat drama from Sky and ITV is causing the corporation to their businesses, believing that linear/live TV will to adjust to a “hybrid world” of both live and online

Page 16 Figure 09: TOP 10 VOD providers in germany Question: “Which VOD service do you use most frequently, regardless of the business model?”

3.1% Videoload 2.3% 4.4% Watchever Unitymedia 33.2% 5.7% Amazon Prime Instant Video Amazon Instant Video 8.0% Netflix 2015 10.8% Google Play

11.3% 12.1% Maxdome Others 11.3% iTunes

Source: Goldmedia 2015. Online survey in Feb. 2015, N=1. 120, 18-69y German Internet users

© Copyright egta 2015. All rights reserved. Page 17 viewing. On the other hand, Paul Kanareck, Direc- / / TV broadcasters’ initiatives tor of Online and Brands for ITV, told the Digital TV to counter international OTT World Summit 2014 that he does not see Netflix as a major competitor for free-to-air broadcasters, services or indeed to ITV’s own on demand service, as they Feedback given by egta members suggests that serve different needs of viewers. there has, to some extent, been a reaction to the The phenomenon of binge viewing may, as OTT arrival of international OTT services, such as Netf- usage increases, present a threat to linear broad- lix, usually taking the form of adaptation of locally casters if it translates into a widespread and fun- developed services. However, broadcasters have damental change to the way television content – for the most part been developing their own OTT and especially series – are watched. Netflix carried services primarily as a response to growing de- out a survey in the US in late 2013, finding that 61% mand from viewers looking to access non-linear of its sample of almost 1,500 TV streamers binge content on a greater variety of screens. watch regularly, which translates as watching 2-3 Although there have been a few notable initiatives episodes back-to-back at least every few weeks24. jointly developed by consortia of broadcasters on Naturally, OTT services have far less traction in a single market, regulatory obstacles have pre- the less digitally developed markets and are not vented this from taking place in countries such as expected to have an impact on the television busi- Germany and the UK. The German private broad- ness for the foreseeable future. casters RTL and ProSiebenSat.1 attempted to develop a common VOD platform under the working / / The impact of international title Amazonas, but this was rejected on competi- OTT services on incumbent tion grounds by the country’s cartel office in 2012. A similar effort by the public broadcasters, provi- platforms sionally titled Germany’s Gold was also blocked by Only a small proportion of egta members surveyed legislation. In the UK, an attempt was made to expect to see subscription withdrawals or revenue bring content from BBC Worldwide (the commer- losses as a result of international providers com- cial arm of the BBC), ITV.com and Channel 4’s 4oD ing into their markets, with a number believing that onto a joint VOD platform under the working title locally-based services may actually benefit from Kangaroo. This was blocked by the UK’s Competi- market stimulation. tion Commission in 2009, and the technology was bought by the telecommunications infrastructure Similarly, there is no widespread expectation that company Arquiva, which launched a new service the price of domestic OTT services will be driven called SeeSaw. Offering both A-VOD and T-VOD down by international entrants. online and, later, through a set-top box, the project ultimately failed in October 2011 on commercial One advantage that incumbent broadcasters enjoy grounds. is the possibility to drive usage of their own OTT platforms using the powerful reach of their linear It is worth noting that following the regulatory fail- channels. This offers an excellent opportunity to ure of Kangaroo, the UK free-to-air broadcasters invite viewers to transition from the linear environ- developed a successful IPTV service called You- ment to the VOD platform View alongside three telecommunications companies. This platform offers VOD services via a set- top box under a range of funding models including Page 18 Belgium in 2014, has a different content offer, in that it presents series and movies rather than bundled linear TV content.

stievie (Belgium)

Stievie is an innovative second screen service that brings the content of the Flemish private and pub- Canal+ (FRANCE) lic TV broadcasters together on a single platform. Stievie stands out on the European marketplace, as it offers programming from several publishers Leading French Pay-TV operator Canal+ has taken in the same app-based environment. The service, a number of steps to support its OTT destinations. launched in December 2013, is priced at €9.99 per Some of these initiatives are outlined below: month. • Developing co-production of original series to In an interview with egta, Calogero Macaluso, be used as traffic builders Marketing Lead at Medialaan, explained that the • An advertising campaign for CanalPlay Infinity objective behind the Stievie launch was to intro- to attract new subscribers duce new and richer models of viewing for tele- • Recommendation tools in set-top boxes and vision audiences. Time-shifted and place-shifted second-screen apps linked to viewers’ prefer- viewing on different screens became available for ences the first time, and the service is therefore impor- • Allowing the binge viewing of complete sea- tant as a driver of innovation. Following the launch sons of series of Stievie, the Flemish television operators also • Broadcasting of American series in Day+1 introduced catch-up functionalities into their set- • The creation of a YouTube channel, which is top boxes. used to drive viewing of Canal+ content The television content on Stievie retains the ad- • A simplified second-screen offer that integrates vertising originally included in the linear broadcast. all Canal+ and CanalSat apps into myCanal In the current premium version of the app, users • Extension of access to devices such as can fast-forward this if they so choose. Impres- Chromecast and games consoles, in order to sions generated through viewing in Stievie are not reach younger audiences that may have moved measured within the television currency. away from viewing linear TV on the television set. Calogero noted that Stievie is positioned as a com- panion service to both linear free-to-air television and to Netflix: The US service, which launched in

