24May/160

Video On Demand: Europe’s main markets in the aftermath of Netflix world conquest

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Florence Le Borgne
Head of the TV & Digital Content Practice, IDATE DigiWorld

Generally speaking, the arrival of Netflix in a new market results in increased programming costs for its competitors.

 

Using North America as an example, this trend is expected to continue and grow in the coming years, which will question the profitability of such investments.

TVOD_value_sharing

 

Service typology

There are generally three types of pay video-on-demand (VOD) services:

TVOD (Transactional Video-On-Demand) services, which include:

EST (Electronic Sell-Through), also known as DTO or 'Download To Own', is like the traditional sale of physical videograms, but in digital form.

DTR (Download To Rent) is like the traditional rental of videograms, but in digital form.

SVOD (Subscription Video-On-Demand) services, which are based on the dominant pricing model used for linear pay-TV: subscriptions

It is common for the same service to offer several pricing models.

Business models and service positioning

The transactional video-on-demand model is based on revenue sharing between the service provider and the rights holders. Contracts between these two parties can be exclusive, but rarely so. The catalogues of transactional video-on-demand services are usually very large (from 10,000 to hundreds of thousands). Although most TVOD services are non-specialised, consumption is mainly focused on movies.

The business model of SVOD is similar to that of pay-TV. Content rights are purchased at fixed price, regardless of actual consumption. The rights may be exclusive for a given period of time and territory. SVOD catalogues have tended to be available for unlimited consumption so far, including many non-exclusive and older titles (over 5 years old). Although most SVOD offerings are non-specialised, fiction series tend to be promoted and consumed the most. Original and exclusive new content is increasingly used for differentiation. There are currently two contrasting marketing strategies used: strategies based on a volume/cost ratio; and differentiation strategies based on premium or special interest positioning.

Competitive environment

The VOD sector as a whole is witnessing strong growth in Europe, driven by a large increase in the number of services emerging in most countries. Between February 2012 and December 2015, the number of services available in the EU increased by a factor of 5.7 on average.

Although the market share in value terms is still dominated by DTR in Europe (56.5% of the total VOD market), this market segment has been the slowest growing segment over the last five years (+215% on average in EU countries between 2010 and 2015). Revenues from subscription services are experiencing stronger growth: a growth rate of 1,824% over the same period. They generated nearly one-third of VOD revenues in Europe in 2015, whereas they only accounted for 7.6% in 2010.

The true start of the SVOD market in a particular country is often whenever Netflix launches there. Note that Netflix is often the main beneficiary of the rapid growth in subscribers that its launch creates. The arrival of the North American giant does, however, trigger a response from the main players in FTA television and pay-TV. It is the combination of all these elements that contributes to better awareness of these services among the general public and facilitates their adoption.

Competitive environment

The growth and success of video-on-demand services can be very different depending on the market. There are various internal factors:

the propensity for local consumers to pay for access to content;

the price differential with local pay-TV offerings;

the prevalence of piracy of audiovisual and cinematic content;

...

Find out more about the various internal factors

Various issues specific to the structure of on-demand services and players' strategies also play a role:

the relevance of the marketing positioning of the services;

the existence of partnerships with distributors who already have a subscriber/equipment base;

the effectiveness of recommendation systems, which help increase consumption and provide a better user experience;

...

More information about these issues

Profitability conditions and the challenge facing Europe

The issue of achieving profitability with transactional services is not as critical as for subscription services. Because most transactional service costs are variable costs, proportional to consumption, these services are not expensive to create and only become so when the content is actually consumed.

Therefore, there are no real obstacles to creating new services and the costs of entry into the market are low. This explains the abundance of existing services and the great diversity of players in this segment.

The economy for SVOD services is more delicate: as well as technical and marketing costs, content acquisition costs can be regarded as fixed costs because the content is purchased at a fixed price, regardless of consumption. To that can be added costs related to development or acquisition of a recommendation tool. Subscription services therefore have significant costs even before they have started to recruit subscribers.

If the European industry cannot create some European champions of their own to compete with the US giants, many European players may disappear as the market rationalises.

Discover the perspectives,  key trends, and scenarios about the TV market for the next decade through our dedicated report and register to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.

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27Apr/160

Connected TV: Accelerating OTT video development

BAJON_Jacques

Jacques Bajon
Director of Media & Digital Content Business Unit, IDATE DigiWorld

The development of connected TV is inextricably bound up with the widespread availability of high-speed Internet access, a shift to more and more individual viewing and the proliferation of smart devices in the home.

 

Together, these three elements are steadily revolutionising how viewers access their TV programmes, and providing them with an array of new functions and features. TV sets can be connected to the Internet in several ways. Using:
a smart or connected TV (direct connection, via Ethernet or Wi-Fi),
a connected set-top box,
a streaming box or stick,a connected game console,
or a smart Blu-ray player.

