PayTV vs. OTT part VII: 6 OTT Strategies

Pay TV vs. OTT:

Part I: The business models
Part II: Managed devices and services vs. OTT
Part III: CE vendors and companion screens
Part IV: Clash of the titans

Part V: Appointment vs. on-demand

Part VI: 5 MSO strategies

More developments will be presented at Monetizing OTT services - London - March 24/26

enter the discount code OTT_CORE here for a 20% discount

The internet is a perfect medium for content distribution. Storage, access, distribution is inexpensive, allowing the smallest content owners and producers to offer their wares with a small starting investment. For OTT vendors, this is both an opportunity and a threat. The long tail of the content usually find its audience through social media. Specialty content is at home on  the internet, thanks to the advances made in term of search and recommendation engine. The short tail content is pushed by advertising, rather than social interaction. The type of budget necessary to launch a new content can be staggering, as illustrated in the advertisement campaigns preceding new movies and video games. Content is king in OTT and there are a few strategies put in place by the different players in this segment to secure customers and revenue.

1.     Pay-per-view, rental, on-demand

Apple’s iTunes and Amazon on demand are perfect examples of OTT services. Without subscription, any consumer with a credit card can rent and stream content to almost any screen in minutes. Revenues are generated from the transaction. They are collected by the OTT player, which then apportion it to the studio / content owner and so on. It is the literal translation of the pay TV model on the internet. Here again, the control resides in the distribution. Apple and Amazon have been successful because they have an existing customer base that they had been able to convert. This captive audience is the equivalent of the MSO’s set top box.

Brands with a smaller footprint in term of device penetration have struggled to emulate this strategy. Sony’s “Video Unlimited”, available on its PlayStation and selected devices, has struggled to reach its audience, for instance.

2.    Subscription VOD

Inaugurated by Netflix, it has become the reference for OTT video. A monthly subscription allows consumers to watch as many shows as they want. Success in this model relies in both the depth and the range of the catalogue. Netflix had to have headline content to attract new users and enough of a long tail to keep them there. Most SVOD strategies are monthly subscription without commitment, so they traditionally experience high churn.

3.    Free to air

YouTube is the most successful OTT player with a free-to-air strategy. Acquired by Google in 2006, the web phenomenon attracts over one billion unique users each month ^[2]. Monetization of this strategy has been slow. Advertising is currently the main contributor, using Google ad platform, but YouTube has recently launched premium channels, allowing any channel with over 100,000 followers to go premium for as little at .99c per month. It is not yet apparent whether that strategy will be successful.

Adult content is the second largest OTT player in this category, monetizing premium content through subscription. A small percentage of their viewership base subscribes to premium and generates close to 4.9 billion dollars revenue globally.

4.    Securing content

If content is king, content rights are the crown’s jewel. Securing content that will attract and retain consumers is the principal occupation of OTT players. Studios and content producers now have new avenues for the distribution of their content, but as traditional Pay TV weakens in viewership, it still dwarfs OTT revenues. The most popular content can spur a viewership addiction synonymous with subscription and advertising revenue. It has become necessary for the likes of Netflix to secure access to content. In 2012, Netflix lost rights of diffusion of Starz, Encore and Sony catalogues over broken negotiations. Clearly, having your core value (content) submitted to third party control and threatened on a regular basis by the whims of negotiation is not a very good strategy for long term success. Increasingly, OTT players and channels have started acquiring and producing content exclusively in order to guarantee access, control and ultimately monetization of popular content.

HBO has, for instance, developed the series “Game of Throne”, which became an overnight critical and popular success, drawing fans to the network and becoming one of the most pirated series of 2012 ^[4].

Netflix has secured later a deal with Disney, valued at close to $300 million per year for Disney. This deal sees Netflix get exclusive access to Disney’s movies after their theatrical release. In 2013, Netflix doubles down and sign a follow on deal for exclusive Disney content “Agents of S.H.I.E.L.D”.

5.    Favoring binge watching

Consumers buying habit have changed durably, we have seen, but their viewing habits are also undergoing transformation. With the availability of whole back catalogue seasons of a series, binge watching has become a solid trend. Many viewers, when watching a streaming TV show are increasingly watching more than one show per seating. Detecting the trend early, Netflix strategy for the release of “House of cards” has been to release the full season at once, as opposed to a fixed schedule, favored by traditional TV. Netflix has since released a survey with Harris interactive showing that 61% of Netflix series viewers are binge watchers.

