CEO, IDATE DigiWorld
And what if Jean-Marie Messier was ahead of his time? This is a question that many market observers are asking themselves after the deals that took place in 2015. To wit: the largest telco in the United States taking control of the second largest pay-TV provider, while Verizon entered the mobile video market, Vivendi became Telecom Italia’s majority shareholder, the head of Altice and SFR acquired media and football rights, following in the footsteps of BT which had spent over a billion euros in February to secure the exclusive rights to Premier league matches for three years…
Disintermediation of programme access?
Beyond economists’ theoretical and already ancient arguments over the limitations of vertical integration strategies, we need to recognise a new and deeply rooted trend that appears to be going in the opposite direction of a return to convergence. In this era of increasingly ubiquitous high-speed and superfast access, increasingly effective competition between access providers, and of scrupulous attention being paid to net neutrality, even though applications and Internet users are extremely polarised between a handful of platforms, there is no telling whether telcos’ and cablecos’ assets have been strengthened in a way that will allow them to become the main providers of TV products. The trend is more towards globalisation and disintermediation.
It is only a slight exaggeration to say that, with a server and a few technical service providers, anyone can monetise their media rights internationally. Hollywood may have dominated the industry, but the major studios still needed cable networks and largely national TV channels around the world to distribute their wares. Today, they see what Netflix, Amazon and YouTube are doing, and Facebook’s ambitions in the realm of video, and are diving headlong into testing and investing in direct distribution strategies. So it is media rights that matter most and, behind that, being big enough to acquire these rights or be able to self-produce, and amortise the cost thanks to tens of millions of consumers. Telcos’ boldest and most ambitious media strategies must therefore be consistent with their size, or with expectations of their sector’s international consolidation.
Investing in programmes: will it drive telco consolidation?
If this summary argument sketches out the, in many ways new, backdrop to the relationship between container and content, it of course does not mean that all of telcos’ or cablecos’ TV initiatives are bound to fail, even for the smaller ones. They have a legitimate role to play in building an ecosystem around triple and quadruple play bundles, as a way to strengthen customer loyalty. Here, technological developments make it less costly to create a pay-TV plan that combines access to TV channels, and well-crafted indexing and marketing of OTT services. But none of this makes fixed and mobile high-speed access providers the natural choice for main providers of TV programming, and the ones that rights owners will turn to (and pay a hefty fee). The largest telcos can invest heavily in acquiring rights and even exclusive rights, with the hope that these investments will pay off. In many instances, these will be marketing investments, with the aim of increasing their share of the high-speed access market, and now accelerating the pace of customers’ upgrading to superfast (fibre, 4G/5G) plans. We should mention in passing that this belief does not cancel out the belief that mergers between telcos and (even more scattered) TV networks, and partnerships between the two, can be part of an industry-wide strategy that prevents Europe from being the mere victim of a new era of TV industry globalisation. Adhering to this analysis would lead us to conclude that perhaps Jean-Marie Messier was right… albeit too soon.
From a more general standpoint, the challenge for telecom carriers still lies in making profitable investments in the new generation networks that our economies need. From this perspective, video in particular and, beyond that, the whole range of cloud applications and services, are all very positive factors. Not only because they offer opportunities to diversify – operators can of course invest in OTT services or seek to monetise their data – but also and especially because they increase the value of having access to these networks, and open up arenas of differentiation by creating competition that is not based solely on prices.
This opinion piece was published in Les Echos on 11 January 2016
CEO, IDATE DigiWorld
The common perception is that digital innovation is everywhere, and that the pace of innovation is accelerating as it applies to every sector, every business and every organisation.
Despite which, economists are wary. Productivity gains have clearly been slowing since the mid-2000s, even before the economy collapsed in 2008. And this is not a phenomenon that is confined to Europe, which could explain why it lags behind market leaders, but applies to the US as well. We are reminded of the words of Nobel Prize winning economist, Robert Solow, back in the 1980s: “You see the computer age everywhere but in productivity statistics”. Although we are by no means enjoying gains comparable to those of the 1920s or the great post-war boom, the effects of the Internet revolution can still be seen in statistics for 1995 to 2005. In other words, before the iPhone, before the smartphone and mobile Internet explosion, before 4G, the cloud and the onset of Big Data…
So the experts are divided into two camps: the techno-pessimists aligning themselves with Robert J. Gordon are convinced that the potential for digital innovation is dwindling, sinking very quickly into useless innovations, the latest gadget for the latest smartphone. They do not see any disruptive innovation that will impact productivity and growth in a way that is comparable to the steam engine or the electric motor. After all, they point out, history does not end here: up until the latest industrial revolutions, people in Western societies lived with very moderate productivity gains and GDP growth.
Meanwhile, the techno-optimists aligning themselves with Brynjolfsson and McAfee remain confident, pointing to new waves of innovation with artificial intelligence, new generation robots, the Internet of Things and 3D printing. Even Moore’s Law – the Law named after the co-founder of Intel who, fifty years ago, predicted that the number of transistors in an integrated circuit would double every two years, and which, somewhat unfortunately, appears to have caught on as the measuring stick for the digital revolution’s maturity – is expected to continue to hold true for at least another ten years. From a more general perspective, there are some such as Joel Mokyr who express their optimism by saying we underestimate the effect that the Internet has on change and improving human welfare, on accelerating access to knowledge in every scientific and technical field.