In 2015, almost three-quarters of the televisions being shipped are Smart TVs, even if their owners may not systematically take advantage of the Internet connection. At the same time, the market for streaming devices – whose main purpose is to play online videos – is progressing rapidly. Within this market that is still populated by a great many solutions and services, several trends are taking shape:
the way users access and employ connected TV services has become more simple, and shifted from Internet-centric to video-centric;
managing connectivity with users’ personal devices has become a key issue, with app systems playing an increasingly central role;
OTT services are moving to the TV and making real strides;
...

More information about main trends

Technological progress in a variety of areas is helping to bolster the market’s development, be it the growing ubiquity of broadband and superfast broadband access in the consumer market, major improvements in video optimisation and compression (HEVC), or the advent of innovative features such as casting which allows users to send video content from a personal device to the television. The main stakeholders in the connected TV ecosystem can be broken down into three categories, based on their original sector of activity: consumer electronics (CE) companies, TV market players and the Internet’s leaders.
CE industry players are working to improve their software interfaces, either through dedicated developments such as Samsung has done with Tizen, or by acquiring another company, as LG has done with WebOS. The aim is to capture the added-value in the marketplace, whether in the arena of services and/or by selling high-end devices.
Players from the TV universe are developing their OTT products, and working to bolster their position on the software side of the equation with more open and hybrid platforms. The connected TV could enable them to renew ties with consumers, and better monetise their plans. Broadcasters and pay-TV providers, especially in the United States, are therefore starting to roll out complete OTT plans which include a live component
Lastly, companies such as Google, Amazon, Facebook and Microsoft that dominate the Internet, are very knowledgeable about software, and changing consumer habits. So they are in the best position to deliver a top-notch user experience, whether in terms of smooth and intuitive interfaces, or providing recommendations based on user data. Their increasingly vertical positioning – covering everything from the content to the device – is also bolstering their potential to capture a growing portion of the video entertainment market.

In this way, many scenarios are emerging for Connected TV to 2025, and will determine which industries are likely to increase their control over this environment:

Impact_scenarios_TV_connectee_2025_IDATE_DigiWorld_OTT_VA

The size of the OTT video market will vary considerably under these scenarios, depending on how the environment evolves and so which industries prevail, and The popularity of the different devices will also evolve along the same lines.

Discover the perspectives,  key trends, and scenarios about the TV market for the next decade through our dedicated report and register to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.

Register

 

 

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25Nov/150

[CR] TV & VIDEO Forum

By Alexandre Jolin

 DSC_1361

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.

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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

DSC_1504

 

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.

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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".

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Sumrise

20Mar/150

Nouveau cycle de conférences de prospective numérique sur les enjeux de l’Internet, de la télévision et des télécoms à 2025

logo DWFuture generique 2015

A l’occasion de la sortie de la nouvelle édition de son DigiWorld Yearbook, l’IDATE présente son nouveau cycle de conférences de prospective numérique sur les enjeux de l’Internet, de la télévision et des télécoms à 2025 !

La première session DigiWorld Future  se déroulera le 16 juin au Palais Brongniart, à Paris,  dans le cadre du Festival Futur en Seine en partenariat avec la Ville de Paris et Cap Digital.

A partir des analyses des experts de l’IDATE, les débats seront animés par Marjorie Paillon, Journaliste, Tech 24, Philippe Escande, Rédacteur en Chef, Le Monde et Gilles Babinet, avec les contributions exceptionnelles de :

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30Jan/140

The new territories of the TV market

Florence Le Borgne-Bachschmidt

 

Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.

Global TV market revenue to grow
at a steady pace: up 23% by 2018

 

At a time when video has become pervasive across all of our screens, most national TV markets are losing steam: shrinking viewership and pressure on advertising markets, especially in Europe. Although pay-TV seems to be holding its own, the fast-growing popularity of OTT offerings is shaking up the traditional pay-TV model, while the demise of physical media is virtually a foregone conclusion.

If the decline of physical media now seems inevitable, television still has a chance to reinvent itself in a way that takes into account changes in viewer behaviour and competition from new online vendors.

Accessing TV

According to IDATE, the number of TV households worldwide will reach 1.675 billion in 2018 (+9.6% in 5 years), with the number of digital TV households worldwide being 1.542 billion in 2018, which translates into 92% of TV households

Cable will the remain the chief access channel (592.3 million households in 2018) but will gradually lose ground to satellite and IPTV which will account for 32.9% and 10.9% of TV households, respectively, at the end of 2018.

• Despite the development of hybrid TV solutions, terrestrial TV should continue its decline on the first TV set and drop down to number three spot by 2018, with roughly 21% share of the global market.

