New over-the-top (OTT) Pay-TV services seem to pop out like mushrooms after the rain these days. This is especially true in Europe, where content providers’ willingness to explore new monetisation models is greater. Danny Peled, co-founder & CEO of Vidmind, examines the motivations and challenges faced by these new entrants
Last year, Swedish operator Magine announced it was expanding into the Spanish pay-TV market, representing a significant shift towards the ‘appification’ of TV content. Jazztel, the UK-based company, also targeted Spain with a launch of pay-TV services over broadband.
Even in the cable-dominated US Pay-TV market, almost every cable and satellite company now offers some form of TV Everywhere streaming video service. However, most of those services are made available as free add-ons to cable subscription and purposefully under-marketed, so as to not cannibalise traditional revenue.
It is the nature of disruptive technology to eventually fill the gaps left by outdated business models, transforming the market in the process. As US consumers increasingly cut cords away from cable and instead move to the internet and free over-the-air (OTA) reception, leading ad-funded video publishers such as YouTube, AOL On, and Yahoo are launching premium TV-everywhere initiatives. In the meantime, forlorn cable companies battle each other in a bidding war for Hulu, which recently took a turn as shareholders decided not to sell, but invest additional $750m in funding, further solidifying the industry’s trust in OTT.
Toys and Pizza TV?
Indeed, interesting times are upon us. However, perhaps the most interesting of all current phenomena in the Pay-TV market is the emergence of a new breed of TV operators.
As demand for OTT video has steadily risen, a wide spectrum of businesses are being drawn to content services – from Target testing an OTT service, through Best Buy’s acquiring CinemaNow to Walmart launching Vudu, or Intel’s virtual pay TV offering. Since 2010, more and more retailers, such as Toys R Us and other consumer brands like Domino's Pizza or Cinepolis have acquired or partnered with technology platforms to become OTT TV operators.
What is the sudden attraction for those brands to foray into (what is, for them) a brave new world of TV services? What market conditions have changed to enable this transition, or is it a new technology that removes entry barriers for them?
It seems that a combination of great expectation offered by OTT mixed with disappointment at the current offerings has led to a pent-up frustration that the new entrants are keen to exploit. US TV cord cutter will reach 4.7m (4.7%) by year-end 2013, according to research from The Convergence Consulting Group. But what do these consumers expect? What are they disappointed with? Looking at hard data, it is obvious that consumer behaviour has changed. Has the cable offering changed respectively?
- Linear TV is still very popular. According to a 2012 Nielsen report, the average American spends more than 34 hours a week watching live television. In the UK, live viewing continues to thrive despite the popularity of video-on-demand. According to a 2013 Thinkbox study, UK viewers continue to watch live TV 90% of the time.
- More content is viewed on-demand. According to a 2013 YouGov research, Most 18-24 year olds watch more catch-up TV on their lap-tops than cable
- Smartphones and tablets changed consumer habits. According to Ooyala 2013 report, Smartphone Video viewing grew 87% in 2012. Tablet video viewing grew 110%
- Social Networks and ad intolerance. According to Nielsen, 50% aged 25-34 visit their Social accounts during ad breaks. This of course, renders the entire $200bn global TV ad business model outdated
- TV viewing is becoming more interactive. For example, 85,300 tweets were posted per minute, during the 84th Annual Academy Awards (Oscars). On Facebook, 43m Grammy-related updates were posted.
Cable content bundling has long been alienating subscribers. Why pay for premium channels when so many providers offer video-on-demand? From game consoles to dedicated media streamers, from original series to live sporting events, content is available for selective picking via numerous services and millions of subscribers are ready to cut cords and costs.
In addition, the TV interactive experience now seems limited in comparison to other media platforms such as smartphones and gaming consoles. Digital content is personalised, searchable, rewindable and has social network connectivity. While linear TV content is none of the above. Even in Smart TVs the experience is not any better unless broadcasters allow their content to be delivered in digital format though apps.
The video delivery game plan is rapidly changing. The factors affecting it have converged to enable an unprecedented opportunity for new entrants to TV service providers. HD video streaming has become a reliable infrastructure for video. Up until four years ago or so, broadband was the only thing stopping video from dominating the web.
Over time, two different phenomena will occur simultaneously.
First, internet pipes are exponentially broadening with service providers such as Google Fibre now providing 1Gb to the home.
Second, video codecs are increasingly becoming more efficient, allowing higher quality viewing, at a lower bitrate. This is especially true of the new HEVC format. As a result, the internet is now commonly perceived as a reliable platform for both live and on-demand video. Netflix’s 30m subscribers will testify to that fact, as well as the 10m subscribed to Watch ESPN, the network’s app streaming live TV 24/7.
Cable’s dominance has also waned as Digital Terrestrial Television (DTT) has also matured. In the UK for example, where free-to-air channels are especially popular, there are currently 54 free channels available, and with the newly standardised DVB-T2 format, viewers are able to watch even 1080p HD content over the air.
These free-to-air alternatives are increasingly consumed on more interactive and application-centric platforms such as Android and Linux enabled Smart TV that now account for 22% of the global TV set market. While consumers are eager enough to cut costs and the market is rife with various OTT services, when it comes to providing a holistic experience in a single media ecosystem, a significant market gap is apparent.
The Verge magazine conducted an interesting experiment whereby its staffers spent a few weeks trying to ‘live’ exclusively in various media ecosystems.
Disappointment ensued when everyone found holes and frustrating omissions that inevitably returned them to television. The Verge further reports that it was mostly content that brought users back; a favourite show missing, or the inability to watch live sports. No one really wanted to use a cable box again. It’s message to providers: “Offer the right content on a device with a superior user experience and there’s no turning back.”
Revolution on the horizon?
Cloud TV is the technology to enable this revolution. From content ingestion to service delivery and enrichment, a cloud TV platform can eliminate both set-up costs and the risk involved in launching a Netflix-like service. In the TV services business, content still and will always reign, and the content licensing factor still weighs heavier than the technology one.
Cloud-based architecture and a ‘pay-as-you-grow’ business model allows companies to be first to market with local or limited catalogue, test-drive their service, and scale up rapidly as soon as they secure more quality content. Analysing the different industry verticals most attracted to the Cloud TV opportunity, we see many different business rationales:
- Mobile or internet providers that wish to expand to Pay-TV
- Retail networks that are planning to switch over to digital sales and away from the declining business of DVD & Blu-Ray
- Broadcasters and content providers that wish to cut the "middle-man" and become operators
- Any other company (fibre network operators, for example) that wish to offer internet TV services
Although Netflix was an anonymous brand when it first emerged into our lives in the late 90s, almost of the companies we listed above have in common at least one or all of the leverage points below:
- Brand recognition that consumers know and relate with
- Points-of-sale where a dedicated set-top-box can be retailed and provider representatives can meet and assist consumers
- Customer relationship and equally important, a billing relationship that consumers trust
The internet is changing the TV market dramatically. Consumers are looking for a better experience, at a lower price. The cloud will soon make ‘TV everywhere’ a reality.
Our TV will become social and we will enjoy content on multiple screens simultaneously. We will discover new movies and games on our mobile devices, push them out to bigger screens and communicate with our friends as we watch them. We will purchase items and interact with brands we see on TV. We will curate our own video ‘channels’ and follow those of celebrated public figures and brands.
The technology has matured and the recent IBC 2013 provided a great opportunity for the non-traditional broadcasters to start the journey in a market with a great deal of pent up demand.