OTT Development

OTT Video services expand to global levels by Brett Sappington, Senior Director of Research, Parks Associates

Pay-TV providers have felt the impact of this OTT revolution on both subscriptions and AR- PUs. In the U.S. market, one of the most mature global markets for OTT video services, pen- etration of pay-TV services has declined over the past few years as volume of OTT subscrip- tions has increased. A 2015 Parks Associates study showed that one-third of U.S. consumers that downgraded their pay-TV service claim that OTT leader Netflix and similar services influenced their subscription decisions.

Brett Sappington, Director, Research As a director of research at Parks Associates, Brett Sappington leads Parks Associates services research team, includ- ing access and entertainment services, digital media, OTT, cloud media, video gaming, and technical support services. Brett is an expert in worldwide television and broadband services. His personal research focuses on the activities and trends among operators and the market forces affecting their businesses. Brett is a regular speaker and moderator at international industry events. Brett has spent over eighteen years in the industry as an analyst, executive manager, and entrepreneur. Previously, he founded and served as vice president for Teligy, a software company specializing in software for wired and wireless communications systems. Brett established new divisions for networking and audio/multimedia software for Intel- ligraphics. He has also been involved in the development and marketing of early-market products for 802.11 wireless networking, VoIP, and other technologies. Brett holds an MBA from the University of Texas at Austin with a concentration in high-tech marketing and a BA in physics from Baylor University. Industry expertise: International Digital Living Trends, Television Services (IPTV, cable, satellite/DTH, terrestrial/ DTT), Broadband Services, Multiscreen Services, Value-added Services, Cloud-based Consumer Services, Set-top

OTT video services continue to grow and 2020, and the total number of sub- on a global stage, with new players scriptions will more than double in that flooding the market and trying to cap- timeframe. ture a share of this emerging sector. The result has been a new era of competi- Pay-TV providers have felt the impact tion among video service providers and of this OTT revolution on both subscrip- video delivery solution vendors, with tions and ARPUs. In the U.S. market, that competition ultimately delivering one of the most mature global markets a more immersive TV experience for for OTT video services, penetration of consumers. pay-TV services has declined over the past few years as volume of OTT sub- According to Parks Associates, 210 scriptions has increased. A 2015 Parks million connected households world- Associates study showed that one-third In the face of expansion by Netflix, Am- wide will hold a total of approximately of U.S. consumers that downgraded azon and others, several operators have 300 million total OTT video service their pay-TV service claim that OTT responded with OTT video services of subscriptions from a variety of service leader Netflix and similar services in- their own. Singapore’s SingTel intro- providers by 2020. Over 100 million fluenced their subscription decisions. duced HOOQ in a joint venture with additional households will subscribe Sony and Warner Bros in early 2015, to an OTT video service between 2014 offering the OTT video service in the