• The development of hybrid solutions that combine live programming on broadcast networks (terrestrial and DTH) and OTT video services over the open Web is a key variable in the future development of the various TV access modes, and may well shake up current trends.

TV: top money-maker

Breakdown of audiovisual market revenue in 2013

Audiovisual market revenue worldwide

Source: IDATE, December 2013

TV revenue

According to IDATE, the global TV industry’s revenue will come to €374.8 billion in 2013 and €459.2 billion in 2018.

Pay-TV revenue will grow by 21.3% between 2013 and 2018, or by an average 3.9% annually, to reach €220.2 billion in 2018.

Ad revenue will enjoy even stronger growth of 27.3% between 2013 and 2018, to reach €201.1 billion in 2018.

Public financing/licensing fees will continue to increase significantly (+7.7% in 5 years) to reach nearly €38 billion in 2018.

Video revenue

According to IDATE, physical media sales will total €16.3 billion in 2018, when video on demand (VoD) revenue will reach €35.4 billion in 2018, which is 90% more than in 2013.

• This means that the global market will have shrunk to more than a quarter of what it was in 2013 (-27.2%).

Blu-ray will be the most common format and help temper plummeting physical media sales.

OTT video will continue to be the biggest earner, generating 51% of total revenue.

VoD will still be the dominant model on managed networks. It will generate €6.9 billion in 2018 versus €2.3 billion for subscription video on demand (S-VoD).

American OTT video providers' footprint in Europe as of 31 December 2013

American OTT vendors in Europe

Source: IDATE, December 2013

American OTT vendors already have a solid foothold in Europe

Netflix is already present in seven European countries: Britain, Ireland, the Netherlands, Denmark, Norway, Finland and Sweden. The service had 1.6 million subscribers in the UK and Ireland at the end of 2013.

• LoveFilm was reporting 1.9 million subscribers in the UK and Germany at the end of 2013.

• At the end of 2013, iTunes’ VoD rental service was available in close to 110 countries, and permanent downloads in 14 countries, chiefly in North America and Europe.


• More information on TV and new video services market report & database

22Jan/140

Cutting the Cord: Common Trends Across the Atlantic

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013


Joint Interview between Gilles FONTAINE, IDATE and Eli NOAM, Columbia Business School

Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.

Eli NOAM
Columbia Business School, 
New York, USA
 Exclusive:

 Joint interview with

 Gilles FONTAINE, IDATE,
 Montpellier, France
 
 Eli NOAM, Columbia Business School
 New York, USA
 

C&S: How would you define cord-cutting, from a US or European perspective?

Gilles FONTAINE: Cord-cutting, in Europe, is seen mainly as a USA phenomenon, where consumers would trade-off their pay-TV subscription for over-the-top Internet services. The last years, in Europe, have rather seen the rise of powerful cable and IMPTV operators competing in the pay-TV market with legacy satellite packager.

Eli NOAM: Cord-cutting is the dropping, by consumers, of expensive cable TV subscriptions in favor of online access to TV programs and on-demand films. Drawbacks for consumers are less certain quality (bandwidth), less availability of live programming such as sports, and absence of some channels. Advantages are cost-saving, no need to pay for undesired channels, better search, less advertising, greater choice, more control. In a broader sense, cord-cutting is a transition of TV from a broadcast/cable push model to an individualized pull model. So this is not just about switching to yet another delivery platform. That's the easy part. It is much more fundamental. Looking ahead, one change will be that by going online, TV will move from a slow-moving, highly standardized technology controlled by broadcasters and consumer electronic firms to a system where multiple technical approaches compete with each other and propel video delivery into an internet-rate of change and innovation. And that's just the technology. Equally important changes will take place on the content level, and in the structure of the media industry, in the advertising and business models, and in the policy.

Do you see any evidence that cord-cutting is really happening?

Gilles FONTAINE: Cord-cutting, in Europe, is not happening, or is not happening yet. Several reasons account for this: on the one hand competition is intense in Europe between networks, and is driving Internet access and television prices down, therefore limiting the incentive to "cut the cord". On the other hand, Internet services are far from having the same level of offer as US ones, even if catch-up television is increasingly available throughout Europe. Also, the video-on-demand market is very fragmented, with still limited catalogues and interfaces that could be improved and subscription video on demand is nascent, and mostly pushed by US-bases players, even if some European players have launched first services. Finally, the penetration of connected TVs and connected set-top-boxes is probably also lower in Europe than in the USA.

