The over-the-top (OTT) video entertainment space is evolving to encompass diverse business factors, including increasing consumer online video habits and consumption patterns; innovative delivery and monetization models; and shifting roles for existing and emerging industry players. As more and more connected devices come online, service providers are having to weigh their strategic investments now more than ever.
Consumer viewing of long-form video across screens and networks is escalating, with almost half of respondents in a recent survey from Accenture (44 percent) taking in full-length movies and TV shows over the Internet on a daily basis—another 39 percent do so weekly. That rate of digital consumption is already somewhat remarkable, but the market is set to explode as connected device uptake skyrockets—and as consumers become increasingly willing to pay for access to content when and where they want it.
Accenture’s Digital Consumer Survey found that 25 percent of respondents indicated they intend to purchase a connected TV in the next 12 months. And, another 11 percent intend to replace an existing connected television, while 12 percent plan to purchase a tablet, expanding the market of addressable screens considerably.
“If consumers act on these intentions, it will represent remarkable growth in the addressable market for online video,” said Gavin Mann, Accenture’s global broadcast industry lead. “This rapid digital expansion is fostering a new era of personalized TV experiences with the number of video-centric connected devices predicted to surpass the world’s population by 2017.”
That uptake translates into an enormous opportunity for service providers. However, many challenges stand in the way.
When it comes to the extent to which communications providers have transformed their operations and business models to become digital service providers (DSPs), about 31 percent of telecoms and 44 percent of cable organizations believe that enabling content portability is key to becoming a provider of digital lifestyle services, according to new research.
According to a survey from CSG International, many providers believe that the components of that portability—personalization, device authentication and multi-device access to content from a single account—pose serious challenges regarding the ability to drive profit from digital content.
The CSG survey polled decision makers at the top 100 communication service providers (CSPs) in North America and revealed that aside from content portability, key requirements for successfully delivering and growing revenue from digital lifestyle services include settling charges and revenues among complex partner ecosystems, and driving revenue through cloud- or machine-to-machine-based services.
A majority (62 percent) said that they see growth in digital content delivery coming from business services, such as cloud-based or machine-to-machine-based services. And 66 percent estimated a 50 percent or more increase in the number of content partners that require revenue settlement capabilities over the next three years. Meanwhile, 39 percent cite the ability to settle those revenues and charges as a primary hurdle to clear in order to achieve successful and profitable digital content delivery.
About half (54 percent) noted that the importance of managing network traffic sources in real-time as a top capability needed in their revenue management system, followed by multichannel sales support.
"Service providers of all stripes are in the midst of monumental business transformation to ensure their networks, billing and operational systems can keep pace with changing—and growing—consumer demand," said Chad Dunavant, vice president of product management at CSG. "The increased need for portable video content, apps, music, and more across a wide range of devices means the deployment of high-quality systems to support the customer experience, revenue generation and partner management is key to profiting from today's digital lifestyle."
Paying for better service is something that consumers are amenable to as well. With 86 percent in the Accenture survey reporting streaming interruptions and 71 percent noting considerable slowdowns in the viewing experience on a regular basis, it’s clear there’s an opportunity there. In fact, in a particularly encouraging sign for service providers, 60 percent of respondents streaming video at home indicated they were willing to pay for a faster connection, while just as many (62 percent) said they would pay extra for better quality so they could view videos whenever and wherever they like.
“Today’s consumers are viewing so much online video content that they are willing to pay for faster connections,” said Accenture’s Mann. “That’s good news for content owners and for the service providers who are investing heavily in super-fast broadband. The fact that consumers are also willing to pay more for the content itself is a huge vote of confidence in the validity of over-the-top services.”
New Entrants, New Services
Pay-TV providers aren’t going to lose their subscriber bases overnight, but OTT is beginning to create a device-centric brand identity with consumers. When asked to express their preference for a non-traditional broadcaster to provide them access to video, respondents selected Google, Apple and Samsung, in that order. The selections were based on the companies’ potential to deliver pay-TV, video on demand and catch-up TV, which are not the current core capabilities of these companies.
“It is no coincidence that the three most popular brands also have the largest market share of phones and tablets,” explained Mann. “Consumers clearly value content seamlessly bundled with devices – the reason Amazon dominates the e-book market with Kindle - it provides the best end-to-end experience.”
He added, “These disruptors are clearly bringing a lot of new technology to our century-old television viewing experience. Today’s incumbents have a great opportunity if they can innovate, while successfully leveraging their core strengths. Tomorrow’s high performers will be those that combine art and technology.”
Consumers Willing to Take Chances
Consumers in the survey also expressed growing confidence in UltraHD, with 18 percent looking forward to buying an UltraHD TV set over the next 12 months despite a lack of content and streaming outlets. This suggests a trajectory similar to that off HD, where strong early adoption of TV sets ultimately drove up the supply of HDTV channels and Blu-ray discs.
