TV, the Telco way TV, the Telco way TV as the Convergence netgem.com netgem.com catalyst, the Road to netgem netgem Quad-Play TV, the Telco way TV, the Telco way
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netgem netgem TV, the Telco way TV, the Telco way Summary
There is a lot of activity in advanced markets focussed on the roll out or promotion of TV services to support triple and quad-plays. Quad-playnet is gema term that.com has been around a while but actually netit gem.com is early days in this space - less than 5% of the global population receive quad-play services from a single provider. “The greatest change in corporate culture - and the way business is being conducted - may be Quad-play provision is growing fast. A lot of attention has been the accelerated growth of relationships based... focused on large acquisitions by Tier 1 Telcos. In reality, these on partnership.” Peter F. Drucker acquisitions are generally more about consolidation than delivering quad-plays.net Thisgem paper explains why for most Telcos looking atnet TV, gem acquisition or building a service from scratch will neither be a viable, nor the best route, to deliver a compelling TV service. Partnering is normally the best route to market. Given there are many different constituent parts to a TV service, Telcos need to think through how best to partner to launch a TV service and then run the TV service. Opting for a full managed service - (or ‘TV as a Service’) TV, the Telco way TV, the Telco way is the best route for many Telcos. Netgem expect the market to grow rapidly over the coming years with the adoption of the full managed TV service model.
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netgem netgem TV, the Telco way TV, the Telco way
The concept of Telcos bundling services together is not new. There is a surge of activity occurring now to support triple and quad-plays. In Europe, there was a record level of M&A activity in 2014 and 2015 with convergence plays as one central rationale Introduction alongside the ongoing consolidation of the market. The current wave of convergence plays is different from its predecessors and tends to be driven by the need to offer integrated propositions to consumers via true Triple- and Quad-plays across TV, Mobile, Fixed Telephony and Broadband. The convergence is also multidirectional across Mobile, Fixed, ISP and TV providers: for mobile operators this means expanding from mobile into broadband and TV, for fixed providers into TV and wireless, for TV providers netgemphone.com into fixed and mobile.netgem.com There are a range of strategic rationales for these convergence plays which arise from 4 different areas: • Bundling services as a mechanism to boost ‘net adds’ , reduce churn rates and drive customer acquisition while impacting positively on revenue metrics • Respond to actual convergence plays from direct competitors in market netgem • Driving usage andnet comparativegem advantage primarily from network assets (e.g. 4G or Fibre networks) but also from other company assets (e.g. retail or channel capabilities) • Defensive plays against disruptive entrants such as OTT players
mobile TV, the Telco way TV, the Telco way TV
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netgem netgem Number of recent Telco M&A deals: the shift form TV, the Telco way TV, the Telco way in-market consolidation to cross-sector M&A.
European M&A Activity 7 7 These drivers for convergence will continue to underpin convergence across 6 the sector and if anything their intensity will increase over time as more marketsnet mature.gem From a.com TV service perspective, two additionalnet factorsgem will .com only amplify these convergence drivers: 5 • Increasingly high speed and enhanced network capabilities enable 4 TV offers and also play to a Telco strength. High quality fixed/cable infrastructure is one trigger. On the mobile side, pervasive 4G and Telco grade Wi-Fi networks access is a necessary condition for true out-of-home TV experience.netgem netgem 2 2 • Customer behaviour for TV consumption and use will increasingly be more multiscreen, mobile and interactive (see our Netgem white- 1 1 1 paper: ‘Millennial TV. TV, the Millennial Way’ [ http://www.netgem.com/ news/index.php/home-page/millennial-tv/ ]). The rise of OTT players is 2011 2012 2013 2014 2015 one manifestation of this changing behaviour. This usage pattern also TV, the Telco way TV, the Telco way opens up opportunities for Telco provision as consumption increasingly In-market Cross-sector occurs on mobile and computing device on fixed and mobile networks. consolidation M&A deals deals
Source: Convergence: Repositioning in an Expanded Mobile Ecosystem GSMA, November 2015 netgem.com netgem.com
netgem netgem Quad-Play Services: Market Penetration 56%
46% TV, the Telco way TV, the Telco way 42% 38% 36% 36% 32% 27% 29% 24% Quad-Play Penetration 21% Although the term has been around for a while, quad-play as really integrated offers to end users are in their relative infancy. 8% 7% 7% netgem.com netgem.com 5% 5%