Behind this very black and white division, there are those who are interested in the failures of the statistical apparatus, and of price effects (deflation) that can distort the measurement of the different sectors’ ICT spending. Ultimately, however, their attention is focused on the conditions that would help reduce lag time, which is perceived as the time it takes for digital technologies’ productivity potential to kick in. Here, authors such as Gilbert Cette and Philippe Aghion stress the importance of ambitious and efficient public policies on education and training, seeing them as the cornerstone of a successful innovation policy and an answer to the phenomenon of qualified job opportunities being concentrated in a few major cities. They also stress the importance of reforms if we want to see the Schumpeterian cycle of innovation play out in a fluid and positive way, reduce the divide between a small fraction of highly productive businesses and an economic fabric turning in mediocre performances, while building up the majority’s trust in the digital transformation. We will add that it is useful, as Larry Summers does on a regular basis, to stress the importance under these circumstances of investments in infrastructure (think fibre and superfast mobile) and that we are not forbidden, as Daniel Cohen suggests in his latest work, from calling for an examination of the wisdom and quality of innovation policies, by underscoring the ways in which digital technologies can contribute to turning the tide on climate change.
|Digital innovation vs. secular stagnation?
N° 100 - DigiWorld Econcomic Journal
The DigiWorld Economic Journal, is celebrating its 25th anniversary with this issue No. 100. For this jubilee issue, Gilbert Cette and Yves Gassot Editors have collected contributions from leading economists who examine the links between digital innovation and the associated developments, directly or indirectly, in terms of productivity, growth and job creation. The guest authors do not all adopt the same angle of analysis nor do they all share the same theses... But, in reading this issue, you will discover a different way of thinking about the big questions raised by these topics.
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Connected things as a strong market game changer?
Connected objects put together several markets. In 2015, 42 billion things are connected. In 2025, 155 billion things will be connected to Internet.
The value chain is different. Machine to machine implies a siloed connectivity, while the industrial network implies an interconnected connectivity.
Smart homes materializes a broad economic system, may be with too many possibilities. At present, the service is not up-front. There is a lack of services on the top of certain devices. The value added services isn't clear up to now. To take off the market needs to lift several barriers. First, price is the limit.
Connected objects will become one of the key pillars of tbe industrial giants in their servicisation strategy.
Luc Bretones, EVP Technocentre & Orange Vallée, Orange
To invent innovation locally you need to work at the local level so Orange has got offices in several countries.
IOT is a pillar of our innovation strategy. Orange has to work on value propositions. SIM-as-a-service is now on the market. New distribution models are created. At the same time, security has to be tackled. We want to customize customer experience.
Our company has a lack of good designers. The model is evolving from an Internet of things towards an Internet of services, from business to customer services, where you can monitor your home thanks to an SMS. Monitored security is on. Every area of life is under way. The car has got a specific need for connection.
Orange is an IOT data operator aiming to implement:
- connected devices
- internet of machines
- internet of objects
The objective is to get quickly a critical mass. To implement open innovation our company has to set up vertical partnerships. IOT is a broadfield in construction. On this topic data privacy is at the heart of Orange's concern.
What are the key current consumer applications and their business models?
- 90% value comes from services other than connected objects: Be it a better management of service to make it smooth, to guarantee the quality of service and delivery;
- Orange packs 4G in expectation to connect any objects, hybrid networks on different spectrum (LoRa and wifi);
- Orange connected services cover both B2B and B2C;
- Extend connectivity from cellular network, wifi to other wireless technologies: BLE, zigbee, etc.
- Spectrum of connected products and services: Orange Drive (critical, launched early 2015), Orange Smart Home, Silver cocoon (plug and go data platform), Pops by Citizen Science (connected health);
- Customer experience is the top priority – recruitment of designers as an example.
Orange ambition to be the data operator by 2020.
Orange Datavenue (data powered open platform): An IoT enabler platform for data storage, aggregation and securing, in wide range of verticals. Development of new B2B services that require to conclude major partnerships on verticals (entreprises and open data).
Round-table: How will connected objects impact our lives?
Moderated by: Olivier CARMONA, Director of Business Development, Awox
Xavier BOIDEVEZI, Vice President Business Development & Digital, SEB
Bernardo CABRERA, Head of M2M Marketing & Projects Management, Bouygues Telecom
Ludovic LE MOAN, CEO, Sigfox
Machine to machine is a reality. Today there are around 10 million of connected objects in France. 10% - 20% home appliances in the market have some connectable features.
From the car to consumer appliances, smart buildings, cities, any object can be connected now. At this level, there is a new business market emerging: security with two key elements simplicity and cost.
Generally four standards for connected devices exists, being endorsed by some telecom and internet giants like Google, Apple Homekit, Qualcomm.
What do I do with a connected object?
The key challenge is to make sense of usage for the consumer in terms of connectivity. The sector has to work more on positioning.
Today, music devices must be connected. For this segment connectivity is a must. For lighting, the market has been tackled with a different approach. With a connected lamp you can change its color right now. It's still a fragmented market.
The key driver is to work on the ecosystem of consumers. The global objective is to simplify life and offer embedded devices.
