Doubling up on pay-TV
With the Internet and pervasive broadband, content creation and ownership is now spreading among more and more companies. The rise in the number of entities commissioning content means there will be increasing competition for on‑screen talent, writers, producers, and even set designers.
Some part of the growing spend on subscription video‑on‑demand is substituting for money that would have gone on purchasing DVD box sets. Content providers will need to forecast a changing revenue mix carefully, so as to avoid either under‑investing in content, or spending over budget.
Content producers should consider how ever‑improving broadband speeds open up new markets for them; they may no longer have to deal directly with platform owners to reach end‑users. Content owners should however be cognizant of the implications of selling direct to the end‑user, such as the need to provision local network storage and payment options. Further, cutting out a distributor may increase margin, but at the cost of addressable market.
Platform owners should tap into the growing demand for additional pay‑TV subscriptions to increase their addressable market, by offering their content over‑the‑top to those who do not subscribe to their platform service. On‑demand subscribers are likely to pay smaller monthly sums than subscribers paying for the platform package; it will be important to balance pricing such that both sets of customers feel they are getting value for money and OTT solutions do not cannibalize the platform base.
The quality of OTT VOD services will be contingent on the quality of broadband for each subscriber. The SVOD provider may have little control over this, aside from allowing the customer to vary the bit rate according to available bandwidth, and advising consumers on how to optimize broadband speeds. Monthly data allowances, where these exist, constrain the number of hours that can be watched for heavier‑viewing households.
There is upside for broadband providers, some of which may also be the platform owners. The more VOD watched, especially at higher resolutions, the greater the demand for broadband. Households with a high propensity to use SVOD may well upgrade to higher‑speed packages, or may pay more to have higher monthly download allowances. Indeed a major reason for the growth in fiber to the home/cabinet (FTTH/FTTC) connections is likely to be because households want to be able to consume one or more SVOD service at the best available quality.
Broadband providers tapping into the growing demand for SVOD should be aware of viewing patterns, which are likely to resemble those for broadcast television, and build to meet capacity peaks cost‑effectively. SVOD companies may need to deploy local caches of video content. Demand for video content may vary by neighborhood, and carriers should use analytics to understanding localized viewing trends, and provision for edge of network storage accordingly.
Cable, IPTV and FTTC broadband services are rivalrous: the more people watching video within an area affects the quality of service for others in the same locality, and video already represents the bulk of capacity usage in many markets. For example, video streaming represents over half of all downstream capacity in North America. Therefore platform‑based TV services may always have an advantage when it comes to delivering consistent quality of service to the majority of homes. Although many of the additional pay‑TV subscriptions will be delivered via broadband, the need for platform‑based service is likely to remain.
Middle East perspective
The markets for both platform pay-TV and SVOD services in the region are evolving together in tandem. This is unlike other regions, where TV developed in a rather linear fashion: platform pay-TV came and penetrated first, followed by the introduction of OTT, IPTV platforms, then VOD and SVOD services as new innovations. In terms of penetration, both pay-TV and SVOD services are in their infancy, and both hold growth potential.
With many SVOD providers in the Middle East, there is no clear winner as yet. However, in due course, we expect more players to enter the region’s SVOD space. There are opportunities for broadcasters and telecom operators to partner with each other to offer a compelling proposition. While operators can manage the quality of the customer experience and provide an extensive distribution footprint, broadcasters can leverage access to their vast library of content.
Local SVOD providers need to strengthen the appeal of their offerings by expanding their repertoire of exclusive content if they are to attract a wider subscriber base. Partnerships with content developers to address content gaps and to build online exclusive content could be a competitive advantage. International SVOD players namely Netflix and Hulu with existing expertise and experience could enter the region quickly with market offerings that could dominate the market. Local SVOD players should be wary of this and use their presence in the market to offer the best content and cement their positions in the Middle East before international players enter.