Eli NOAM: In the short run, there is less cord-cutting than media reports and hype suggest. For a variety of reasons, almost all participants in the media industry have an interest in dramatizing the issue. Broadcasters are making investments in ‘second screen' distribution, partly to be prepared for change, and need to justify them. ISPs are expanding bandwidth to position themselves as providers of mass entertainment options. Telecom companies, similarly, need to upgrade their networks. New providers of bypass service to broadcast and cable, such as Aereo in the US, create buzz to their market-disruptive activities. Media cloud providers such as Amazon or Netflix present new options. And even cable TV operators, who are the ones negatively affected, have an interest in presenting the problem as a crisis, at least to policy makers, in order to gain regulatory relief.

The reality is more modest, at least in the short term, but not insignificant. According to a credible analyst, Craig Moffett, The "pay TV sector" – cable, DBS, and IPTV – lost 316,000 subscribers in a 12 month period mid-2012- mid-2013. Since IPTV has gained subscribers, cable losses must have been larger. That is a loss of about 0.3%. Another estimate for 2012 has the number at 1.08 million. In a 4-year period 2008-2011, anywhere between 3.65 and 4.75 million subscribers were lost. But that was in the midst of the Great Recession, and thus not all can be attributed to cord-cutting.

Do OTT services really challenge telcos and cablecos managed TV and video offers?

Gilles FONTAINE: Many studies seem to show that OTT services propose a better customer experience than the equivalent launched by the telcos or the cablecos. OTT services are Internet natives, customer friendly companies, with a rhythm of innovation that is difficult to compete with. Telcos and cablecos still concentrate on the "linear television model", even if they have developed their own on-demand offers, whereas OTT services specialize in on-demand services. But telcos and cablecos still benefit from a privileged access to the TV set through their TV set-top-box, a competitive advantage which is about to be undermined by low cost solutions to connect the TV set, such as Chromecast from Google.

Eli NOAM: Overall, the extent of video streaming has been quite large. In the evening hours, about two-thirds of internet traffic are video-bits. Netflix alone has added 630,000 streaming subscribers in the US in 3 months in 2013, to a total of 30 million. Thus, while the numbers of cord cutters is not huge yet, as mentioned, a steady loss of subscriptions is to be expected, and it is backed up by surveys in which cable subscribers grumble about staying with expensive subscriptions which they do not fully utilize. This is particularly true for the younger generation. 34% of the Millenials (cohorts born 1980-2000) say that they watch mainly online video and not broadcast TV. For Gen X and for Boomers the numbers drop to 20% and 10%.

With OTT available, the traditional business model of cable companies unravels. In the past, they were able to raise prices and to pass on the raises by channel providers. This becomes more difficult. Similarly, it becomes more difficult to offer only bundled channels ("prix fixe"). Similarly, the ability of channel providers to offer content to viewers directly reduces their bargaining strength considerably. If they want to keep up, they also need to develop expertise in online technology, social networking, and mobile communications.

UK cableco Virgin Media and Sweden cableco recently signed a distribution agreement with Netflix. Do you foresee any revision of the cablecos and telcos triple-play model?

Gilles FONTAINE: Building an IPTV service is not straightforward for a telco: network costs can be high to ensure a homogeneous quality of service. They also face high programming costs and the complexity of negotiating with the media world. On-demand services hardly prove to be profitable, because of the market power of Hollywood studios combined with the strong competition between telcos and cablecos, has for instance led to almost unrecoupable minimal fees to access programs. The situation can be similar for a cableco that would not have the resources to acquire exclusive, attractive content: the recent deal between Virgin Media or Com Hem and Netflix heralds a change of strategy for the smaller telcos and clablecos, which could favor to comfort their Internet access business by offering the best OTT services rather than pushing their own television packages.

Eli NOAM: Overcoming all of these challenges is possible but requires an acceleration of internal processes, major investments, and a willingness to give up some control. There are signs of change in that direction. Comcast, which has just paid $ 39 billion for NBC Universal, thus gaining vertical control from the camera lense to the eyeball, has now announced a trial of a cord-cutting offer to subscribers: if they take a Comcast broadband service (of a quality that is today an upgrade for most customers) they get at basically no additional charge HBO Go (HBO's archive of self-produced shows plus current other shows, available anywhere in the US from most devices), plus the free broadcast channels. The regular monthly price $ 70/ month, compared to a price of $ 135 for a full complement of 200 channels including HBO Go. So the viewer willing to skip regular cable channels saves a lot of money. The data cap for such a service is 300 Gigabytes. This is about 120 hours of HD viewing per month, which is adequate for single viewer but tight for a multi-device, multi-viewer household.

So this shows that cable companies are considering to embrace cord-cutting as an inevitablity. Another development in that direction is the US cable industry's considering to integrate Netflix into its operations. They are holding talks with Netflix to make Netflix an option on their set-top boxes. In such a scenario, Netflix would, in effect, become cable companies' major VOD provider and revenues would be shared. This, together with the cable MSO's own cord-cutting option, would in effect accelerate cord-cutting. However, cable companies would not be entirely bypassed. They would mitigate cord-cutting into channel cutting. Ultimately, cable companies' main asset is their transmission network. Its exploitation will undergo transformation.