Even in the developed world, penetration rates typically are low. Some Belgium France Spain Australia UK Denmark US Germany suggest this is evidence of a lack of demand from end-users. The Netgem view is that quad-play offers will take significant share of market as long Use all Use all as the necessary conditions are meet with regard to network, content, four services, four services, one delivery, price and positioning combining to create attractive offers. multiple providers provider (quad-play This view is derived from our experience in leading quad-play markets such asnet Francegem and our view of how the TV market will evolve netglobally.gem In more mature quad-play markets, penetration rates for quad-play offers are higher and TV becomes both a key differentiator and the “glue” for the overall quad-play offers. Simply, these Telco’s have learnt over time how to manage and deliver each service as well as deliver across the portfolio. Although there can be exceptions, the lower penetration rates in some markets reflect either the TV, the Telco way TV, the Telco way immaturity of the quad play service (and/or execution failure of the Telco or Service Provider as they integrate the parts and learn to take them to market). Source: Convergence: Repositioning in an Expanded Mobile Ecosystem GSMA, November 2015 netgem.com netgem.com
netgem netgem TV, the Telco way TV, the Telco way TV is Different
It is not surprising that triple‐play tended to come before quad. This was partly due to technology synergies with fixed, broadband and mobile being naturally adjacent markets. Historically, the network and network capability has been netcentralgem to service .comprovision for each of these areas. At somenet level,gem voice, data.com and access have played a central part of the service mix across all three areas. Although not simple, the evolution to move across these areas is moving to adjacent markets. The triple-play challenges have often been more to do with organisational size and history and the associated complexity of merging rather than inherent services, technology or customer preference issues. TV is content-based and content is different. First of all, content requires commercial competences that are not inherent to Telcos. These competences include ensuring the right content mix is created that attracts and fits the marketnet or a segmentgem of the market and each market is different.net Big gemforces are changing and shaping and impacting the TV industry ‐ including market, technology, regulatory and customer shifts. Digitization, the internet and mobility are just three forces that, by themselves, would radically reshape the TV industry. The changes in consumer behaviour and usage are fundamental and require TV services that can evolve and match the evolving customer need. These changes create opportunities for new TV providers but also require astute commercial judgment to navigate the industry and get that mix and positioning right at launch and over time asTV, the the Telco way TV, the Telco way market changes.
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netgem netgem TV, the Telco way TV, the Telco way TV is Different
These content competences also include actually acquiring the content from a range of owners and publishers and rights holders across the world so that it can be distributed in the market.net The gemrange of content.com players, content rights and commercialnet structuresgem are.com complex and varied and need to be appropriately negotiated to ensure the right mix and the right “[Proximus]reported that an annualized 2.8% of its returns for a TV service. Finally, content needs to be dynamically managed to ensure the content mix is updated to reflect market changes. The content lifecycle is dynamic with a “quad-play” customers—those that buy the full package varying shelflife. These characteristics again do not fit naturally with the inherently longer of mobile, fixed line, broadband and television—left in planning and operating horizon within the Telco. the first quarter, compared with 20.8% for those that buy just one service.” June 2016 Wall Street Journal The technicalnetgem challenges of delivering TV content are significantnet and againgem different from the Telcos core business. There are a whole range of challenges from the backend to the front; starting from the initial consolidation of terrestrial, IP and OTT content, through to the content management capabilities and processes required to deliver TV content in the system and then across networks to end users on different devices with the right quality of service. With users moving to computing and mobile device and more out-of-home consumption, presenting TV content across multiple screens for consumption, control and companion use TV, the Telco way TV, the Telco way cases is a key challenge. In addition, content creates fundamentally different operational and support processes given that the content and content metadata needs to be constantly managed and updated into and out of the TV platforms.