Experience should be at the benefit of technology. You're at the office and you want to start cooking your meal in the oven. How can we manage interoperability between products? It will bring added value. We need to explain what added-value this will bring to the end-user. So we need to move from manufacturing to service. At first, an innovation always seems crazy. Look at the mobile phone. Hackathons might be a way to develop applications and find a pool of ideas. We need to think big.
In terms of data monetization we have to find new models. There is a surge to be able to network vertical data and aggregate them from several fields of our lives (health, security, trips...). Digitalization and tools are increasing. Brands want to stick to consumers. The focus has to be laid on gather then analyse then exploit to finally aggregate.
Keynote: Paul-Edouard Launay - Jasper
Jasper is a start-up, working on operational excellence in IOT. Its aim is to launch, manage and monetize your IOT devices.
IOT is for everywhere and for all sizes of businesses. Services are for all of us. Jasper means to monitor and master the lifecycle of devices: manage / deploy / monetize. IOT always implies services we support. To deploy the equipment at the international level means having a seamless device.
- Business model is not clear yet (i.e. one of the invited company, SEB is still exploring its Business Model).
- Costs: Talking about Smart cit, how will the charges of connectable infrastructure and devices be covered, to whom?
- Energy: Identify the power consumption of devices; apply Low Power Wide Area (LPWA).
- Technologies come after consumer expectation: important to figure out what consumers value the most, what services can be offered to meet their needs? Then technologies come to serve the purpose.
To drive market taking-off:
- The majority of value will come outside the peripheries of home sensors or devices, but services.
- The market waits some model-effect of big manufacturers’ move, in expectation of lowering entry barriers, for example, lowering the costs.
- After the decision on what services to propose to consumers, both SEB and emphasized that true benefits/utilities will be delivered by partnership (open innovation) and by establishment of the ecosystem.
Data analytics allow home appliance makers to discover some key metrics associated with consumer expectation when the devices are being used, thus in return contributing to new services development ( transform themselves to service providers from pure manufacturers).
Advertising might be possible but commercial viability has not been proven yet. Data analytics are likely to make more sense, estimated by SEB.
Subsidiary of La Poste, DocaPost
- Again the key question is the users’ expectation from IoT
- The objective is to access services in wellness, energy, security, connected home and connected city to have a better life.
- “IoT, new vector to develop proximity services” according to David De Amorim
- The innovation will come from the combination of data from different objects and services . It's important to develop an ecosystem
- The way to develop IoT for DocaPost, subsidiary of La Poste will be done through the development of a cross vertical platform (called Le Hub) to be universal, advantages based on neutral both technically and positioning. La Poste wants to address France entirely. The hub will be launched next year and be showcased during the CES in Las Vegas in 2016 with Atol, BNP, Legrand, schools and other start-ups
- La poste wants to address all the sectors. That implies the use of the integration of many technologies to address specific sector such as Sigfox for smart meters or WiFI for cameras security
- For security concerns, La Poste has planned to enable users to manage data
Industrial Internet round table
Moderated by: Ezio ARMANDO, Managing Director in charge of Emerging Technology for Europe, Afriqua and Latin America, Accenture
Vincent CHAMPAIN, Operations Director, GE Corporate France
Andreas FIER, Head of Academic Relations, Deutsche Telekom AG
Didier GUILLOT, Innovation and multi-utilities Direction, director, Sagemcom
Rolf RIEMENSCHNEIDER, Head of Sector for Internet of Things, European Commission
Soline OLSZANSKI, VP Strategy & Innovation, Hub One
Olivier ROUXEL, in charge of RFID & IOT missions, DGE
The definition of IIoT (Industrial Internet of Things) remains blurred. Here, Accenture defined the IIOt as the connected applications and services for business purpose, a broader scope than the conventional definition focusing on manufacturing.
About the IoT architecture and the technologies:
- Deployment of the architecture is not the key question
- Low cost and very efficient architecture required
- The cost of connecting, analysing is almost zero according to GE
- Building consistent infrastructure to connect objects first !! then modules and devices
- The issue is to integrate, the challenge is who is managing and maintaining this architecture
- LoRa identified by panellists as a good technology thanks to the alliance behind
- Triangulation of technologies to locate objects; it’s the compilation of technologies that bring value
Main benefits from deploying IIoT:
- Additional productivity, more reliability especially for oil and gas sectors, new services to client
- From technical perspective : miniaturization, radio protocols and power consumption
- Environmental (energy, lighting), supervision and monitoring for building, assets and also staff, vertical applications
- Example in the airplane sector, many applications regarding the planes, the truck etc and also for the customer interaction
Keys of success for IIoT as the deployment path is currently low
- Business questions to be resolved : how to bring value out of the combination of the use of the technologies
- Security compliance to be resolved for some sector for instance in airplane sector
- 3 Focus to be addressed for Soline Olszanski from Hub One: what services bring, ecosystem to achieve a mass market, business model
- Standards questions to be fixed : fragmentation and lack of standards. Standardisation is coming
- No technologies war : Each technology will have its place in the IoT according to Didier Guillot from SagemCom
- Ecosystem is required otherwise development projects will take longer
- Needed for skilled people
- Continue beta tests
Next step is the finalisation of end users applications.