6.     Costs reduction

In the same vein as Verizon, Netflix has undertaken to control its delivery network. Unlike Verizon, it is not an acquisition but organic development that sees Netflix launch its own CDN called Open Connect in 2012. Recognizing that delivering massive amounts of video over the internet can be costly and unreliable at scale, major OTT players look at controlling the end to end user experience and leverage economy of scale from a dedicated network infrastructure. Common CDNs are perfect for general purpose internet content but their business model and quality start to be stretched to their limit when it comes to massive video delivery.

PayTV vs. OTT VI: 5 MSO strategies

5 MSO strategies

If you haven't read the other posts in this series, you can find them here for context.

Pay TV vs. OTT:
Part I: The business models
Part II: Managed devices and services vs. OTT
Part III: CE vendors and companion screens
Part IV: Clash of the titans
Part V: Appointment vs. on-demand

More developments will be presented at Monetizing OTT services - London - March 24/26

enter the discount code OTT_CORE here for a 20% discount

There are a few strategies that have been enacted by MSOs to counter the erosion of their margin and viewership brought forward by OTT.

1.     Vertical integration

As control of the value chain shifts from distribution to content, it is only natural that some MSOs start to look upstream and concentrate channels, studio and production with distribution in order to regain a dominant position in the value circle. As an example, Comcast owns NBC Universal, which owns the MLB network (in a joint venture with MLB) and the Philadelphia Flyers. In one company you find premium content, production, channel and distribution.

This strategy allows to control the content, with either exclusive or preferential rights for distribution, which enables a captive audience and in return higher advertising revenues, as long as the content remains popular.

2.    Multiscreen

This strategy allows MSOs to offer a portion of the live and on-demand TV programming available to mobile devices (smartphones, Tablets, Phablets…) and hybrid devices (hybrid set top boxes, video game consoles, PCs,  smart TVs…). In this context, while the medium of delivery is still the internet, it is not a true OTT play. To access the content, the user must authenticate herself as a MSO subscriber. This strategy enables MSOs to “spill out” of the traditional TV screen and to offer programming on a growing medium that is favored by younger generations. Verizon’s FiOS is, for instance available on cable, internet, on ipad, on LG, Samsung TVs and on Xbox and Playstations. This strategy is one of retention, where, recognizing that consumers want to watch in a more flexible manner, it is made available on a variety of new devices, included in the regular subscription. This is about keeping people loyal to the MSO programming, countering pure OTT by offering an OTT-like experience. The strategy has not proven to increase revenue, as it is usually included in the regular subscription. It is used to reduce churn and increase loyalty.

3.    Social TV

As Facebook, Twitter, LinkedIn and other social media become part of our daily life, new usage patterns have emerged. Social TV is such a trend, where content success relies on recommendations, likes and sponsoring.

Popular content can, in days become viral and amass millions of views. Psy, a South Korean rapper became an overnight internet celebrity, with over a billion views in six months on its YouTube channel with the release of “Gangnam style”. The virality effect is hard to predict or influence, but live TV, particularly sports and game shows are well suited for audience social interaction. By creating interactivity, content becomes simultaneously more popular and more “sticky”, as consumers watch more and longer shows when there is an emotional connection. MSOs have started to try and integrate apps for social networks in their managed devices in order to reinforce this engagement with users. The lack of standards across platforms has hindered this integration to date and Social TV remains more an experiment than a service at this stage. The strategy relies on the assumption that engagement drives viewership, which drives revenue.

4.    Going OTT

If you can’t beat them, join them. There are a couple of sub strategies here. The first one is to create a web site to serve content exclusively over the internet. For instance, Hulu plus, the joint venture between Comcast (NBC Universal), Disney and News corp. (Fox) allows its customers to watch ad-sponsored current and back catalogue TV show for a monthly subscription.

A second strategy is to package a channel as an internet content provider. For instance, it was announced in October 2013 that Comcast is launching a new plan for cord-cutters and cord-nevers, offering Xfinity Streampix, HBO and HBO Go together with broadband for $39.99. A US Comcast customer will be able to watch HBO over the web on their broadband subscription without having to be a cable customer. The FCC (US regulators) mandates that premium channels have to be bundled with basic broadcast, so that's in it as well, but this is a clear tipping point moment. For the first time HBO is going head to head with Netflix, going pure OTT. The implications are profound and it is a floodgate moment. On one hand, Netflix has now more subscribers than HBO, which prompts Comcast to start the self cannibalization. If you are losing subscribers, you might as well lose them to yourself and a friendly content provider rather than a competitor.

Verizon’s Redbox instant is another example of a Netflix me-too strategy relying on monthly subscription.