© Copyright egta 2015. All rights reserved. Page 19 A-VOD, T-VOD and S-VOD. Catch-up content from networks (VPNs) allow users to access content on- the BBC is both free to view and free of advertis- line that would otherwise be blocked. In a notable ing, and the line-up includes Netflix and the Pay TV example of this, Iceland Review reported in Febru- operator Sky. In February 2015, rival DTV opera- ary 2014 that one in four people aged 18 to 29 in tor Freeview announced Freeview Play, a new OTT Iceland, a country in which the service has yet to service that will offer a similar range of catch-up launch, have a Netflix account26. and on-demand services to YouView, although It is difficult to estimate the scale of illegal OTT without access to Netflix or Amazon services. usage, or its direct impact on the viewing of legal In Belgium, the Flemish public and private broad- linear or non-linear content. casters have jointly developed an app-based S- VOD platform called Stievie, priced at €9.99 per / / Legal issues month. This OTT service, launched in December A range of legal considerations apply to OTT ser- 2013, offers viewers access to the participating vices, both at the national and international levels, broadcasters’ channels on alternative screens and and different rules may apply depending on the devices and offers the opportunity to view content platform’s specific business model and content on demand. With a monthly subscription fee of offer. Content distribution and rights issues deter- €7.95, the NLziet platform in the Netherlands also mine when content such as movies may be made brings the stations from this market together into available on paid and free linear and non-linear a single subscription OTT service, and it represents audiovisual platforms, and these vary considerably a joint project of RTL, SBS and the public broad- between countries. casting organisation NPO. Competition and anti-trust rulings have prevented / / The problem of piracy broadcasters from developing joint platforms in countries such as Germany and the UK, as de- Illegal sharing, on a transactional basis or oth- scribed above, whilst multi-broadcaster projects erwise, of video and audio content was a market have been successfully launched in, for example, reality long before the Internet age. However, the Belgium and the Netherlands. In Germany, the rapid development of fixed-line and later broad- reasoning of the Bundeskartellamt in blocking RTL band and mobile connectivity have brought piracy and ProSiebenSat.1 in 2009 from developing their into the mainstream. In a 2014 report, the Euro- proposed Amazonas service focussed on the domi- pean Commission found that VOD operators al- nance of these two players in the television adver- most universally consider piracy to be a significant tising market, whilst the UK Competition Commis- barrier to user adoption of legal – and in particular sion’s decision in 2009 to prevent the BBC, ITV and – paid services25. Channel 4 from launching a joint service was based Illegal access takes various forms. Torrent or on the Commission’s belief that such a platform peer-to-peer sharing sites such as The Pirate Bay represented too much of a threat to competition in and Popcorn Time continue to make very recent the nascent UK video-on-demand market. movies and television content available for ille- OTT services are subject to the Audiovisual Media gal download despite repeated attempts to close Services Directive (AVMSD), which regulates ad- them down. Whilst almost all legal OTT services, vertising on linear and non-linear “TV-like” services regardless of their business model, restrict access at the European level, regardless of the device on to particular geographies, the use of virtual private which the content is consumed. A 2013 European

Page 20 figure 10: expanding universe of ott devices

ott environment

STB

smart

Audiovisual Observatory report noted that the aim / / The current relationship of the AVMSD is “to ensure that basic principles of between TV broadcasters and the internal market such as free competition and equal treatment be respected in order to provide external OTT services transparency and predictability in markets for au- Cooperation with external OTT services ranges diovisual media services and to achieve low barri- from the basic level of accepting them as advertisers to entry.”27 ing clients to deeper relationships involving licens- This Directive is most clearly applicable to services ing deals with broadcasters and potentially offer- that are partially or wholly funded by advertising access to their content inventory. ing; however, on demand services are subject to Broadcasters and their sales houses have taken fewer rules compared to linear services. Even in different approaches to promoting Netflix and cases where the business model is direct funding other services through paid advertising. When egta (S-VOD or T-VOD), the Directive may still apply to members were surveyed, less than half of the re- any sponsorship and product placement that may spondents currently engage in some form of co- be contained within the content being made avail- operation with these services, and this is generally able to viewers. only to the extent of allowing them to advertise on their channels. This study does, however, indicate that broadcasters are not closing the door to po-