Consultante Senior, IDATE DigiWorld
The Gigabit race is now a reality, especially in the United States where private sector players and local authorities are all getting involved in furthering the deployment of new generation infrastructure. Elsewhere in the world, Gigabit access is already in place, notably in Asia, or, in places such as Europe, poised to become a new target product for the marketplace. This report explores regional approaches to Gigabit-speed access, and describes how the different types of players are positioned. Private and public sector stakeholders may not have adopted the same strategies, but all have a vital role to play in this search for increased network performance.
Several promising technologies but only a single solution available today
Theoretically, several technologies are capable of providing end users with a 1 Gbps connection. Naturally, end-to-end fibre connections are currently the fastest ones available. The technologies used by new solutions that rely in part on copper or coaxial networks, and which have recently been standardised, will become commercially available in the coming months. But this does not prevent ISPs wanting to implement them from already talking up how fast their new access plans will be. We should, however, be circumspect about the announcements we are hearing on Gigabit-speed networks. In the vast majority of cases, the headline speeds being announced are the absolute maximum speeds available, are not guaranteed, and depend heavily on circumstances such as where the customer is located, the technology employed, time of day, access conditions, etc.
A Gigabit race being run at a different pace across the globe, but with one thing in common: the growing involvement of local authorities
Even if Gigabit-related talk is still largely a marketing tool, most ISPs have set it as a target connection speed. It was Google that fired the starting gun for the Gigabit race in the US, as the company was tired of having to depend on ISPs’ disparate networks. Google’s very local approach attracted a great deal of attention from cities which, when they failed to be chosen as one of the company’s rollout locations, elected to become involved in deploying their own infrastructures, in some instances in partnership with other local bodies such as universities. The combined involvement of a local authority and a new competitor from the private sector has had a tremendous influence on veteran operators like AT&T, which had initially focused its efforts on VDSL but is now also deploying FTTH networks, which has enabled the carrier to introduce its 1 Gbps Gigapower plan.
Gigabit networks are also making headlines in Europe, although the situation is very different, largely because operators there are taking more wide-ranging technological and commercial approaches. Some were quick to gain a foothold in this new market, while others are waiting for market demand to build. Although the targets for connection speeds set in Europe’s Digital Agenda are more modest, Gigabit-speed access could nevertheless become an industry standard for both public and private sector players, as local authorities begin to play a larger role in SFB/UFB network rollouts.
Status of 1 Gbps plans around the world
Although users’ needs are increasing, Gigabit-speed access still seems “too much”
A great many companies, both ISPs and others, are working on developing new applications in the arenas of entertainment, video, health and education. Applications that need a great deal of bandwidth to run as smoothly as possible. But the bottom line has remained the same for years now: it is the increase in user numbers and devices being employed that drive up demand for bandwidth.
Two main pricing strategies: charge the same as before or monetise new features
Selling a Gigabit plan allows an ISP to position itself as an innovator, technically capable of delivering ever faster connections. From a marketing and commercial standpoint, however, the strategies being adopted for Gigabit plans are not really new: either an ISP will include a Gigabit plan in its product line as the logical next step in providing superfast access, charging more or less the same prices as before, or it will work to capitalise as much as possible on its new product by billing customers for each new feature enabled by its infrastructures – a good example of this being MyRepublic in Singapore.
Find out more information on "Content economics market" in our dedicated market report
Consultant Senior, IDATE DigiWorld
IDATE has just released its latest market report on connected cars, which is part of its ongoing series on the Internet of Things and M2M. The report provides an opportunity to take stock of a major market whose rate of development appears to be accelerating, with a series of announcements, veteran industry leaders such as Mercedes talking about driverless cars, the rise of newcomers such as Tesla, and connected car projects coming out of China, as foreshadowed by the new joint-venture between Internet giant, Alibaba and one of China’s first car-makers, SAIC Motors.
This is a market that every stakeholder along the value chain is gearing up for.
The strategy of most manufacturers is to make their cars connected. The main driver here is based on the regulation related to safety issues in Europe and the underlying revenue opportunity for them. In the USA, the recent GM announcement to embed 4G modules in all new cars is seen as a key trigger for market take-off. For telcos, the revenue opportunity could be interesting as the connected car will generate traffic that telcos will charge for indirectly (through the automobile manufacturer).
All main M2M mobile carriers are involved in the connected car space, as the connected car represents one of the major markets in volume. In a context where their traditional mobile revenues are flat and even declining in some regions, providing mobile connectivity in cars is a key business opportunity for telcos. Beyond car-related applications in driver assistance, from the perspective of a telco, the car can be seen as an additional cellular device, with a potential high-consumption service profile with such usage as the mobile Internet, entertainment on demand and mobile hotspot features. The prime business model remains the traditional wholesale relationship (B2B2C), even though some telcos like AT&T try to address end users directly through B2C models (through a retail data plan) and the integration of an automotive into the mobile share plan.
For Internet players, the strategy here is clear: the automobile is an additional connected device just as smartphones, tablets and laptops and needs to be addressed. However, Apple and Google do not have really the same approach. Indeed, whereas Apple aims to introduce its technology to interface with its products, Google is promoting the embedment of its technology into the car as a regular device. Google also wants to collect data to provide the most accurate advertising as possible, such as a related point-of-interest, based mainly on location.