5.    Cost reduction

The last strategy implemented lately has been about creating the infrastructure necessary to deliver a massive amount of video, securely with high quality. While MSOs have traditionally relied on third party infrastructure, Verizon has recently innovated with the acquisition of EdgeCast in January 2014. By purchasing the CDN, the MSO will be able to reduce its delivery costs, while controlling user experience and offering wholesale service to other MSOs and OTT alike.

IBC roundup: product launches and announcements

As IBC 2012 is about to finish, here is a select list of announcements from vendors in the video encoding space, for those who have not been able to attend or follow al the news.

As you can see, there has been a strong launch platform by all main players, releasing new products, solutions and enhancements. The trend this year was about making multiscreen an economic reality (with lots of features around cost savings, manageability, scalability...), new codec HEVC and 4K TV as well as subjects I have recently brought forward such as edge based packaging and advertising making interesting inroads.


ATEME
ATEME launches new contribution encoder at IBC

Cisco
Cisco's ‘Videoscape Distribution Suite' Revolutionizes Video Content Delivery to Multiple Screens - The Network: Cisco's Technology News Site

Concurrent
Concurrent Showcases Multiscreen Media Intelligence platform at IBC 2012

Elemental Technologies
Elemental Demonstrates Next-Generation Media Processing at IBC Based on Amazon Web Services

Envivio
Envivio Introduces New On-Demand Transcoder That Significantly Enhances Efficiency and Video Quality
Envivio Enables TV Anytime on Any Screen with Enhancements to Halo Network Media Processor

Harmonic
Harmonic and Nagra Team to Power the World’s First Commercial MPEG-DASH OTT Multiscreen Service

RGBNetworks
RGB Networks Offers Complete Solution for Delivery of On-Demand TV Everywhere Services
RGB Networks Expands Multiscreen Delivery and Monetization Solution

SeaWell Networks
SeaWell Networks Announces First MPEG DASH-based Live and On Demand Video Ad-Insertion Solution at IBC 2012


Telestream

Telestream Takes Giant Leap Forward in Video Transcoding Speed and Quality

Intel and Samsung partner for open OS in smartphones and connected devices

As you will remember, Intel had decided to leave the connected TV space to ARM back in October, after failing repetitively to gain any significant market share.Its Atom chips failed to convince and deliver a significantly better cost performance ratio to their prospective OEM and ODM.


Samsung told Informa telecoms that they are planning to merge their homegrown operating system BADA with Intel's opensource Tizen. The move will be gradual and will first affect handsets, with low end devices staying on BADA for a while and high end smartphones and tablets moving to Tizen as early as Q2 2012.


Smart TVs should follow shortly there after. 


An interesting move, that allows Samsung to free themselves from the cumbersome Google-Android relationship and to stay clear of the current patent war between OS / app / device vendors.
At the same time, it allows Intel to take a prominent place in one of the fastest growing segments in consumer electronics, connected devices, as we have seen here.

Pay TV vs OTT part IV: clash of the titans

We have reviewed and discussed at length (here, here, and here) the fundamental changes that OTT is causing to the pay TV market. As consumer electronics vendors become content aggregators and as more screens get now directly connected to the internet, there is less and less value in a set top box that is an exclusive managed device from your MSO.

Service providers themselves are ambivalent about the box. It used to be the main tangible asset that MSOs marketed to "own" a subscriber relationship, with a safe environment allowing transactions, access control and digital rights management to monetize live and on demand programs.
Lately, it has looked increasingly like a ball and chain that MSOs have dragged, a costly installed base, slow to evolve and adapt to the latest technologies, incapable of competing against better services and cost structures evolved from OTT.

Microsoft, in the latest incarnation of its XBox Live service, has brokered deals with several dozens of content providers beyond existing Hulu and Netlix and  is launching today. More interestingly, Verizon FiOS, Comcast Xfinity and HBO are also part of the package... as OTT apps. The XBox is already a high-density, high-performance gaming and multimedia environment to play online games and stream video. Adding live TV and VOD makes sense and makes the set top box completely redundant. Microsoft innovates by integrating Bing, its search engine, the Kinect, its haptic motion recognition device and voice, with the EPG (Electronic Programming Guide) of the programmer. You can literally search y voice for a show, an actor, a director and see the results aggregated on your screen from various sources.

While you still have to be a Comcast or Verizon cable subscriber to avail of the services in the states, the writing (or rather the screen) is on the wall.

This experiment will no doubt cast a new light on the 35 million XBox live accounts, putting Microsoft firmly shoulder to shoulder with Google's TV efforts (and Motorola's set top boxes) and the next generation of Apple TV.