Asia-Pacific III | 2016 . 11 OTT Development

Philippines, India, Indonesia, and Thailand. in global markets, or original content pro- must work around existing content distribu- In the U.S. market, telcos AT&T and Centu- duced in those markets, in order to better tion agreements in order to offer direct-to- ryLink plan online versions of their pay-TV attract subscribers. consumer services. offerings. Running counter to the need for local-lan- OTT video services also provide content Over the past several months, several global guage content is the increasing appetite for producers with important self-distribution operators have tested this approach, trial- international content via OTT video ser- advantages. They allow content producers ing offerings in selected markets. For those vices. Some of this demand is generated by to distribute their self-produced or glob- like CenturyLink, online versions of full expatriates interested in content from their ally-licensed television content worldwide. IPTV services expand the operator’s effec- home markets. However, some types of In the event that content producers cannot tive market beyond the wireline footprint, content are able to attract viewers regard- gain television carriage in particular global a notable benefit so long as operators can less of original language, including dramas, markets, they can quickly make their content provide OTT delivery with adequate ser- children’s programming, music, and Japa- available to consumers in those markets on- vice quality. Extending market reach is ef- nese anime. line. If demand is adequate online, it could fective in situations where the OTT service encourage distributors to pick up network is differentiated or has cost advantages over Global expansion comes with obvious ben- channels or license particular content. Cur- rivals in the new territory. Without differ- efits. A global presence significantly ex- rent pay-TV economics (particularly in the entiators, expansion may simply invite ad- pands a service’s potential user base, which U.S. market) are pressuring pay-TV provid- ditional competition from players currently translates into opportunity for greater rev- ers to reduce channel package costs. Squeez- outside of the footprint. enues. Global operation provides greater ing cable network channels out of their scale across which investments in software channel packages is one option. OTT video Skinny bundles provide a new element of development and original content can be services provide cable networks with an op- personalization. These options are tailored spread. In addition, streaming rights for out- tion to reach consumers directly if carriage to reach new consumers that are opting of-market content are much less expensive fee negotiations break down. against the full pay-TV offering, allowing than for home-market content. Although operators to acquire greenfield customers language and imaging may change across Content producers’ need to fully monetize rather than luring customers away from ri- markets, the fundamental workings of apps content assets will ultimately drive all con- vals. They emphasize greater choice, though for various connected devices work across tent producers to add consumer-facing OTT at the cost of a higher price per channel than global markets. video services. Easily available delivery sys- larger pay-TV bundles. So long as these tems, ad networks, monetization tools, and subscribers are incremental to current pay- Content producers look to direct-to-con- content protection technologies have low- TV households, operators will end up with sumer options ered the barriers to entry to the point where higher overall revenues and profits. content producers can quickly break even Over the past year, content producers have on such ventures. Today’s content producers The great fear (and great unknown) for the been increasingly aggressive in establish- actively interact with consumers via social industry is the level of cannibalization that ing or acquiring their own direct-to-con- media and content-related websites, provid- skinny bundles will produce. Substantial sumer OTT video distribution options. ing a ready-made channel for self-promotion cannibalization will result in a net decrease Examples include U.S.-based Warner Bros. of new OTT service offerings. in revenues for the overall pay-TV industry, acquisition of Korean-language service which will impact the entire ecosystem, in- DramaFever and new services from U.S.- Non-traditional players enter the fray cluding content producers. based Turner Classic Movies (FilmStruck) and Starz. At the end of 2015, Hong Kong- Because barriers to entry for OTT video are Some have introduced OTT video services based PCCW Media had launched its Viu so low, a variety of players from outside of that offer options other than linear TV, ex- OTT video service, which is now available the traditional television and movie indus- tending the operator’s reach into areas com- in Hong Kong, Malaysia, Singapore, India, tries have introduced new services in the plementary to their core pay-TV services. and Indonesia. past year, including print publishers (Time), While all are designed to be revenue-posi- social media platforms (Twitter), and music tive, most provide benefits that impact core Direct revenues from consumers is an im- services (Spotify). services, including differentiation, incent- portant motivator, particularly for sports ing upgrades or higher tiers of service, or leagues, premium movie channels, or For many of these new participants, the in- defense against rival services. those monetizing older content libraries. cremental, direct revenues produced by OTT For broadcasters and cable networks, OTT video services pale in comparison to other Global expansion: Challenges and benefits video services generate a greater impact benefits, including differentiation, driving through building audiences and increas- consumption of related offerings, and sales Although only a handful of OTT service ing brand awareness than from direct sub- of related products or services. As a result, providers currently compete globally, the scription revenues. Improved awareness such companies use substantially different global expansion of OTT services has come and larger audiences translate into higher key performance indicators (KPIs) and have with its share of obstacles. Netflix has wit- licensing fees or greater ad revenues, which different goals for success than traditional nessed the challenges firsthand, with the typically eclipse consumer-paid revenues. video services. Among those goals, compa- streaming giant receiving criticism in sever- Content producers’ approach to direct-to- nies aim for increases in unique users to on- al European and Asian markets for offering consumer OTT video services differs based line properties beyond video site, downloads little local content. That criticism has forced on the content producers’ primary revenue or use of brand’s apps, overall sales and sales the OTT leader to slowly add local content sources. In most cases, content producers of related products, brand awareness, and the 12 . Asia-Pacific III | 2016 4/4/16 3:44 PM

OTT Development number of blog or forum posts. including Viu Premium and packages of Ko- rean and Japanese content. Print publishers are adding digital video production and publishing capabilities to Future aggregation will include an integrat- remain relevant to connected users in an ed discovery interface and integrated billing increasingly digital and online-oriented and support operations, providing consum- entertainment world. They primarily lever- ers with a single, reliable point of content to age their advertising roots and emphasize address all of their video needs across con- widespread distribution, user engagement, nected platforms. and ties back to the core print brands. In most cases, the content is documentaries or non-fiction and is not designed for mid-roll advertising breaks as is television content. While these offerings are not likely to re- place television and movie-based services, they will compete for advertising revenues and viewer entertainment hours.

Bundling and partnerships

The fragmentation of video across various services has produced an increasing need for aggregation, by service providers, third parties, or consumers themselves. Stream- ing media players and smart TVs have been the primary aggregators of OTT video ser- vices, providing a single point of contact for users to find and purchase access to various services. Some offer cross-service search functions, but most allow searches across only a small subset of the hundreds of new OTT video services available.

Several pay-TV providers now allow Netf- lix’s app to run on their set top box, particu- larly those offering TiVo-based capabilities. U.S. cable operators Cablevision (now Al- tice U.S.A.) and Verizon also offer HBO Now. Comcast is also integrating Netflix access into its set-top boxes as well. Servic- es such as Hulu and Sling TV are offering alternative, complementary services such as HBO Now with their own offerings. In most cases, the service experiences are not integrated. Instead, each service stands on its own as its own app or experience within the bundle.

Deutsche Telekom provides a marketplace of OTT video services for its customers to purchase, providing centralized purchasing and billing. Amazon’s new partners program represents one of the first major efforts by an OTT video service participant to aggre- gate multiple OTT video services, allowing consumers to purchase and search for con- tent from a single source. Service provid- ers in other markets, including pay-TV or broadband providers, are likely to follow as well. In mid-2016, SingTel announced the launch of Cast, an OTT video portal app that provides single-billing subscription ac- cess to OTT video service packages, includ-

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