A market that is starting to take off
On the market side, according to IDATE, in 2020, 420 million automobiles will be connected, representing a 34% CAGR on the 74 million connected vehicles in 2014. Nevertheless, this growth is not homogeneous for each category of connected cars. The embedded systems will lead the market by 2020.
Asia will lead the connected car market in 2020. Europe benefits from a 39% CAGR by 2020, mainly thanks to eCall regulation, entering onto market by end-2018.
In 2020, connectivity revenue for connected cars will exceed 9 billion EUR. In value, North America will be the leading zone, mainly due to higher ARPU than anywhere else in the world both for telematics and infotainment offerings. This encompasses direct connectivity through embedded systems but also indirect revenue related to smartphone usage. The major issues to be raised here are on the real willingness of the user to pay for such services. To encourage users to subscribe, telcos and manufacturers are already contemplating different revenue models including share plans. All the same, adoption is likely to remain limited over the next five years.
Forecast for connected car evolution, by implementation technique
worldwide, 2020 (%, Million units)
The headlines are full of the self-driving vehicle, which is on everyone’s lips in the industry. Automation could be framed at six levels, ranging from zero autonomy to fully automated. The leading manufacturers are, at the first steps, mainly luxury car providers. The traditional car manufacturers are focused on the semi-autonomous route, but the ‘upstarts’ from the realm of the Internet, such as Google and Apple, are straightaway testing the waters of the fully autonomous car. Nevertheless, many issues need to be removed to see the self-driving car market take off. Currently, they are legal (on how to handle accident responsibility), cultural (seeing no real demand from end users) and economical (on who will fund the infrastructure).
Find out more information on "Content economics market" in our dedicated market report
By Alexandre Jolin
Introduction by Florence Leborgne
The central question is: Will internet replace TV? More and more users are switching from their television sets to connected devices to watch TV, including their personal portable devices. This trend is at its most prevalent amongst the youngest viewers. Will this disruptive behaviour amongst 16 to 35 year olds become the status quo?
In terms of supply, TV programmes share their screen time with the Internet and its new forms of video content, such as UGC, professional and semi-professional shorts and VoD movies.
Of course, the traditional TV market is feeling the effects of this behaviour. Cord-cutting and cord-shaving are growing in the United States: 10% of TV households in the US are cord-cutters, 7% are cord-shavers and 3% are cord-nevers. Most of them are young people in the workforce who have never subscribed to a multichannel pay-TV service. In Europe, the situation is more mixed, and it is still impossible to say whether cord-cutting is becoming a trend, based on subscriber statistics.
We can, however, confirm that video on demand (VoD) is hugely popular across the board. Consumers still appear to be willing to pay to access the content they want. This willingness to pay is also contingent on price points which, for VoD, vary between 10 and 15 USD a month, compared to an average 60 USD for classic multi-channel cable, satellite or IPTV pay-TV plans.
SVOD services are also contributing more and more to financing TV productions, and becoming key actors in the rights market. In 2014, Netflix spent more than HBO on programming rights.
Even if the approach to marketing the content is completely different, the channels run by YouTubers are attracting as many if not more viewers than most pay-TV services. Moreover, we are seeing a sector of professional and semi-professional content produced specifically for distribution on social media sites emerge.
For now, the revenue generated by on-demand channels, SVOD and video advertising is still a far cry from the revenue generated by traditional linear TV.
But what does the future hold for television? Several models are emerging: syndicated offerings such as Hulu and Freeview Play, online multi-channel platforms such as Molotov TV, multi-channel networks that make it possible to target viewers who are still interested in TV content, but have abandoned classic distribution channels.
Interview – Olivier Huart
OTT services appear poised to oust traditional media in all areas. Should we be afraid of these new entrants, or instead welcome their arrival, and the innovation momentum they are setting off?
"OTT and live TV are bound to complement one another for several more years to come.” Live TV is still by far the most popular mass medium around the globe, including France. Even in the United States people still watch an average 4 hours and 30 minutes of live TV a day, compared to an average 30 minutes of OTT video.
Plus OTT video’s share of screentime far outweighs its market share in terms of value. Linear TV channels account for 96% of spending on TV production in France. Some content also remains fully the dominion of live television, namely sport. To paraphrase Mark Twain (or Steve jobs): "Reports of linear TV's death are greatly exaggerated".
Despite the massive popularity of mobile devices in everyday life, TV is still the device of choice for watching video content: 75% of the content viewed on Netflix is watched on a television. Smartphones, meanwhile, are tending to be used as a controller, a remote control for multi-screen platforms.
From an economic standpoint, there are clear advantages to using alternatives to broadcasting to distribute video content. The terrestrial TV network covers more than 97% of the population in France. Internet connection speeds still do not make it possible to deliver programmes in HD with the same high picture quality as broadcasting networks. Plus TDF was one of the first broadcasters worldwide to conduct trials on 4K UHD broadcasting. But additional spectrum resources will be required. This transition to UHD also depends a great deal on the willingness of channels wanting to monetise this new value proposition.
The future will be a mosaic of solutions, and less and less of a monolithic model. And consumers are the central ingredient. Seventy percent of them want a package that includes live TV and on-demand content they can play on multiple devices. So traditional channels have three paths available to them:
- create proprietary applications, such as myTF1;
- pool the content belonging to several channels onto a single platform, as with Freeview Play;
- have live TV viewers foot the bill for the transition to the open Web.