Soon will be a time when subscribers will buy access from their ISP independently from aggregation and content. Channels and MSOs will compete across new geographies on unmanaged devices, across unmanaged networks. New generation of apps will enable you to discover, access and curate content from your local media servers, the cloud and your traditional providers and present the result on the screen you elect. There is no technological or logistical barrier any longer. The business model of pay TV, subscription, advertising is undergoing changes of seismic proportions.

OTT wave hits Canada: BBC iPlayer launches

BBC iPlayer is a popular VOD platform from UK's BBC. It is based on subscription and features long form original and archive TV and radio content. iPAD users can download the free app from the app store and browse limited free content or have access to over 1,500 hours of content on day one with an additional 100 hours every month, updated regularly for $8.99 a month.

Canada is the 16th country invaded by the  iPlayer but the first one where Netflix is present. It is going to be interesting to see how both giants are going to react to each other's strategy, no doubt in a rehearsal of a BBC launch in the US. While Netflix is predominantly about films, BBC iPlayer is a TV content aggregator, spanning radio and TV shows, news , concerts, documentary, comedies and more undefinable British genres like Little Britain.

While the launch is currently limited to iPAD, it should not be longh before it spans iPhones, Android, Wii, PS3 and laptop, as in other markets. BBC iPlayer global is a subset of the UK selection, and will propose only TV content at the start. The genres proposed are Contemporary drama, classic comedy, family & kids, classic &period drama, entertainment, modern comedy, Science & Nature, Sci-Fi, Music & Culture, Crime &Thriler, Lifestyle and News Specials & Documentaries.

BBC does not see itself competing against Hulu or Netflix, arguing that they are specialist, providing carefully curated content, to reflect the "voice of BBC", while other aggregators are more generalist in nature. Netflix tends to agree, citing different demographic target for their users. In September this year, BBC iPlayer served 153 million requests in the UK only, with an average 1.7 million viewer a day and a monthly viewing average of 69 minutes for TV (excl. radio). Numbers for outside the UK are not yet available. Most of iPlayer usage is during TV viewing hours, hinting at strong companion screen trends.


I think it is a strong sign, to start and see niche offers transcend their geographical boundaries to go truly OTT. BBC has found a huge following and not only with Brit expats for its acclaimed shows such as Top gear, Little Britain, etc... The walled gardens are crumbling and consumers are the winners. This tidal wave has a tremendous impact on mobile networks (capacity to accommodate video traffic surge), MSOs and PayTV (where traditional service providers need to find a way to protect VOD revenues and remain relevant), and Consumer Electronics (where CE vendors see themselves becoming content aggregators through app stores and native apps enhancing content discovery and access).

Need an IT manager for my connected home!

I am not really an early adopter. I tend to integrate new products and technologies when my needs change.
Until recently, my electronic devices were dumb and mute, just performing what I wanted to, either working or not.

In this new era of hyper connected homes though, everything becomes exponentially more complex as you add more connected devices. Since I have started my business, I had also to use cloud-based apps and services to expand my brick-and-mortar tools.
Now, with two desktops, a laptop, a tablet, two smartphones, a connected PVR, a PS3 and countless accounts and services from Dropbox, Youtube, Netflix, Google apps, Tweeter, Blogger... it does not take much to see how how these devices, interacting with all these apps and data points can quickly start conflicting with each other.
Especially when you layer that these devices communicate over LAN, Wifi, Bluetooth, RF, IR...
Add as well surveillance camera and energy management modules in the future and complex becomes complicated.

UPnP (Universal Plug and Play) and DLNA (Digital Living Network Alliance) usually do a good job of device discovery. Service and content discovery and priority setting is where it starts to get tricky.
Here are a few of the problems I had to face or am still facing in this hyper connected world.

Authentication and handover:
I use Rogers as a service provider for one of my smartphones. I use their self-help app to manage my bill, my subscription and travel packages. One of the things that is truly a problem is that it works only on a cellular network. Most of the times I need to use it is when I am travelling to add or remove a travel pack for voice, data or text. Because of the expensive roaming data rates, it does not make sense to connect while roaming just to enable a feature that saves me the roaming costs. Obviously, Rogers has not enabled Wifi - cellular authentication and credentials handover.

Authorization and software version control:
I am a Bell subscriber for TV and internet at home. I was excited when I received an email showing off Bell's new mobile TV and companion screen apps for my iPhone / iPad. I was less excited when my iPhone, on rogers network could not use Bell's content, even though I am a Bell customer. Too bad, but I thought at least I could use the PVR remote control with my iPad on Bell's network. Does not work either, because I would have to upgrade my PVR. A PVR, I am renting from Bell. You would think it would be possible for them to know what PVR I am using and therefore allow me to re flash the software to avail of new capabilities or try to up sell me to the latest new PVR and features...