TV channels also face another form of cord-cutting, as viewers may directly choose their on-demand programs. How do you see their future role, if any?

Gilles FONTAINE: TV channels, as aggregators, may lose their specific role if on-demand consumption develops significantly. However, they will evolve proposing more and more live events to continue gathering strong audiences at the same time. Moreover, there is still a need of arranging the on-demand catalogues, pushing the right content to the right viewer at the right time and on the right device. TV channels should be able to leverage their linear programming to play their aggregator role in an on-demand market. But they will need to heavily invest in IT and review their trade-off between linear and on-demand distribution.

Eli NOAM: TV channels gain and lose. They gain in bargaining power over cable and other distributors. They can deal directly with users, though more likely they will go through new types of intermediaries such as Apple and Amazon.com. In a profusion of content offerings, strong brands are a valuable way for users to search for content. And if they can identify users or user characteristics they can fine-tune and individualize advertising. The danger for channel providers is that the loss of cable MSOs hold over viewers means that they cannot share in the MSOs pricing power. Furthermore, content providers can disintermediate them by going directly to viewers. Sports leagues, for example, could deliver their events directly and cut out the networks. Most of the channels do not have major operational IT expertise, and this provides an opening for an entire industry of new service providers and video clouds.

Gilles FONTAINE's Biography

Gilles FONTAINE is IDATE's Deputy CEO and is also in charge of IDATE Business Unit dedicated to media and digital content. During its 20 years experience in the Media sector, Gilles Fontaine has become an expert of the media economics and of the impact of Internet on content. He directed numerous studies for both public and private clients, including the EC, governments and local authorities, telcos and TV channels. Recent assignments have included a participation in the future MEDIA programme ex-ante assessment, the analysis of new video internet services economics, a long term forecast project on the future of television. He has also monitored the impact of digitization and online distribution on other media, radio, press and music. Mr. Fontaine holds a degree from the highly reputed French business school, HEC (Ecole des Hautes Etudes Commerciales, 1983) and from the Institut MultiMédias (1984).

g.fontaine@idate.org

Eli NOAM's Biography

Eli NOAM has been Professor of Economics and Finance at the Columbia Business School since 1976. In 1990, after having served for three years as Commissioner with the New York State Public Service Commission, he returned to Columbia. Noam is the Director of CITI. He also served on the White House's President's IT Advisory Council. Besides the over 400 articles in economics, legal, communications, and other journals that Professor Noam has written on subjects such as communications, information, public choice, public finance, and general regulation, he has also authored, edited, and co-edited 28 books. Noam has served on the editorial boards of Columbia University Press as well as of a dozen academic journals, and on corporate and non-profit boards. He was a regular columnist on the new economy for the Financial Times online. He is a member of the Council for Foreign Relations. He received AB, AM, Ph.D. (Economics) and JD degrees, all from Harvard. He was awarded honorary doctorates from the University of Munich (2006) and the University of Marseilles (2008).

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

10Jan/141

OTT Video

ROPERT Samuel

Samuel ROPERT
Lead Analyst, IDATE


Opportunities for Telcos around VoD, SVOD and Telco CDN

IDATE delivers its analyses and conclusions on OTT Video in its recently published market report. Our experts spotlighted the different opportunities for telcos and examined the drivers and hurdles for video delivery over-the-top.

Synthesis of selected player strategies

Global telcos video delivery strategies

Source: IDATE, market report "OTT Video", December 2013

Consumer OTT video already represented an impressive worldwide market of almost 7.4 billion EUR in 2012, with revenues well-balanced between advertising and paid videos (pay-per-view or subscriptions). Nevertheless, VoD still generates more revenue on managed services, captured mostly by telcos and cablecos, at around 60% of total VoD sales in 2012. On-demand paid services over managed services represents for VoD and SVoD together around 45% of these service sales on both managed and OTT services. Video is therefore also a key market for telcos, and not just a traffic issue with significant impacts on telcos networks.

Video is indeed clearly gaining traction. It now represents a large part of Internet traffic and requires even more investment with no direct revenues, at least for those telcos offering unlimited flat rate plans -- the extra consumption of bandwidth is obviously charged in metered plans. This video traffic is nonetheless indirectly paid by broadband access. With the explosion of traffic, however, it is becoming harder for telcos to cover costs. Thanks to the abundance of free content, online video is indeed a mainstream service on the Web, as is search or social networking. It is typically still focused on short YouTube-like formats but with a growing consumption of free premium programming, specifically TV series from both legal services (catch-up TV), and low-cost paid solutions, as with SVoD from Netflix. The general strategy of content providers for both ad-funded and paid services is to differentiate their offering from others. To achieve this goal, they are adopting both quantitative (larger catalogue) and qualitative approaches by acquiring exclusive content through, for example, sports and partnerships with studios.

