The 'Unstoppable' Era of Cloud TV


The online video phenomenon has seen a radical transformation since the early days of YouTube: where there was once just a collection of “v-logs” and cat videos, now there are professionally produced, Emmy-nominated TV series—and cat videos. And indeed, many see an inevitable shift to cloud TV becoming the dominant delivery model for home entertainment—a prediction bolstered by news that the FCC would move to put over-the-top providers like Netflix in the same bucket as cable MSOs and satellite TV providers.

Consumer thirst for the higher-value stuff is being driven by leaps and bounds-style advances in technology. Networks are more optimized than ever before, with a rush of content delivery networks and encoding and caching software underpinning an ever-better quality of experience (QoE) for  viewers—even as bandwidth traffic grows exponentially. On the wireless front, widespread Wi-Fi and 4G deployments make mobile video a less clunky experience. And of course then there are the devices—sporting retina screens and kazillion-pixel video capture cameras.

The proof is in the traffic pudding: according to Ooyala's Q3 2014 Video Index, smartphone and tablet views were up an amazing 114 percent year-over-year in the third quarter. Two years ago, smartphone and tablet video views made up just 6 percent of all online video views. In eight subsequent quarters, growth has exceeded 400 percent.

Most importantly, tablet viewers now spend 68 percent of their time watching videos more than 10 minutes long. Tablet viewers spent 23 percent of their time watching videos between 30 minutes and 60 minutes long, the most of any device.

So it’s no wonder that Big Media has decided to embrace over-the-top (OTT) video. Sure, there are high-profile launches from HBO and CBS making headlines; but other companies are making moves too, like AMC Networks and Disney/ESPN. Even Discovery, the world’s No. 1 content producer, has dipped a toe in, inking its first-ever OTT deal with Hulu Plus, set to make content available starting in January.

“If Hollywood were to make a movie about video's migration to wired screens, they'd title it ‘Unstoppable,’” said a spokesperson for Ooyala. “And Hollywood is jumping on that unstoppable train.”

In a recent interview on the challenges facing the industry, AMC Networks CEO, John Sapan, used that very word, describing the "almost unstoppable trend for technology to facilitate consumer discretion and choice."

The Shift to Cloud TV

As old-school media eyes new school distribution, the Ooyala research delved deeper into the daily patterns in the way people consume TV and video across different devices. And it seems clear that online consumption habits are beginning to mirror TV viewing.

The report showed that mobile and tablet devices reached 30 percent of all online video views during the quarter (representing that aforementioned 112 percent year-over-year increase). If the pace keeps up, mobile and tablet viewing will reach 50 percent of all online views by late 2015.

Also, viewers increasingly are turning to the Internet for their daily content, driven in large part by increased access to premium and live video content, especially international sporting events and news of all sorts. The result is unprecedented growth rates in mobile and tablet video consumption.

Critically, as mentioned, the Ooyala report shows that all screens are becoming popular for watching longer video. Tablet viewers spent 68 percent of their time watching video exceeding 10 minutes, indicating that tablets are becoming nearly interchangeable with TVs for long-form video.

Even mobile phone users spent 48 percent of their total viewing time with long-form content, which tends to be premium content such as TV shows, movies, news and sporting events.

It’s also worth noting that online video is being increasingly ported to the most traditional screen in the house. The ownership of connected TV devices in the U.S. grew 5 percent quarter-on-quarter in Q3 2014 and 28 percent year-on-year to reach 168 million units, according to research from Strategy Analytics.

Fueled by a desire to watch video content delivered via the open Internet, the average U.S. home now owns 1.9 connected TV devices — such as smart TVs, smart Blu-ray players, IP-enabled game consoles and digital media streamers — compared with 1.5 devices this time last year.

"Competition within the US connected TV device market is intensifying as device makers battle to be the gateway of choice for watching online videos on the TV screen," said David Watkins, service director for Connected Home Devices at the firm.

As ever, technology innovation is pushing this along: "Heavyweight brands Google and Amazon have shaken up the market and have created a huge surge in demand for low-cost media streaming dongles. These devices may not provide as sophisticated an experience as an integrated smart TV, but often provide a much faster and easier way for consumers to get access to their favorite online streaming service.”

Opening the Monetization Doors

As hot as online video is, monetizing it has not been easy.

In a 2013 survey, StreamingMedia found that 54 percent of media executives said that the most successful revenue model for OTT is subscription, compared to 40 percent who believe advertising is the best approach.

Accordingly, OTT offerings have focused on subscriptions so far. But, because most subscription services have glaring content holes, like Netflix, Amazon and Hulu Plus, they’ve been acting as a complement to traditional TV service—more akin to a premium cable network. That’s limited subscriptions to the under-$10 per month mark.

But advertising, like subscriptions, also has a top-end limit. The average CPM [cost to reach 1,000 consumers] is $25 online—largely because the ads aren’t targeted. And no one is going to reach Comcast-level revenue heights in that kind of an ad-supported environment with curated content.

Research shows however that digital distribution—typically a unicast affair—offers the ability to gather more information on who’s viewing what, and when, and on what device. That has yet to be adequately harnessed, but the opportunity is clear.

“Broadcasters and publishers who have access to this kind of consumption data for their own content have a unique opportunity to capitalize on this trend, particularly in mature markets where video-capable devices and wireless broadband are ubiquitous,” the Ooyala report noted.

For instance, take the long-form stats for tablets: it’s a trend that points to new monetization opportunities for premium video publishers, as mobile devices are no longer solely for ‘snack-sized’ content.

There’s another big wrinkle brewing: FCC will reportedly soon approve the Notice of Proposed Rulemaking that would allow OTT video providers to be classified as multichannel video programming distributors (MVPDs). This will allow them to gain must-carry access to broadcast programming and have a seat at the negotiating table for cable nets — provided they pay retransmission and carriage fees.

The idea is to create a technology-neutral definition of an MVPD, thus eliminating the requirement of having facilities-based transmission path in order to be guaranteed access to TV stations via must-carry rules and retransmission.

According to Multichannel News, FCC chairman Tom Wheeler and commissioners Jessica Rosenworcel and Mignon Clyburn — the Democrats on the commission — have already voted yes, giving the measure the majority vote needed to pass. That opens the doors for OTT operators to put together similar content packages as the major TV providers—without bearing the overhead of maintaining a managed network to deliver them to consumers.

Of course, content costs are never cheap, but gaining access to what many consider baseline programming—like the major broadcast networks—could move OTT from a complementary role vis a vis cable to competing head-to-head, delivering the opportunity for new monetization approaches beyond the $7.99-per-month norm. It has the potential to re-shape the OTT industry entirely.

And, older players will follow, the reasoning goes—turning the entire TV ecosystem on its head.

“Cloud-based TV has arrived. Broadcasters and content providers realize that, with the right approach, IP-delivered content can be more economical with higher return in terms of building and monetizing audiences, compared to linear TV,” said Ooyala CEO Jay Fulcher. “What’s really exciting is the pace at which many of the most prominent players in the industry are now innovating and meeting their audiences where they are - with the content they want most, on the right screen, at the right time, with an incredibly rich experience.”

Edited by Maurice Nagle

TechZone360 Contributor

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