Round table – Ingredients of an OTT-only success story
François Abbé – Mesclado: moderator / Britta Schewe – gretegrote Interproduktion UG / Luc Reder – producer Page & Images
Luc Reder: Page & Images produces chiefly television documentaries, institutional films and transmedia storytelling systems. For now, the producers are still taking a wait-and-see attitude. “OTT models are seen as not lucrative enough compared to linear TV channels”. A lot of people are working on these avenues, but few on what we are putting out.
Production costs for video content dropped significantly when we made the transition from an analogue to a digital production chain.
Britta Schewe: I began working on the Internet before going to work for VIACOM and Deutsch Telekom, before realising that the Internet was a more dynamic sector. The keys to success on the Web are the same as on TV. “On both the internet and on television, you need to be able to produce attractive content and know how to reach your audience".
Luc Reder: The economic equation of TV production is still very much tied to the TV screen. Some of the content we are seeing on the Internet is either experimental or just what’s in fashion. Web documentaries, for instance, are tending to disappear. On the other hand, we are seeing a growing maturity in the production of video content for the Web.
Britta Schewe: The future of OTT distribution as a whole is hard to predict. I think that some TV channels will disappear. “The more a television channel bases its programming grid on purchasing broadcasting rights, especially to American shows, the greater its chances of going off the air.” “In the future, in-house production will be the dominant business model for channels.” Content is still king!
The issue of content discovery is key to successful online distribution.
Keynote Speaker – Nicolas Weil – AKAMAI TECHNOLOGIES
Our message is one of inverting yield curves between linear TV and on-demand services, mainly on the open internet. Every day, Akamai delivers 30% of the world’s internet traffic. Akamai believes in fully OTT channels, but picture quality is a crucial criterion. As the number of available 4K services grows, the bandwidth needed to receive these programmes increases dramatically.
The user experience is the central consideration, especially on mobile devices. Lag time affects usage. “50% of users are lost if a video does not launch within 10 seconds.” Only around 10% of households in Europe are able to receive video content in 4K over the open internet.
As the datarates required for online video increase exponentially, the investments that ISPs need to make in content delivery networks are becoming far too high. So the logic that governs CDN needs to be extended to users’ devices. There are several technical solutions that address this: Peer-Assisted Delivery (P2P), Store and Play Later and Multicasting.
Round table – From live TV to OTT: an inexorable shift for veteran players
Moderator: Eric Scherer – Director of Future Media – Groupe France Télévisions / Matthias Buechs: Director of Online – RTL Interactive / Roux Joubert: General Manager Platform – BBC Digital / Richard Lucquet: Verizon onCue – Director, Business Development Technology, Partnership & Licensing.
Eric Scherer: The road to OTT will be slippery for broadcasters. Linear TV start to show decreasing aspects. Cord-cutting appears to be real. Among young people in the US, 65% of video consumption happened on demand and mostly online. The online traffic on CBS news has shifted from 6% on mobile devices in 2011 to 60% in 2015. SVOD is surging everywhere but its growth remains lower in France and Germany.
The consumer is now at the centre of a new demand side driven economic paradigm. Consumers are now involved in the editorial process. They can help to fund the production of content with crowdfunding solution or even deciding of the deprogramming of a TV Show.
New internet players aren't only distributors. They tend to become producers & content creators including the creation of new format and story-telling schemes.
Matthias Buechs:Television is highly under pressure in Germany but still profitable. Amazon is the dangerous competitor as the service doesn't need to be profitable by itself. Video sharing platforms are competitors in terms of time consumption but not yet on consumer spent market.
Roux Joubert: The BBC has always been an innovator. Last year, it has been the first broadcaster to stop airing a linear TV channel to transfer it on Internet on an on demand format. It also provides pre-TV programs on BBC i>Player and broadcasted content available until 30 days after being aired.
Richard Lucquet: "Millennials are spending more time using their mobile devices than sleeping" on a daily base. To reach that audience, Verizon launched the go90 application, a service melting the best of TV and of online content on just one platform including social features. Verizon is planning than go90 could generate as much revenues as Fios TV within 5 years. "Internet is alive because of video".
Senior Consultant, IDATE DigiWorld
IDATE estimates the global content industries market reached 145.5 billion EUR in 2014. On a global scale, 41.2% of revenues came from dematerialised channels, nearly twice that of 2011.
A sector worth 145.5 billion EUR in 2014
• Publishing is the leading market in value, with a total of 52.3 billion EUR generated. Between 2011 and 2014, revenues in the sector decreased by 1.9%.
• The music sector started to grow again from 2012, with 3.6% growth over the 2011–2014 period and 0.9% in 2014, attaining worldwide revenues of 13.2 billion EUR in 2014.
• The video game sector saw revenues grow 29.3% between 2011 and 2014, reaching 47.7 billion EUR in 2014.
• After a period of inertia, the video market is back on a growth path. In 2014, total revenues for the sector amounted to 32.2 billion EUR, compared to 31.9 billion EUR in 2013, which translates into a 0.9% increase.
More value captured by producers and rights holders
Losses in the end market, attributable to a decrease in the unit price of content, which is not always offset by a rise in sales volume, does not necessarily imply losses for all players in the value chain.