The delivery strategy of the content providers really depends on the video traffic delivered and therefore on the size of their own architecture for the largest content providers (Google/YouTube and Netflix overall) and more and more third-party CDN solutions for intermediate players. Some players, premium and ad-based platforms and especially those trying to better monetise their content, are looking at multi-CDN approaches to increase QoS as well as to benefit from price competition. Others are waiting for the deployment of telco CDN for better QoS.

The major operators are also involved in the TV/video delivery on their own account but, increasingly, also for third parties. Video has been part of triple-play solutions from most telcos for about 10 years, first with linear TV (delivered through multicast) and then video-on-demand solutions. It is even the prime business for cablecos – they have also generally been considered as telcos since their triple-play developments. Non-linear service strategies depend on the ISP, ranging from total control of distribution with rights acquisition, billing, and packaging to pure pipe solution with costs savings and total externalisation. All the major operators, essentially the incumbent operators, have implemented telco CDN solutions.

Telcos still have real opportunities around paid content in leveraging managed services, i.e. a combination including the customer base, the network with QoS, the billing service and set-top boxes, which remains necessary for now for mass market access to the TV set. The retail option (i.e. reseller or packager) has clearly more potential, as the world market for on-demand video will be close to 6.2 billion EUR in 2017 on managed networks (mainly telcos/cablecos) or 44% of the total video market. The big challenge remains the capacity of telcos to develop further the SVoD market (which may grab some market shares from the VoD market) for which they are only capturing 25% of revenues. For telcos not ready to invest into managed services (network and CPE costs), telco CDN still represents an option, especially as it can be developed in combination with transparent caching, allowing a similar efficient result without deals with content providers but also without the revenues. The short-term opportunity is rather small, even though telco CDN can also be used for managed services. In the long-term, i.e. by 2020, with heavy traffic from mobile, the opportunities will be even greater (telco CDN could benefit from mobile to reach about 15% of the market by 2020, at more than
2 billion EUR
).

Read more: Discover OTT Video Market insight contents

17Dec/131

Interview with Craig MOFFETT MoffettNathanson LLC, New York

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013


Video cord-cutting

Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.

Craig MOFFETT
MoffettNathanson LLC, New York
Exclusive:
Interview with Craig MOFFETT
MoffettNathanson LLC, New York

Conducted by Raul KATZ,
CITI (Columbia Institute for Tele Information),
New York

 

C&S: Is cord-cutting affecting equally cable TV and telcos in the US?

Craig MOFFETT:

There's a fundamental difference between the cord-cutting experienced by the cable operators, which is all about video, and that experienced by telcos, which is all about voice. Video is a high bandwidth service and voice is a low bandwidth one.

Low bandwidth services are the easier target, so up to now we've seen much more aggressive cord-cutting in voice than in video. The fact that the cable operators have a more robust physical plant than the phone companies has left the telcos losing share in broadband as well as in voice, making the losses all the more painful for the telcos.

Video is such a high bandwidth service that video cord-cutting is only just beginning. By our estimates, there are now as many as 2 million households that have cut the Pay TV cord in the U.S. That's only about 2% of the market, but it is a growing segment. In these early numbers you can see the beginnings of a bigger problem.

What are the different retention strategies deployed by each type of player to prevent an acceleration of cord-cutting trends?

The telcos seem to have concluded that they are fighting a losing battle to retain wireline voice customers. The residential voice market as a standalone business is vanishing before our very eyes. Unlike in Europe, bundling wireline and wireless therefore isn't really an option. In the U.S., the telcos have regional wireline footprints but also have national wireless ones. Naturally, they are reluctant to make a compelling integrated offering for fear that it will simply reduce the competitiveness of their wireless businesses outside their footprints.

Cable operators have an advantage in that they've got the best physical plant (at least where there is no fiber-to-the-home alternative). So they've been able to bundle video and broadband, and even voice, as a retention strategy. That has proven very sticky. And by tilting the pricing of their services – higher for broadband and lower for video, at least on the margin – they can make it less and less attractive to leave.

And the cable operators have another advantage. It is easier to defend high bandwidth services than it is to defend narrowband ones. The key is whether the cable operators will be able to begin charging for broadband usage. If they can, defending against high bandwidth video streaming becomes relatively easy. Or rather, it becomes a moot point, since a carrier charging the right price for usage is economically indifferent whether video is delivered via traditional Pay TV or via internet-based OTT (over-the-top) alternatives. The question here is entirely regulatory. Whether they will meet regulatory resistance to their early trials is unclear.