Credentials management
At some point, security relents before complexity. When you want to run a secure network across several interfaces and devices, managing credentials with associated permissions becomes tricky. You have to find a way to have credentials that can easily be shared, remaining secure while managing what device has access to what dataset under which conditions.

Connectivity, content discovery  and sharing:
Inevitably, users buy new devices and add up capabilities along the way. The flip side of that coin, though is that it makes for a very heterogeneous environment. When you start having several devices with similar capabilities or overlaps, you want them to function with each other seamlessly. For instance, my old desktop running XP cannot easily join the workgroup of my new desktop and laptop running windows 7.
There are solutions, but none of them straightforward enough for a regular user. A last example is the fact that my laptop, my iPad, my iPhone, my PVR, my 2 desktops and my PS3 to some extend all act as media servers. They all have local content and they all access content from the cloud, the internet or local content stored in other devices. Again, I haven't found a solution yet that would allow me to manage and share content across devices with clear permission management. Additionally, there is no search or recommendation engine that would allow me to perform meta search across 1) my local content on several devices 2) the internet and OTT content providers and apps I am using 3) the electronic programming guide of my set top box and present me a choice like: do you want to watch boardwalk empire Sunday at 9 pm on HBO, now on HBO Go, buy the entire season on Amazon or play the episodes from my PVR or media servers.

Compatibility:
Too often, i have to transcode videos or change content format to ensure that I can see them on all my screens. This leads to multiple versions of the same content, with associated discoverability and version control issues. Another example is around contact management. It is incredible that Apple still does not get contact management right. If you enable iCloud and have your contacts synchronized with anything that is not apple (Google contacts or linked in) you end up with endless duplicates contacts with no hope to merge and delete without adding on new expensive apps.

Control and management:
It strikes me that with that many connected devices and apps, I have not found yet a single dashboard giving me visibility, control and management of all my devices, allowing me to allocate bandwidth, and permissions for sharing data and content across platforms.

I think at the end of the day, this field is still emerging and while it is possible to have a good implementation when purchasing a solution from scratch from a single vendor or service provider, assembling a solution organically as you add new devices is likely to have you spend hours deciphering DNS and DHCP configurations. I think what is needed in the short term is a gateway platform, acting as middle-ware, indexing and aggregating devices and content, providing a clear dashboard for permissions management and authorization. That gateway could be the set-top-box if it is powerful enough. It would give back to MSO the control they are loosing to OTT if they are willing to integrate and provide a cohesive environment.

Pay TV vs. OTT part III: CE vendors and companion screens

CE vendors
It is not just the content owners that are going direct to customers, now connected devices vendors offer content directly on their platforms, over the internet.Game platforms have long offered OTT content and are the single major contributors to Hulu's success. Now CE vendors offer OTT apps on their connected TVs, blue ray players, projectors...Samsung, the market leader in TV shipments has created a complete ecosystem, with an app store, a catalogue of pre-integrated OTT apps, some complementary some competitive with service providers. This is offered on their Connected TVs, Blu Ray players, projectors, smart phones, tablets... LG, Panasonic, Philips, Sharp, Toshiba, Vizio have now a similar offering.
It will not be long before Google TV's second attempt brings a complete soup to nuts ecosystem as well with set top boxes and  connected TVs running android and a complete TV app store.
I am willing to bet as well that the next Apple TV will actually be a connected TV, not a net box that will be fully integrated with iCloud and iTunes store and Air.

Companion screens

Lastly, on the device front, there is a new trend developing that I will call companion screens. More and more people, while watching TV are  doing something on their tablet, smartphone or laptop that is related to what they are watching. Whether it is chatting, playing, texting, blogging, twitting or posting, these interactions have emerged spontaneously and  are still very much in a separate silo from the TV experience. Most vendors, and service providers are trying to figure out how social media, connected devices and OTT fit together.
I have seen many cross-screen applications and services at IBC last month and I will present a few in my next post about innovations in the Pay TV / OTT space.



In conclusion, the industry is transitioning from a model where Pay TV content was predominantly accessed through managed devices on managed networks, to a model where content and services will predominantly be accessed through unmanaged or hybrid devices, on unmanaged or hybrid networks. This, as you can imagine creates many threats and opportunities for content owners, service providers and device vendors that we will examine in the next post.