In the book market, the share of end-market value captured by rights holders and publishers has increased by 26% in the physical value chain to 55% in the dematerialised value chain.
Nevertheless, the difference is less pronounced in the recorded music market, a 46% share from videogram sales to a 49% share from digital sales.
About the video game market, 59% of end-market revenues from title sales are captured by publishers and developers in the dematerialised value chain, nearly 20 points higher than in the physical value chain.
Finally, the biggest difference appears in the transactional video market, where 54% of total market revenues are captured by producers and rights holders, compared with only 21% in the combined segments of videogram sales and rentals.
Find out more information on "Content economics market" in our dedicated market report
Senior Consultant, IDATE
The World OTT communication market will reach 22 Billion EUR in 2019
This report provides an in-depth analysis of the OTT communications market, both through figures and forecasts of market value (global, EU28, APAC and US), and through strategic analyses of the major players concerned.
The VoIP market (such as Skype), the IP messaging market (such as WhatsApp), and a portion of the social networking advertising market (such as Facebook) make up the OTT communication market, and the dynamics of each of these market segments are examined.
The various business models that have appeared, and the recent trends of acquisitions in the market, are also analysed.
One of the key analyses in this report is the comparison with the telco communication market. The myth of 'OTTs taking away telco revenues' is scrutinised, together with the effectiveness of the responses available to telcos.
OTT communication has very little impact when compared to the telco market
Actually, OTT only accounts for 1.8% of communication market in 2015… and despite its growth, will still only account for 3.3% in 2019.
Meanwhile, the telco communication market will see slight decline with CAGR from 2015 to 2019 of -0.4%. At least, total telco communication vs OTT communication revenues, 2012 to 2019 (billion EUR). For that matter, OTT communication services have not significantly adversely impacted the Telcos.
There exist greater factors such as the economic climate, internal competition and regulation that significantly affect the telco market values more than OTTs:
• The French example: competition between telcos was already intense before arrival of OTTs, minimising their impacts
• The Spanish example: telco communication revenues were already in decline due to economic recession, and OTTs served to accelerate the decline through cheaper alternatives
• Voice and SMS are no longer a cash cow for the developed countries
Telcos are obliged to invest in their networks, whereas OTTs are not
• The values attached to voice and SMS, which used to be fully captured by the traditional telcos, potentially being diverted to OTT providers
• Further, OTTs use the telco data network, yet OTTs are not required to invest in this network
Find out more information on OTT communication services market in our dedicated market report
CEO, IDATE DigiWorld
Our sectors took very little time off this summer, and generated a string of headlines. Below are some of the highlights.
Telecoms in Europe: ongoing consolidation and the first signs of a recovery
In Europe, following the announced merger of O2 (Telefonica) and Three (Hutchison) in the UK, and of Wind (Vimpelcom) and 3 Italia (Hutchison) in Italy, mobile markets in the EU continue their shift towards a three-player configuration, as illustrated on the map below (and explored in an analysis piece by our expert, Didier Pouillot).
But these mergers are being closely scrutinised by the European Commission which has no qualms about making their approval contingent on severe remedies, as we saw in Spain where the ultimate green light came after eight months of investigation, giving Orange the nod to acquire primarily fixed operator, Jazztel. Over in the UK, Ofcom have undertaken a wide-reaching strategic review, which will naturally included an examination of whether or not to alter the status of Open Reach, BT’s fixed access branch. And there is nothing to indicate that the assets swap, or the acquisition operation, between Vodafone and Liberty Global will be settled anytime soon.
As to the telecom sector’s performance in Europe, the results of the first two quarters of the year underscore that the recovery is still only nascent, with revenue down in virtually every market, even if we are seeing some improvement in margins.
Looking at the Internet and the GAFA quartet, Google’s responses (which created the Alphabet holding company) to the arguments raised in the European Commission enquiry make us think it will be a long, drawn-out procedure. There was also a great deal of talk about Uber and Airbnb this summer. Ultimately, however, it is European industry veterans Audi, BMW and Mercedes that will be taking control of Nokia’s Here. On a broader scale, debates over Internet platforms’ dominant positions in certain markets are grappling with sizeable issues. These issues will be one of the central themes for the 2015 DigiWorld Summit that will run from 17 to 19 November. I also invite you to get your hands on the latest issue of our Communications & Strategies journal for real insight into platform economics.
USA: the Gigabit race
In the United States, there have been a wide range of views on what drove AT&T to take control of the country’s second largest pay-TV provider, DirecTV (cf. our own analysis of the situation). At the same time, the Gigabit race – i.e. announced rollouts of networks delivering connection speeds of over 1 Gigabit/s – continues, with certification testing begun on Docsis 3.1. cable modems (worth mentioning here is Technicolor’s acquisition of Cisco’s CPE business, inherited from Scientific Atlanta).
These questions over the relevance of this new Gigabit access milestone will be also discussed in Montpellier, in a dedicated forum at the DigiWorld Summit on 18 November. Over in the mobile market, the summer brought the unsurprising news that T-Mobile US has pulled ahead of Sprint in terms of customer numbers. On the whole, although margins are stronger in the US than they are in Europe, American operators’ revenue appears now to be also oriented on a negative trend.