Would any changes in the content arena (e.g. sports content) accelerate the cord-cutting trend?

In many ways, sports programming holds the key to how the ecosystem will evolve in the U.S. Today, sports are exclusively available via the traditional model. Cutting the cord is therefore appealing to a relatively smaller segment of the population. If the most popular sports events were to be made available over the Internet you would suddenly begin to see a much more rapid migration to video over the Internet.

Conversely, if traditional cable and satellite operators are ever able to force the unbundling of sports networks by putting them on a separate tier, they would relieve what is otherwise a tremendous pressure point on the system. In theory, that would slow down cord-cutting. Today, cord-cutting is primarily about cost, not technology. And the biggest driver of cost inflation is sports programming. Taking it out of the basic programming tier would lower the cost to non-sports enthusiasts, reducing their incentive to cut the cord.

Would you see that cord-cutting would trigger additional changes in the content value chain (e.g. backward/forward integration, M&A)?

For distributors, the key question is whether the economic value of the video transport function can be preserved in an over the top model. If it can, the distributors will fare relatively well. Even satellite operators would benefit, since the economic benefit of cord-cutting would be mostly eliminated, which would naturally slow down the migration. Again, the real questions here are regulatory, not technological or economic.

For programmers, the key question is whether cord-cutting will necessitate unbundling. Most consumers think that content bundling is driven by the distributors. It is not. It is driven by the programmers. The programmers sell bundles of cable networks to the cable operators, and their contracts require that those bundles be kept intact.

Cord-cutting is typically assumed to entail a move to unbundling, or a la carte, programming, but that doesn't necessarily have to be the case. One can imagine a model where video is delivered over the Internet in the same unwieldy bundles that are today delivered by cable and satellite operators. If things evolve that way, the implications for the programmers will be relatively modest. On the other hand, if programming is ultimately unbundled as it moves to the Internet then the value chain as we know it will be upended. Value in that model would move further and further upstream, ultimately to the actors and artists, accelerating a migration we've been witnessing in slow motion for years. The value of the media conglomerates would radically decline as their revenues declined and as their costs of content acquisition and production rose. At this point, it is too early to say whether this will happen in video. It already has in music, and the results haven't been pretty.

Biography

Craig MOFFETT is the founder of MoffettNathanson LLC, an independent institutional research firm specializing in the telecommunications, and cable and satellite sectors. Mr. Moffett spent more than ten years at Sanford Bernstein & Co., LLC as a senior research analyst. He was previously the President and founder of the e-commerce business at Sotheby's Holdings. Mr. Moffett spent more than eleven years at The Boston Consulting Group, where he was a Partner and Vice President specializing in telecommunications. He was the leader of BCG's global Telecommunications practice from 1996 to 1999. While at BCG, he led client initiatives in the U.S. local, long distance, and wireless sectors, in both consumer and commercial services, and advised companies outside the U.S. in Europe, Latin America, and Asia. He was the author of more than 20 articles about the telecommunications industry during the 1990s. He published analyses and forecasts

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

28Mar/13Off

Pay-TV vs SVoD

Florence Le Borgne-Bachschmidt
Florence Le Borgne-Bachschmidt
Head of the TV & Digital content Practice, IDATE.

Between competition and complementarity

IDATE newest market insight offers an overview of the pay TV market in the main European countries and in the United States. It describes the different models of subscription-based video on demand offerings (SVoD): supply-side strategies and description of main players’ services. It lastly analyses the SVoD services developments compared to the pay TV global market.

SVOD seems ready to compete with traditional VOD offerings

Brought to the spotlight thanks to the success of services like Netflix and Hulu, SVOD seems poised to compete with traditional VOD offerings, and even position itself as a true rival of pay TV, the audiovisual market's leading revenue generator.
Mainly originating in the United States, SVOD services are starting to gain ground elsewhere, in part through the expansion of the US services (note the growth of Netflix in Latin America and in several European countries), and in part thanks to the reaction of local stakeholders who are structuring their own SVOD offerings in addition to existing stand-alone services.

Comparison of changes in the number of subscribers to a pay TV offering, Hulu Plus and Netflix in the United States
(Millions of suscriber households)
Comparison of changes in the number of subscribers to a pay TV offering, Hulu Plus and Netflix in the United States

Source: IDATE, Market Insight "Pay-TV vs SVoD", March 2013, based on operators' data

Many video market actors are highly involved in the development of on-demand services

Although the pay TV operators themselves appear to be highly involved in the development of on-demand services, allowing them to broaden the range of services offered to their subscribers and/or reach out to new audiences, many other players are also positioning themselves in this niche, such as free-to-air TV channels, special-interest TV channels, content producers, DVD and Blu-ray rentals players, and Internet industry players.
These services stand out owing to the size of their catalogues, but also their accessibility closely linked to their role in operators' strategies.