And, despite more than half (55 percent) of respondents expressing concerns about data security, two-thirds (67 percent) said that they are willing to provide additional personal data if service providers will offer additional services or discounts. Of course, these offers need to comply with local data protection laws.
Having grown-up with computers, Millennials appear to be the generation that is most comfortable sharing their personal information, with Generation X and Baby Boomers significantly less trusting.
“Broadcasters must gain this trust if they are going to offer new products and services such as recommendation engines and targeted advertising based on consumer data,” said Mann.
Mobile Video: the Next Frontier
Consumers are viewing digital content across more mobile screens but it remains anchored in the home. The overwhelming majority (more than 90 percent) of all digital consumption still occurs in the home via a fixed line. Bandwidth constraints outside the home also continue to limit mobile entertainment to a highly significant degree.
“There is a significant opportunity here for providers that can offer a truly mobile video experience regardless of location. The race is on to create the compelling mobile user experience, ‘the Spotify for Video’ – which, combined with increased 4G network coverage, could create the next tipping point,” said Mann.
Service Providers Move on OTT
Assuming they can crack the enablement piece of the puzzle, service providers look to be strategically angling to make the most of OTT. Verizon’s acquisition of OnCue, AT&T’s JV with Chernin Group to get into OTT and DISH Network’s steady acquisition of OTT streaming rights ahead of possibly launching its own mobile video service are but a few examples.
The key is that all of these moves will leverage the connected device explosion and wrap in mobile networks.
For instance, in January Verizon said that it would acquire the assets of Intel Media, including the OnCue cloud TV platform, from Intel—and that it would develop and integrate next-generation video services into its Verizon FiOS IPTV offering, including what it calls "elegant" search and discovery, interactivity and cross-screen ease of use – integrated with the Verizon Wireless 4G LTE network.
It will also leverage the assets to further develop its over-the-top (OTT) efforts, which for now include the Redbox Instant offering.
"The OnCue platform and team will help Verizon bring next-generation video services to audiences who increasingly expect to view content when, where and how they want it," said Lowell McAdam at the time, chairman and CEO of Verizon. "Verizon already has extensive video content relationships, fixed and wireless delivery networks, and customer relationships in both the home and on mobile. This transaction provides us with the capabilities to build a powerful, capitally efficient engine for future growth and innovation. We will have the opportunity to enhance, expand, accelerate and integrate our delivery of video products and services to better serve audiences on a wide array of devices."
AT&T meanwhile has formed a joint venture with the Chernin Group to acquire, invest in and launch over-the-top (OTT) video services. The two have committed more than $500 million in funding to the venture.
The strategic goal of the initiative will be to invest in advertising and subscription video-on-demand (SVOD) channels as well as streaming services. AT&T said that it would also bring its wireline and wireless network resources to the alliance, paving the way for additional revenue via the broadband needed to ensure a good video quality of experience.
"AT&T and The Chernin Group are combining our skill sets to address the growing consumer demand for accessing content how and when they want it," said John Stankey, chief strategy officer at AT&T. "Combining our expertise in network infrastructure, mobile, broadband and video with The Chernin Group's management and expertise in content, distribution and monetization models in online video creates the opportunity for us to develop a compelling offering in the OTT space."
And meanwhile, DISH Network recently inked a landmark TV content carriage deal with Disney/ABC/ESPN that will give the satcaster the rights to stream cleared linear and VOD content from the ABC-owned broadcast stations, ABC Family, Disney Channel, ESPN and ESPN2, as part of what it calls “an Internet delivered, IP-based multichannel offering”—i.e., an OTT service.
And just to be clear, the company delineated the OTT rights from the ability of traditional DISH subscribers to sign in with their satellite credentials to access Disney programming on the Web and mobile devices via Disney’s TV Everywhere, authenticated live and VOD products, including Watch ESPN, WATCH Disney, WATCH ABC Family and WATCH ABC.
No details were given as to when the OTT service might appear in the market—it would seem that DISH wants to leave its options open. But sources did tell Bloomberg that it could go for somewhere in the neighborhood of $20 to $30 per month. That’s more than double a Netflix or Hulu subscription (the latter, of course, being partially Disney-owned), which begs the question of what the differentiators will be.
One clue could be this: DISH has amassed sizeable chunks of spectrum in order to launch its own nationwide wireless service with a heavy video component that leverages its Blockbuster holdings. However, it needs a bit more spectrum to do it effectively. To that end, it was in heavy pursuit of both Clearwire and Sprint up until June of last year with plans for a hostile takeover of one or both of the companies if necessary. Softbank’s acquisition of Sprint derailed those plans, and it’s likely that DISH is still wide open to a merger that would offer it a path to get them back on track. The recent rumors of AT&T and DirecTV entering merger talks could be a way to flush DISH back out into the deals market some analysts have mused.
“Some media analysts think the dalliance of AT&T with DirecTV is just a bluff to get DISH Network to the table on a deal for wireless spectrum,” Seeking Alpha said a briefing note. “If that's the case, it would be the type of poker that DISH CEO Charlie Ergen is also known to play.”
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