China: between acceleration and the first signs of saturation
The takeaway from China this summer was both the mobile market’s spectacular ability to make a swift transition to 4G – starting with China Mobile which managed to attract 100 million LTE customers in only six months – and the first ever quarterly decrease in smartphone sales, keeping in mind that China accounts for 30% of the global market. The upcoming DigiWorld Summit comes to mind here again since China will be our Guest Country this year.
Microsoft: driving the digital transformation… and undergoing its own
The last bit of headline news worth mentioning is the launch of Windows 10, which is a big deal for Microsoft in more than one respect as it is the successor to Windows 8, the previous and disappointing version of its OS, in addition to being the centrepiece of the company’s hopes for regaining credibility in the mobile business (thanks to its ability to attract both users and developers to its single operating environment for computers, tablets and smartphones) and of its new, clearly software and cloud-oriented strategy. At a time when everyone is talking about businesses’ and industries’ digital transformation, it will be very interesting to watch Microsoft and its new chief’s attempt to make the company the once and future king of digital innovation.
Head of Consumer Electronics & Digital Entertainment Practice
"In 2015, more than 70% of video software revenues were generated by digital sales and distribution, compared with 22% in 2008."
Dematerialisation, a driver for disintermediation and growth in the video games sector
The global video game software market rose in value from 35.3 billion EUR in 2008 to 47.7 billion EUR in 2014, driven by dematerialisation, the emergence of new segments and the continued success of relatively new segments. Dematerialisation has meant an increasing number of consumers can be reached, on any platform equipped with a screen, fixed or mobile, and with increasingly varied content. In 2014, 69% of video game software revenues were generated by digital sales and distribution, compared with 22% in 2008. Revenues from dematerialisation have experienced an average annual growth of 26.8% over the period, compared with 9.7% for revenues from physical sales.
The video games sector, which is digital by nature, has a long history of dematerialising distribution and in-game content. Use of dematerialisation now seems to be accelerating and expanding into all segments of the sector. The success of browser games, massively multiplayer games, online gaming on consoles and personal computers, and smartphone gaming (since the end of the 2000s), has meant that 2012 was a defining year when the majority of revenues were generated from the digital side of this economy, switching over from the physical.
Breakdown of the video game software market by type of revenue, 2008 and 2014
Source: IDATE, Video Games in the Cloud, June 2015
Role redistribution along the value chain
Dematerialisation affects all segments of the video game industry. It has led to disintermediation in the value chain and raises questions over the role of certain stakeholders downstream. It has afforded new power to developers, who now have the opportunity to speak directly to their gaming customers. 'Online' has ultimately eroded a silo-based industry structure and allowed practices and cross-platform services to emerge that both benefit gamers and boost creativity within the sector.
Industry repositioning and revaluation up the chain
On an industry-wide scale, dematerialisation of video game market segments has moved value along the value chain. Value creation is now closer to players with a direct link to their customers. Disintermediation of the sector is moving in this direction.
In the PC gaming segment, value creation seems to centre around digital retailers (Steam, GOG), aggregators (Big Fish Games) and publishers (EA Origin, NCSoft). In the mobile gaming segment, value creation seems to have moved towards app store owners (Apple, Android, Amazon), and to the console manufacturers themselves in the case of console games.
On Smart TVs, anything is still possible between TV channels, the Internet giants and the proponents of a cross-platform ecosystem (e.g. Apple, Samsung, LG, Sony). Gaming platform operators, the major beneficiaries of these developments, have also had to rethink their revenue sharing models to the benefit of game development studios.
Dematerialisation has also allowed the sector to continue generating additional revenue, converting new customers to new types of game, especially ubiquitous games, which are playable simultaneously on multiple platforms, both fixed and mobile.
In this context where dematerialisation is continuing to gain ground on the physical market, the sector will continue its dynamic growth in the coming years. However, not all links in the chain will fully benefit from this growth, such as distributors, who are seeing their share captured by others.
Revenues earned by the various links in the video game market value chain (million EUR)
Source: IDATE, Video Games in the Cloud, June 2015
The impact of dematerialisation
The impact of dematerialisation varies depending on the market segment, but disintermediation is a common theme.
The PC gaming segment, which is easily accessible for independent (indie) developers, has diversified and opened up to casual and social games while retaining a special place for massively multiplayer (World of Worldcraft) or multiplayer (League of Legends) games.
The mobile gaming segment (on smartphones and tablets) has built itself around app stores, and the viral and rapid nature of these stores. With these devices now almost permanently connected, games are also being viewed as a potentially continuous entertainment experience. This implies a new approach is needed, based more on encouraging users to buy, rather than selling a product.
The console gaming segment has evolved and now allows all users to download indie and casual games, but also AAA titles. In addition, many features that use the cloud have emerged. These features may relate to the game, other content, consumption, user account management or access to broadcasting services. In this context, console manufacturers remain the cornerstone of this segment's economy with their e-stores.
Finally, on Smart or connected TVs, video games take the form of streamed content, known as cloud gaming or Games on Demand. This young segment, which first emerged around 2010, is strengthening and seems to be garnering interest within the industry.
Find out more about dematerialisation in video game industry, new strategies and organisation as well as forecasts and shifts in the value chain in our dedicated market report