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netgem netgem TV, the Telco way TV, the Telco way Convergence Options : Build, Buy and Partner
Quad-plays offer Telcos a route to improve key performance indicators (KPIs) like additions and churn, to ensure best utilisation of the network(s) and defend against new players, like OTT players. This has been one partial driver of the M&A activity recently. However, as Telcos think about deploying a TV service, there are actually three options: buy, buildnet or gempartner. .com netgem.com BUILD BUY PARTNER netCOREgem BUSINESS netCENTRALgem TO BUSINESS NON-CORE BUSINESS IN-HOUSE EXPERTISE LIMITED IN-HOUSE EXPERTISE NO IN HOUSE EXPERTISE HAVE TIME TIME CRITICAL REDUCED RISK LEADERSHIP POTENTIAL ACQUIRE LEADERSHIP FAST TIME TO MARKET PATENTABLE TECHNOLOGY IP IMPORTANT TV, the Telco wayLIMITED IP OPPORTUNITYTV, the Telco way POTENTIAL TO PIONEER LEAPFROG COMPETITORS PARTNER BEST OF BREED
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netgem netgem TV, the Telco way TV, the Telco way Convergence Options: Build, Buy and Partner
For a Telco, build is not normally a viable option for a TV service. In the preceding section, the differences in the TV market from a core telco market was outlined. Telcos do not have the in-house expertise in both the technology and the content areas.net Althoughgem rapidly.com changing, the TV market is not a place netwhere gemTelcos will .comnaturally pioneer and there are plenty of players already operating globally and locally in the market in some shape or form. Finally, there will normally be time-to-market pressure and the technology is not patentable. These factors rule out build from the get-go. For many Telcos the buy route is also not viable , at least on the basis of convergence alone. A mix of reasons apply from: • Smaller Telcos will not have the balance sheet capacity to acquire appropriate targets and the viable targets pool (TV suppliers) is limited • Inherently,net gembuy is both a big and risky bet even if the strategicnet rationalegem of consolidation or convergence is sound. “ ….the M&A failure rate is between 70% and 90%1 • An increasingly important constraining factor for M&A activity, in mature markets at least, is regulatory or competition requirements. Telcos in advanced markets may simply be barred from acquisition and need to find alternate approaches to deliver TV/quad-play services So partnering must become the logical choice for many Telcos. Although the TV Service is strategically importantTV, and the ‘core’ Telco way TV, the Telco way and becomes inherent to the consumer offer, partnering should not be seen as some forced or sub-optimal choice. Given the inherent differences of the TV industry to fixed and Mobile, partnering makes a lot of sense. The time to market and risk profile are reduced via the partner route and there is the opportunity to work with market leaders and innovators.
¹The New M&A Playbook; Christensen, Alton, Rising and Waldeck - Harvard Business Review 2011 netgem.com netgem.com
netgem netgem TV, the Telco way TV, the Telco way Convergence Options: Build, Buy and Partner As we look at Telco activity in this area, increasingly they are looking to go-to-market via CSP Implementation Model for Digital Services the partnering route for key new services, especially digital/digital services areas. Even the larger Tier 1 operators are going the partner route for delivering new services/digital AT&T DT Orange Singtel Telefonica Telstra Verizon Vodafone netgem.com netgem.com 100% services . 90% 80% 70% 60% netgem netgem 50%
40% 30%
20% 10% 0% TV, the Telco way TV, the Telco way
In-house Partnership Investment Joint Venture Acquisition Others Source: Market Trends: Eight Innovative CSPs Embark on Digital Service Transformation, Gartner, June 2015 netgem.com netgem.com
netgem netgem TV, the Telco way TV, the Telco way How to Partner/ Which Way to Partner for the TV component of Quad-Play Deliveringnet a gemTV service .comis made of many constituent parts. Therenet are commercialgem.com components, content components and technology components. The Telco needs to launch a viable TV offer and weave it into the quad-play mix. The TV proposition needs to be well positioned head to head against competitors, while offering points of differentiation either within the TV service or within the quad-play. The content mix forms an important part of the offer. Beyond content there will be a huge range of other elements of the service, which will be key to the proposition: everything from a great multiscreen experience, in the home to ‘out-of-home’ capabilities, the abilitynet to recordgem across multiple channels to the ability to storenet significantgem amounts of recordings to offline usage. Ensuring the right content mix for the service is critical to success and the offer normally needs to find a position relative to free-to-air and premium ends of the market while also being differentiated from the IP/OTT plays. Consumer habits are changing and the content mix isn’t just about a portfolio of channels. Determining the content mix then leads to acquiring the content and, as we have noted previously, ensuring the content mix remains fresh and relevant. The OTT/App content mix and integration into the service (accessible, discoverable, searchable) is now key to building the content offer. This whole realm of content is a big task when trying to TV, the Telco way TV, the Telco way deploy over a hundred channels plus internet content, channels or apps and interact with multiple content owners, publishers and aggregators to source the content and then keep it up to date and compelling.
