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Traditional TV Providers Head Over the Top in Battle with Amazon and Netflix

14 Feb 2017 by: Heather McLean

Service providers are decreasing marketing on their cable, satellite, and IPTV products that offer managed quality of service in favour of new products that use over the top technologies to compete with Amazon and Netflix.

With OTT competition significantly increasing in mature pay TV markets, ABI Research forecasts that live linear OTT video services will grow to approximately $7 billion dollars of worldwide revenue by 2021, from a little more than $1 billion in 2016.

The most recent OTT service launch is DirecTV Now, an AT&T national product with live linear TV. Sam Rosen, managing director and vice president at ABI Research (pictured), commented: “These services meet the consumer demand for anytime, anywhere programming and mobile-centric viewing while targeting a larger national audience. The services fit within carriers adopting mobile-first mindsets as mobile subscriber bases and revenues exceed fixed line revenues, largely due to per-consumer as opposed to per-household connections. This helps win the battle for exclusive content rights but poses strong technical challenges.”

Rosen told IBC Content Everywhere: “OTT services inherently have a national audience with unlimited reach (apartments, multifamily dwelling units, etc,) compared to cable, satellite, and IPTV with a limitation in the number of homes passed. In addition, younger audiences haven’t caught onto pay TV, so promoting these newer offerings has higher ROI due to the low subscriber base and larger potential.

“Younger households in particular have grown up in a generation that does not always think of traditional pay TV first (or at all) when it comes to premium video services; some call these households ‘cord-nevers’. Consumers also continue to shift viewing time to OTT services like Netflix, and while traditional TV services still account for most viewing the service providers know this may not remain the case in the long term,” he continued.

Rosen added: “Traditional pay TV is also well understood in mature markets like the US and Western Europe, so advertising these services is more about direct competition (between video services) than attracting new customers or adding additional services. Video in many cases has simply become part of the bundle with data service assuming the pole position when it comes to marketing service; this is particularly true of IPTV or telco operators. In essence, marketing dollars are best spent pushing mobile and data-oriented services with TV as part of that package, and OTT is a good fit for these marketing campaigns (eg, relates to data usage and wider customer reach).”

Significant investments in technology platforms

Delivering these services comes with many technical challenges. Developing robust content management systems, video transcoding and storage pipelines, application ecosystems, and piecing together adequate video distribution networks are just the beginning. Quality of service assurance, network congestion management, content protection including analytics-based protection, such as modules which limit password sharing, and business analytics are some of the technical challenges to offer mobile OTT services. As mobile video consumption increases, mobile operators are exploring policy-based approaches to meet customer expectations and manage the effects of video services on mobile data caps. 

The technical challenges are so significant that many operators made significant investments in technology platforms. AT&T/DirecTV purchased Quickplay Technologies to gain better control of its OTT launch. Even so, some outages occurred as the platform scaled. Disney took an equity stake in BAMTech (formerly MLB Advanced Media) to have better strategic control over its syndication platform.

As to whether we see more TV providers buying up mobile technology firms that will help them manage the OTT space, Rosen said, “Yes: pay TV operators and even content owners that are going direct to customers will continue to evolve business models and seek ways to optimise the ARPU across all of their product lines”.

He continued: “Acquisitions are a natural part of adding or bringing in the necessary expertise to best maximise results and expand the operator’s capabilities. We have seen mobile and pay TV service providers merging to move toward converged offerings. AT&T’s acquisition of DirecTV, as well as the Vodafone and Liberty Global merger of Dutch operations, are some examples of mobile and fixed line service providers moving toward converged communication services.”

As to what competition mobile operators pose TV providers in the OTT space, Rosen added: “In many cases, the mobile operators provide TV services as well. Large telcos like Verizon, AT&T, BT, and Telefonica all offer ‘traditional’ TV services, as well as newer OTT services. So in this regard, it’s less about competition between mobile and TV providers as it is evolving the content and services space to best meet consumers’ changing needs and demands.

“Compared to fixed line service, mobile subscriber base and revenue is significantly higher since mobile subscriber count is per consumer as opposed to per household count. Higher subscriber bases allow mobile operators to have wider audience reach compared to fixed line operators.

“When 5G arrives, mobile operators are likely to have even better opportunity to expand their customer base due to the capacity 5G offers and capability to offer fixed wireless broadband in densely populated urban areas,” Rosen stated.

“Mobile has become an essential component of everyday life for many so it is only natural for TV and video to follow. With that being said those pay TV operators without mobile operations could see increasing levels of competition from those that do offer more comprehensive bundles and packages; some cable and satellite operators for instance would find it increasingly challenging if the majority of video viewing went purely OTT.

“This seismic shift, however, where traditional pay TV services only account for a small fraction of total viewing is still a long time off; in other words it’s not quick or easy to erase decades of TV viewing habits across several generations. In the nearer term, though these packaged services help mobile operators differentiate their offerings (between other mobile network operators,) and ultimately continue to help shape overall consumer behaviour.”

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