Putting the OTT Genie Back in the Bottle for Pay-TV Operators
Reflecting on the pulse at NAB this year, over the top (OTT) service delivery models were definitely in the spotlight. (We contributed to the buzz with our own OTT demonstration at our booth – check out the video) The conversations were far removed from the hype that has been elsewhere, but rather focused on how service providers can capitalize on advanced OTT technologies to enable new streams of business. Steve Christian recently answered questions posed by CSI Editor Goran Nastic on monetizing video on demand (VoD) content that portrays Verimatrix’s perspective on the opportunity of OTT. For the resulting article, click here. Q. Monetisation issues of VoD have been around for a while now and given that all evidence suggests that consumers love the service and value it, why has this proved to be such a challenge? A. The challenge is that some operators have created the consumer expectation of free content and now they are having a hard time putting the “genie back in the bottle” when it comes to charging a fee for that content. It really puts into question the first mover advantage efforts by OTT providers to offer free content, as it appears they have potentially cannibalized their own long-term revenue streams. The question is if they can successfully extract money from existing and/or new viewers. History confirms that consumers are willing to pay for something that satisfies their threshold of quality, convenience and cost. At this year’s OTTcon, where we presented, the reoccurring theme was how operators can balance the quality-convenience-cost equation.
- Quality – quality of the overall experience - not just picture quality – including responsiveness and reliability.
- Convenience – how easy is it to browse content, how to conduct channel up & down, how many clicks are required to start a video, how many channels are aggregated in a single location, etc.
- Costs – what is the right price point and fee model, how to price content consumed on different devices, etc.
People have a high tolerance for intermittent quality if something is free. However if you start charging for the same content, the balance of these dimensions needs to be maintained at a higher level. People will expect an Internet service to function like a cable service – or perhaps better!
Q. Given the widespread availability of free VoD, is there now a risk that the window of opportunity for making money is quite small? A. I think it is important to debunk the assumption that content owners are not making money on the content shown on VoD sites. The revenue streams from more traditional viewing forms, like DVDs, are still in operation. I feel the availability of free content will actually shrink when operators start finding the right quality-convenience-cost ratio. Q. How big is the opportunity given the right strategies? (Parks Associates, for example, expects 38% of free VoD streams could potentially be monetised by 2012) A. What’s the alternative? Total industry collapse? I feel it is inevitable that this content will be more effectively monetized as time goes on. So, the opportunity is huge. Another common theory - that I believe is still very much only a theory - is that consumers are willing to cancel their pay-TV subscriptions and rely on fee online entertainment options. Goldman Sachs released an interesting report on online video (titled "Broadband 100") that found while the consumption of online video is increasing steadily, it is not cutting into traditional pay-TV viewing. To put it in perspective, the report cites that consumer usage of online video is surging, with time spent currently growing over 60% yoy and at a 40% CAGR since 2007. This is set against a backdrop of more than 75% growth in online video traffic as measured in bits. Yet consumer usage of online video still represents only about five minutes per day for an average consumer. The report goes on to say that professional long-form content is the fastest growing and most easily monetized. Q. What are, in your opinion, the top ways that broadcasters and/or payTV operators can monetise VoD? A. For streaming – yes, the existing methods are advertising-based, subscription or transactional. For a download service, there is also the possibility of electronic sell-through – digital delivery of a file. Consumers may pay more for this option because it is potentially higher quality, they can own it forever, and view it in different ways and on different devices. Plus once it is downloaded, you do not need to be connected to the Internet each time you want to view it. Q. Assuming VoD is monetised, would you expect advertising, subscription or PPV models to dominate and why? A. We expect the subscription or transaction model would be more successful than advertising, which we are already seeing with Hulu and Joost talking about a fee-based service. Ad-based content has been quite successful for Hulu, but remember that they reach less than 1% of the total broadcast audience, and insert less than one-quarter of the ad time compared to a regular broadcast (in fact, they’ve promised to only show 4-5 ads for an hour show). Even though they can charge a respectable amount for each ad, the total amount of revenue is much lower than traditional broadcast. The overall pot is substantially smaller. This points the way to fee-based revenue models. Q. Are there any significant differences between cable, satellite and IPTV platforms that might favour one over another in monetising VoD? A. We strongly feel that all operators are headed towards a hybrid network of some description and IP-based technologies are the common thread, which creates an interactive, two-way environment. IPTV providers should therefore have an advantage because their networks are intrinsically based on IP-based networks. The case can also be made for the cable operators that own both the broadband and TV pipes into a subscriber’s home, which provide more control over quality of experience. Satellite operators on the other hand need to have a broadband partner to offer the connectivity to take full advantage of a rich VoD service. Q. Can on-demand content available on the Web be brought to the living-room TV set in such a way as to complement payTV operators’ VoD offerings rather than bypass them? A. The Holy Grail seems to be the capability to offer OTT content into the living room – to take center stage for family entertainment. The Verimatrix view is that traditional operators are well positioned to achieve this goal. They clearly already have the premier position on the living room TV and are now experimenting with how to take their TV services beyond the living room and capture viewer’s attention on other devices – PC, mobile, etc. Other approaches we’ve seen are to truly blend the TV and Web experiences together. Operators can choose to make this happen on the main TV (such as calling up an actor’s Twitter feed while watching his program) or bring in other devices to provide interactivity (it is become more normal for viewers to watch TV while working on their connected laptop). The market is so wide open at this point that there’s no 100% right answer.