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netgem netgem TV, the Telco way TV, the Telco way How to Partner/ Which Way to Partner for the TV component of Quad-Play Then netwe movegem to the technology.com piece which can include: TV applications,netgem mobile.com applications, service delivery components (content management, content delivery, device management, subscriber management, data and metadata management), enabling apps and databases. Then “We forecast that quad-play bundles will grow there are then operational components of monitoring, maintenance, upgrades of the software and globally at a staggering 39% year-on-year in databases. A managed services is one way to run the TV service. In such a service there are the 2015 – more than double the rate for triple-play.” core systems, applications and databases that need to be run and supported. The managed service KAMALINI GANGULY SENIOR RESEARCH ANALYST, piece is extended due the content based nature of TV and the ongoing need to manage TV content netgem netgem Ovum 2015 and metadata into and out of the system, which is a significant additional managed service task. Big forces are changing, shaping and impacting the TV industry: change is the norm - from chan- ging end user preferences to changes and shifts on the technology and on the content. It is critical to plan in the ability to evolve the TV service over time across both the technology and the content areas. As Telcos assess their TV service, they need to be assessing their vendors against supporting their current requirements and also ensuring the vendor has the ability to innovate and evolve TV, the Telco way TV, the Telco way the service. (See the Netgem Whitepaper on Cloud Deployment as a route to ensure agility: Cloud TV. Outlining the Benefits of the Cloud for Telcos [ http://www.netgem.com/news/index.php/ cloud-whitepaper/ ])
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netgem netgem TV, the Telco way TV, the Telco way How to Partner/ Which Way to Partner for the TV component of Quad-Play Givennet that theregem are a number.com of areas to a TV service, one optionnet is togem treat the.com programme like a large system integration exercise bringing together strategy and commercial advice on positioning, external advisors for content acquisition and ongoing management of content and then splicing together the technology com- ponents and suppliers and finally working out operational support on the core applications and databases as well as operational support for content. At the other end, the Telco can looking for a ‘one stop shop provider’ . Generally we are seeing ‘Managed Service’ providers make significant gains in the marketplace with larger enterprisesnet andgem Telcos. These organizations want the vendor tonet managegem the complexity of the service. Simi- larly, there is some significant surge in interest and support for this kind of model for Telcos as they consider TV services. Partly this is borne of experience where some Telcos have pulled together and built TV solutions themselves and struggled to get commercial traction or struggled to run and operate the TV service. Partly this is also a recognition that TV is different and Telcos need to find alternate ways of going to market than for their core service like voice and data and access. Partnering can also offer the lowest risk profile to the Telco. Financially, the investment levels tend to be lower, especially for capital outlay. Organisationally, there is less need to bring in-house the different ‘TV competences’ needed for the full TV service and the corresponding TV, the Telco way TV, the Telco way headcount and organisational complexity. As always finding the right partner and working the right commercial terms are the key to making the full service TV model work.
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netgem netgem TV, the Telco way TV, the Telco way Conclusion
There is a lot of activity in advanced markets where Telcos are adding TV to support triple- and quad-plays. Much attention has been focused on large acquisitions by Tier 1 netTelcos.gem In reality, .comthese acquisitions are probably driven morenet bygem consolidation.com forces than convergence forces. For most Telcos looking at TV, acquisition will neither be a viable, nor the best, route to deliver a compelling TV service. Similarly, building the TV service from scratch is not a good route to market as TV is not naturally “Do you know we are adjacent to the core business of the Telco. Therefore, partnering is normally the best route to market. ruled by TV” Jim Morrison, Givennet that theregem are many different constituent parts of a TV service,net Telcosgem need to An American Prayer think through how best to partner to launch a TV and run service. At one end of the spectrum, is to create multiple partnerships to build the component parts needed for a TV service. At the other end, is to look at vendors who can manage and own the constituent parts end to end. In effect a full managed service (or ‘TV as a Service’) supporting defining, deploying and running both the technology cogs and the content pieces. Netgem expect the market to increasingly move to this full TV, the Telco way TV, the Telco way managed service model - TV as a Service Model - over the next 5-10 years.
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TV, the Telco way TV, the Telco way
Netgem provides Fixed and Mobile Telecom operators with #TelcoTV a superior TV service, offering intuitive navigation, simple access to the content consumers love, and multiscreen viewing, in and out of the home. We offer the widest choice of local and international linear and ondemand content, with flexibility to enjoy both free and affordable premium channels. With 20+ deployments in Europe, APAC, and South America, and over five million active viewers, Netgem is best placed to partnernet with thegem most innovative.com telco operators and help them win innet gem.com their market. #TelcoTV is what we do, it’s TV the Telco way. TV, the Telco way TV, the Telco way Find out more at: netgem.com netgem netgem netgem.com netgem.com TV, the Telco way TV, the Telco way
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