Will SVoD offers create a cordcutting effect and replace traditional Pay-TV offers ?

Current discussions concerning the cord-cutting risk that these SVOD services could induce lead us to wonder about their potential to replace traditional pay TV offerings. But apart from the pricing element (which clearly plays in favour of SVOD services), the type of content offered and its positioning in the media chronology, the modes of accessing the content and these services' ability to hold copyrights seem to highlight the fragility of these offerings in comparison to those of linear television. Despite the popularity of these SVOD services and the soul searching they are inducing among traditional pay TV industry players, they still account for a very weak share of the market (less than 2 % of total pay TV and SVOD revenues). Between now and 2017, even if their market share does increase, it should not exceed 4 % of global sales, of which over half will continue to be generated in the United States market. The competition between SVOD and pay TV is undeniable; however, it hinges more on the new players' ability to induce traditional players to overhaul the sector than on their ability to threaten the sector in the medium term.

Florence Le Borgne-Bachschmidt, Head of the TV & Digital content Practice, IDATE. She joined IDATE in July 1998 and is now head of our TV & Digital content Practice. Florence’s prime area of focus is the development of digital media technologies (terrestrial, cable and satellite TV, digital cinema, video and TV on the web) and specifically the economic, strategic and micro-economic aspects of these sectors. Her analyses also cover media company strategies in general. Before coming to IDATE, Florence worked as the Head of Research in the Nord-Pas-de-Calais Regional Development Agency's Economic Observation department, where she devoted herself primarily to issues relating to the Information Society, the development of telework and the mastery of key technologies. Florence is a graduate of the Lille school of management EDHEC (Ecole of Hautes Etudes Commerciales).

f.leborgne@idate.org

> More information available at: www.idate.org

11Feb/13Off

World TV Market

Florence Le Borgne-Bachschmidt

Head of the TV & Digital Content Practice

More than 1.5 billion TV households worldwide in 2017

The TV market is a sector on the precipice of unprecedented upheaval. IDATE publishes every six months an observatory of the traditional TV market and our study reveals the chief forces driving the industry’s growth and transformation – exploring key market trends and supplying volume and revenue forecasts up to 2017.

Accessing TV

According to IDATE, the number of TV households worldwide will reach 1.544 billion in 2017 (+9.1% in 5 years).

Cable will the remain the chief access channel (554.0 million households in 2017) but will gradually lose ground to satellite and IPTV which will account for 32.1% and 8.6% of TV households, respectively, at the end of 2017.

Despite the development of hybrid TV solutions, terrestrial TV will continue its decline and drop down to number three spot by 2017, with a roughly 23% share of the global market.

The development of hybrid solutions that combine live programming on broadcast networks (terrestrial and DTH) and OTT video services over the open Web is a key variable in the future development of the various TV access modes.

IDATE's take on current industry moves

"The current acquisition of Virgin Media by Liberty Global underlines the strategy of internationalisation in the Pay-TV Market. More globally, the United States continue to set the trends and consolidate their leadership in this market," says Florence Le Borgne-Bachschmidt, head of the TV & Digital Content Practice at IDATE. She insists: "Pay-TV is nearing saturation in the world’s more developed TV markets. The emergence of new OTT video services on televisions and other connected devices increases the threat of cord-cutting. For a great many pay-TV providers in the West, emerging markets therefore represent vital sources of future growth."

Spotlight on the breakdown of Pay-TV: TV access and premium pay-services

In some of cable TV’s traditional strongholds, access services still account for the bulk of pay-TV subscriptions with e.g. 57.1% of pay-TV households in Japan & 74.6% of pay-TV households in Germany.

In France, the development of multi-play services including access to a basic IPTV package tends to increase the share of households subscribing to an access only service.

In contrast, in the United Kingdom or Italy, this type of offer tends to be disappearing, which is in the UK visible by stopping to sell the Virgin Media M package.



Florence Le Borgne-Bachschmidt,
Head of the TV & Digital Content Practice

More information on our regulary published World TV Observatory available here

About Florence Le Borgne: She joined IDATE in July 1998 and is now head of our TV & Digital content Practice. Florence’s prime area of focus is the development of digital media technologies (terrestrial, cable and satellite TV, digital cinema, video and TV on the web) and specifically the economic, strategic and micro-economic aspects of these sectors. Her analyses also cover media company strategies in general. Before coming to IDATE, Florence worked as the Head of Research in the Nord-Pas-de-Calais Regional Development Agency's Economic Observation department, where she devoted herself primarily to issues relating to the Information Society, the development of telework and the mastery of key technologies. Florence is a graduate of the Lille school of management EDHEC (Ecole of Hautes Etudes Commerciales).