© Copyright egta 2015. All rights reserved. Page 21 tential collaboration in the future. made available in Sweden in the second half of 2015 followed by roll-out in the other Nordic mar- A number of broadcasters, including RTBF in Bel- kets where Bonnier and C More are present. gium, France Télévisions, ZDF in Germany, TV3 in Latvia and atmedia and Polsat in Poland do not al- Looking further ahead, the public broadcasters low external OTT services to buy airtime on their under the European Broadcasting Union (EBU) channels. Polsat, for example, only allows adver- umbrella may consider a joint VOD service across tising of its own OTT service, ipla.tv. Goldbach Me- many European territories, as stated by ORF Direc- dia in Switzerland imposes very strict restrictions tor General Alexander Wrabetz in the newspaper on what Netflix is allowed to air on channels in the Die Tageszeitung29. Compared to existing, national sales house’s portfolio. services, such an undertaking would represent a huge project, with licensing rights in particular During a meeting with a delegation of egta mem- presenting a serious hurdle. However, potential ber executives, Ted Sarandos noted that Netflix audiences for such a service would be very size- had already developed some original shows under able, and shared development would represent an shared licence deals with European broadcasters, opportunity for considerable cost savings. including Derek in the UK and Lillyhammer in Nor- way. Just as market forces and viewer behaviour have influenced the current OTT landscape, so they will Television distributors are proving more will- continue to do in the medium to long terms. It may ing to develop a deeper interaction. In France, for be unwise to predict at this stage which business example, Boygues Telecom, Orange and SFR are models and platforms will survive and thrive in the integrating Netflix into their platforms, but only coming years, and which will not, until the OTT for some subscribers. Amongst others, Netflix landscape in Europe reaches greater maturity. also has distribution partnerships in place with Proximus TV (Belgacom) in Belgium and Entertain (Deutsche Telekom) in Germany. / / Future perspectives

There is little doubt that the rich OTT offer available will continue to expand and that high quality, linear and non-linear video by Internet distribution will be consumed by increasing numbers of viewers. This is expected to be driven both by subscriber growth for existing market leaders, such as Netflix, HBO Go, Maxdome and others, as well as new services being brought to the market.

As reported by news portal C21Media, the Bonnier media group is preparing to launch a Nordic VOD platform to consolidate the S-VOD of its subsid- iary TV broadcast groups, including TV4 in Sweden and MTV Media in Finland, alongside C More and Svensk Filmindustri28. The platform is due to be

Page 22 Registration, which has been in place for a few years now, will become mandatory with the launch of ALL 4. Channel 4’s data strategy has enabled it to introduce demographic targeting to online video advertising, replicating linear TV audiences. This targeted advertising makes up around 30% of the inventory in 2015, and should reach 50% in 2016.

Beyond simple pre- and mid-rolls, Channel 4 has developed a series of sophisticated interactive ad Channel4 (UK) formats under the iVOD umbrella. 20% of revenues are generated from iVODs, the remainder coming from classical spots. The new formats include Ad-Elect, which allows the viewer to a choice over Channel 4 was the first broadcaster in the world ad creative; Ad-Social, integrating social media to offer a VOD platform, launching 4oD in 2006. sharing; Ad-Extend, with longer-form commercial Channel 4 has a history of innovating both in the content; and – soon to be launched – the highly development of original TV content and in the de- innovative Ad4U, which offers viewers the oppor- livery of advertising. With the exception of its Pay- tunity to receive advertising personalised to the VOD service Film4oD, all of the content on 4oD is user level. available for free and funded by advertising. Pro- gramming from Channel 4, E4 and More4 is avail- Notable personalised advertising examples from able for 30 days post-transmission, with high- 2014 include a version of the Share a Coke cam- lights from the past also accessible in the archive. paign for Coca-Cola, in which the viewer’s own name appeared on a bottle in the ad, and a cam- Although 4oD originally launched using a trans- paign for the luxury brand Burberry that saw the actional model, access became free shortly after- viewer’s initials monogrammed onto a bottle of its wards. In a conversation with egta, David Amodio, My Burberry fragrance. The spot allowed viewers Digital and Creative Leader at Channel 4, explained to click through and buy their very own mono- the reasons behind the advertising-funded model. grammed bottle. “Being a public service broadcaster and having a completely ad-funded model on the linear platforms means that it is a more natural strategy for us to transfer this model to the VOD service.”

