The TV anywhere model has arrived but not necessarily in the manner that telecoms operators envisioned. Over-the-top (OTT) content providers are tapping the Internet to stream on-demand films and TV series to multiple device types at aggressive price points, driving higher costs for network operators and tempting end users away from lucrative service bundles.
But change is afoot. Telecoms operators are beginning to leverage their network assets to offer users access to subscription and OTT content on any device, taking the wind out of the OTT providers’ sails.
“I definitely think the industry will see some consolidation [among OTT players],” says Mark Hyland, sales and marketing VP at QuickPlay, a platform provider specialising in multi-screen video delivery over IP networks. “Everyone’s competing for the entertainment section of the household budget. There’s a limit to how much money people can spend on entertainment and so value becomes a really big part of the deal,” he says, noting that this leaves triple-play operators–who can reduce the end-user’s overall costs with service bundles–in a stronger position than OTT players. However, “there will be winners in both camps,” he says.
Two business models will emerge, the first of which will see operators, allowing “a thousand flowers to bloom”, or giving users access to the broadest range of OTT content possible on their networks, predicts Hyland. Under the other model, operators will extend their own-branded services to as many devices as possible in a bid to differentiate.
One TV provider following this second path is BSkyB, which in January unveiled plans to launch an Internet-based pay TV service in a bid to stave off mounting competition from OTT providers. Called NowTV, the service will launch in the summer and will be open to non-BSkyB customers. This follows the launch of Sky Go, which enables existing customers to access live TV content on their smartphone or tablet.
Meanwhile, Taiwan’s Chunghwa Telecom is taking the initiative on the telco side with its aim to provide a consistent, cross-device TV experience. “One cloud, multi-screen is our next step,” said Ching-Min Cheng, managing director, multimedia, at Chunghwa Telecom’s northern Taiwan business, at last month’s IP&TV World Forum. “We will use the cloud to enable customers to access their subscribed content anywhere.”
Chunghwa launched its “Multimedia On Demand (MOD)” IPTV service in Taiwan in 2004 and has since signed up 1.1 million subscribers, or 35% of the country’s pay TV market, it says. In addition to linear broadcast content, MOD offers 10,000 hours of video-on-demand (VoD), widgets that provide local news, weather and traffic information, and even a karaoke on demand service. 70% of MOD customers pay for premium services on top of their basic IPTV package, according to Cheng.
But moving to the cloud–and a multi-screen model–brings with it a series of technical hurdles.
“Operators are trying to figure out how to go from providing TV on one standard, whether it be PAL or what[ever], to supplying content in multiple standards over IP networks,” explains Hyland. “It’s a different proposition for many companies. They go from building [TV] infrastructure that doesn’t change too much to building an IP platform with applications that may have a new release every month,” he says.
Indeed, video requires a variety of encoding and compression formats with multiple digital rights management (DRM) policies in order to reach every device–a hurdle for both OTT players and telcos.
“The industry needs to move away from 1,000 APIs (application programming interface) for 1,000 devices,” says Dominic Elliott, UK CTO for Cisco’s service provider arm. He says a common service bus that sits between devices and content is required to “drive the number of integrations from thousands down to hundreds or even tens”.
Migrating to cloud-based TV distribution will also have implications for the humble set-top box (STB).
“Multi-screen is about virtualising the set-top-box,” said Derrick Frost, senior vice president of IP video at Alcatel-Lucent. But ZTE vice president Chen Xinyu, expects STBs will evolve to incorporate more functionality, enabling end users to record programmes on their set-top-box and then choose whether to store it locally or in the cloud.
Operators also face a number of cultural and legal challenges.
“It is a lot easier for a mediaco to be a telco than for a telco to be a mediaco,” said Gerry O’Sullivan, SVP of global TV and entertainment at Deutsche Telekom, which has 4 million TV subscribers in 10 countries, including 1.6 million in Germany. O’Sullivan, who spent eight years at BSkyB before joining the German incumbent, says acquiring the talent required to complete the transformation from telco to mediaco takes about a year.
“Any device that people have a relationship with, they also expect to watch their TV content on it,” said O’Sullivan. Running a media company is “a very complicated process of acquiring content rights and understanding how to distribute content,” he said. “You need lawyers and you need rights experts.”
But telcos need to undertake that transformation because it is becoming hard to overstate the popularity of OTT video services.
Netflix is the world’s largest online video streaming provider with more than 23 million subscribers in 47 countries across North America, Latin America, the Caribbean, the UK and Ireland. Research firm TDG estimates that in the US alone, Netflix subscribers watched 80% more streaming video hours during Q4 2011 than were viewed on all traditional pay-TV VoD services.
“Operators have failed to take advantage of VoD to build subscriber satisfaction, generate ad revenues, and head off competition from over-the-top providers,” said TDG senior analyst Bill Niemeyer in a March report.
UK-based Lovefilm, owned by Amazon, saw its subscriber base reach 2 million in January, while BT Vision ended 2011 with 680,000; the UK’s other two pay TV providers BSkyB and Virgin Media-both of which offer a combination of linear and VoD content-had 10.5 million and 3.8 million respectively at year-end.
And the likes of Lovefilm and Netflix, which offer unlimited access to their VoD content libraries for less than $10 per month, are rapidly closing the gap on traditional pay-TV players. TDG expects the number of households using OTT video services to reach 250 million worldwide by 2016, driven by the growing uptake of connected devices. Meanwhile, Informa Telecoms & Media predicts the number of pay IPTV subscriptions to reach 76.5 million in the same year.
But moving forwards, many see operators and OTT players joining forces.
“We definitely see a hybrid model emerging...There will come a point where some operators want to add value to their own-branded services with content offered by the over-the-top guys,” predicts Cisco’s Elliott.
“If [operators] put it on their portal they will still own the user experience,” he says, noting that partnerships could also benefit OTT players. “Content remains king. If OTT players go it alone they will end up in a melee of who’s got the best content, but no one will have all of it,” he says.
One of the hottest emerging industry trends is social TV, characterised by consumers using social networks to interact with other viewers about the programme they are watching via a companion device such as a smartphone, laptop or tablet.
The positive news for content owners and broadcasters is that the social buzz around a TV show can drive ratings, creating opportunities for companies to harvest audience data to provide more targeted content recommendation and–permission pending–provide data to advertisers.
“This industry has never been able to convince people to log in to their TV service,” noted Giles Wilson, CTO of Ericsson’s TV solutions business. “But the smartphone is a very personal device. We know who is controlling the TV if they’re using their smartphone.”
Wilson envisions a future in which tablets and smartphones are routinely used to control and interact with TVs. However, enterprising app developers are forging ahead with their own plans for companion devices, launching services that aggregate the discussion of live TV on social networks into clients spanning PCs, smartphones and tablets. One of these companies, Zeebox, also ranks TV programmes by popularity based on the number of mentions on Twitter or Facebook.
“Social TV is booming because it meets a very natural user demand: when you watch the show you can also talk about the show,” said Nicolas Bry, senior VP at Orange’s innovation marketing group. “Currently there are approximately 50 apps that socialise your TV,” he claimed.
Orange has tapped into this demand by developing an electronic programme guide (EPG) that enhances content discovery and recommendation on its IPTV service by integrating information from social networks. This additional information is also delivered as an API for the benefit of app developers, making it easier for Orange to drive social interaction around its TV service on other devices.
“It helps Orange reach new audiences,” said Bry.
Knowing exactly who is watching what also provides new opportunities around advertising, and once again, app makers are blazing a trail.
Mobile software maker Shazam started life with an application that enables users to identify a song by holding their handset up to the source of the music. Now it is applying its expertise to drive interaction between audiences and brands.
“80% of us will have our phone next to us when we’re watching TV,” claimed Shazam CEO Andrew Fisher. “60% of people pick up their phone during a commercial break.” Shazam’s advertiser partners have begun using on-screen prompts to encourage audiences to ‘Shazam’ their commercials. The app recognises the advert and rewards the viewer’s interaction with coupons or bonus content. “We’ve worked with 100-plus brands in the US,” explained Fisher. “65% of people who interacted sought out more content.”