David also noted that the VOD offer would be re- branded as ALL 4 from March 30 2015, bringing the broadcaster’s linear channels, digital content and services into one place, also offering live streaming for the first time. Transformation of the digital offer is being driven in part by changes to the way people watch TV: a quarter of 4oD’s traffic is now on mobile devices, and mobile viewing via ALL 4 is seen as an increasingly important for the future.

© Copyright egta 2015. All rights reserved. Page 23 / / References 20: Advanced Television (March 2, 2015). “UK multiscreen viewing up 17%”. Advanced Television 1: Steel, E. (July 21, 2014). “Netflix, Growing, Envisions Expan- 21: Krieger, J. (November 20, 2014). “Germany: video stream- sion Abroad”. The New York Times ing pushes down TV consumption”. Broadband TV News 2: Pellet, V.; Druelle, A.; Galzy, C. (2014). De l’intérêt d’investir 22: AGF/GfK Fernsehforschung (2014) de nouveaux espaces stratégiques pour redynamiser le marché de la vidéo en France. Kurt Salmon 23: Goldmedia (February, 2015). Online survey

3: Cee TV News (November 20, 2014). “Nearly 64 million Rus- 24: Netflix Media Center (December 13, 2013). “Netflix de- sians using OTT services”. Cee TV News clares binge watching is the new normal”. Netflix Media Center

4: McDonald, A. (August 5, 2014). “The Netflix effect –OTT in 25: De Vinck, S.; Ranaivoson, H.; Van Rompuy, B. (2014) Frag- Europe”. Digital TV Europe: Informa mentation of the Single Market for on-line video-on-demand services: point of view of content providers. A study prepared 5: egta c/000 (2014) for the European Commission DG Communications Networks, 6: Eurostat (2015) Content & Technology by iMinds

7: Digital TV Research (2014). European Digital TV Databook. 26: Stefánsson, P. (February 20, 2014). “Netflix illegal but Digital TV Research hugely popular in Iceland”. Iceland Review

8: Bogen, N.; Jurkevic, J.; Zhao, W.; Hamza, M.; Rodriguez, M.; 27: Cabrera-Blázquez, F. (2014). What is an on-demand Ser- Gaber, P. (2014). Strong growth projected worldwide for OTT vice? On-demand services: made in the likeness of TV? Euro- subscription video-on-demand services. SNL Kagan pean Audiovisual Observatory

9: O’Toole, J. (July 21, 2014). “Netflix passes 50 million sub- 28: Akyuz, G. (March 02,2015). “Bonnier preps Nordic SVoD scribers”. CNN Money service”. C21Media

10: Tretbar, A. (2014). “Netflix could top 100 million interna- 29: TVbizz (November 14, 2014). “EBU members considering tional subscribers by 2020”. Digital Trends joint VOD platform?”. TVbizz

11: Decipher (2014) mediabug - Wave 5 Report. Decipher

12: Steel, E. (December 8, 2014). “Research Confirms the Crowd: Netflix and Others Are Upending the TV Business”. The New York Times more on this topic

13: Bogen, N.; Jurkevic, J.; Zhao, W.; Hamza, M.; Rodriguez, M.; Editorial committee: Gaber, P. (2014). Strong growth projected worldwide for OTT subscription video-on-demand services. SNL Kagan Caroline Brasseur

14: MTM (2014). Prospects for Premium OTT in Western Eu- Head of TV rope. MTM E: [email protected]

15: Jolin, A.; Le Borgne, F. (2014). Netflix en Europe. IDATE Matthew Carver Research Radio Coordinator

16: Bond, S.; Garrahan, M. (February 22, 2015). “Broadcasters E: [email protected] fear falling revenues as viewers switch to on-demand TV”. The Financial Times more on egta 17: Steel, E. (December 8, 2014). “Research Confirms the Crowd: Netflix and Others Are Upending the TV Business”. The egta New York Times 22, Rue des Comédiens, boîte 4

18: Bjørnstad, N.; Tornes, K. A. (2014). “Medieåret 2013- 1000 Brussels 2014. Medieutvikling i Norge: Fakta og trende”. University of Belgium Bergen T: + 32 2 290 31 31 19: TNS Gallup Danmark, Finnpanel, TNS Gallup Norge, MMS T: + 32 2 290 31 39 Sweden (2004-2014) www.egta.com @egtaconnect Page 24