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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29Jun/150

Digital First: ICT players vs. the new disrupters

DWS2015

The place to be in Europe, to understand upcoming disruptions and their impact on telecom, IT, Internet and media markets

From 17 to 19 November 2015, the 37th annual DigiWorld Summit will bring together 150 top-tier speakers to Montpellier to share their views with the more than 1,200 participants from over 30 countries. French Tech will also be in the spotlight during the 2nd annual DigiWorld Week and at the inaugural DigiWorld Awards.

Under the banner of “Digital First” IDATE will host debates on the core trends shaping telecom, IT, Internet and media markets, with the knowledge that digital technology is entering a new stage in its ubiquity, becoming the vehicle of a major overhaul in many sectors: energy, insurance, finance, health, automotive, travel and tourism… “But,” says IDATE CEO, Yves Gassot, “this digital verticalisation also represents a new challenge for IT, telecoms, Internet and media industry stakeholders. They may see new growth opportunities, but also challenges as innovation cycles are accelerating, as they consider the shifting outlines of their business and contend with new digital intermediaries.”

This new stage in the digital transformation is being spurred by ubiquitous wireline and wireless connectivity, the economies of scale of cloud computing, and the power of real time data processing algorithms. But it is being amplified by the rise of connected objects, and the promises of 3D printing, of artificial intelligence and the collaborative economy. A profound transformation of the economy that is already materialising in changes to production and distribution infrastructures, in the accelerated shift from product to service and the profusion of channels for interaction with end users.

• What do vertical companies (media groups and TV networks, insurance, automotive, travel, retail, etc.) want from digital industry players (telcos, OTT, IT)?

• How should digital industry players position themselves with respect to the digital transformation in vertical markets?

• How can the Web’s top destination platforms cohabitate with the vertical markets’ new digital champions?

• This year’s Guest Country: China. Can China combine the power of its recently acquired positions in Internet and telecom markets with its manufacturing ambitions?

2015 DigiWorld Summit Programme

 

Plenary sessions

Analysis and debates between veteran industry players and disruptive start-ups, with insights from IDATE’s finest economists and analysts:

Digital channels
A new chapter in the platform wars?

Digital Infrastructure
From ultra smart networks to predictive analytics?

Digital Product
From goods to services

Digital Regulation
OTT rules?

Digital Europe, Digital World
Closing session

Specialty forums

In-depth seminars with the industry’s top expertsConnected Things Forum

Smart City Forum

Future Networks

TV & Video Distribution Forum

Future Digital Economy Forum

Game Summit

DigiWorld Week (14 – 22 November 2015): IDATE expands on the two days of the DigiWorld Summit, and plays host to an exciting event-filled week. Delving deeper into the issues and shaking up ideas: symposiums, workshops, hackathons, exhibitions, festivals, master classes, …

DigiWorld Awards: in partnership with Business France and French Tech, IDATE will be hosting the first annual DigiWorld Awards, recognising French digital start-ups (Equipment and devices, Networks and telecoms, Internet services and application, M2M and IoT…), created abroad. Awards will be in four categories: Africa and the Middle East – The Americas – Asia – Europe

The DigiWorld Summit, is organised under the patronage of the French Ministry of the Economy, Industry and Digital Affairs, the Région Languedoc Roussillon and Montpellier Métropole, with the support of DigiWorld Institute member companies.

More informations about IDATE's expertise and events :

www.idate.org      www.digiworldsummit.com      www.digiworldweek.com

17Jun/150

DigiWorld Yearbook 2015, the great digital shake-up

IDATE, Europe’s premier digital economy think tank, uncovers major disruptions in the telecom, Internet and TV markets

Over the past 15 years, IDATE’s DigiWorld Yearbook has become a vital source of information for industry players, delivering analysis of the developments that have shaped the telecoms, Internet and media markets during the year gone by, identifying core global trends and providing snapshots of what lies ahead. The purpose and scope of the Yearbook has expanded as digital technologies have become an increasingly central component in the different sectors’ transformation: connected cars, financial services, insurance, healthcare, retail sales, the collaborative economy…

IDATE Chairman, François Barrault, is delighted to be celebrating this 15th edition, noting that, “we have entered into a new stage in the digital transformation over the past few months. Today, new intermediaries are coming to shake up the status quo, many of them from outside the industry, taking advantage of new technologies and new consumer cultural behaviour to revolutionise the value chain. Everybody knows how Uber has disrupted the taxi business, and Airbnb the hotel market. But finance, insurance, health and automotive industry leaders have all had to sit up to the risk of digital innovations shaking up their ecosystem, and forcing them to depend on external, unavoidable platforms.” This echoes the central theme of the upcoming DigiWorld Summit (17 – 19 November 2015), as IDATE’s annual conference will be held this year under the banner of: “Digital First”.

“For we here at IDATE,” says CEO, Yves Gassot, “whose business it is to wade through the latest market developments on a daily basis, the process of looking back over the year’s events only confirmed the significance of certain game changers such as mobility, the cloud, the Internet of Things, big data and social media. Some would also add 3D printing and artificial intelligence to the list.”

Scorecard for the digital economy in 2015: back on a growth path, but Europe still lagging behind

After the recovery announced in 2013, DigiWorld markets confirmed a stronger rate of growth in 2014, generating 3,700 billion euros. All segments combined, growth increased to 4.4%, which is 0.5 points more than the year before. These figures are still below those being reported for the economy as a whole: global GDP rose by 5.9% in current value in 2014, compared to 5.3% in 2013. This global recovery will become stronger still in 2015, with DigiWorld markets generating 3,900 billion euros, and climbing to 4,400 billion in 2018.
• This improvement can of course be attributed to Internet services which continue to boast more than 20% annual growth and, despite still accounting for only a fraction of the market, are helping to sustain the whole (growing from 275 billion EUR in 2014 to 475 billion in 2018);
• But also to stronger performances from a large number of more traditional segments – which are typically bundled together as core DigiWorld markets, i.e. telecom and IT equipment and services, consumer electronics, TV services, etc. Growth in these markets, i.e. excluding Internet services, rose from 2.8% in 2013 to 3.2% in 2014.
• Europe as a whole continues to lag behind increasingly vigorous North American markets, and the powerhouse that is emerging Asian markets.

2025: snapshots of 10 key trends and three outlook scenarios for Internet, telecoms and TV markets

For the first time, this year’s edition includes outlook scenarios for Internet, telecom and TV markets and players, provided by IDATE’s teams:
• Internet 2025: Will the top platforms become even more powerful?
• Telecoms 2025: Can the top telcos strike a balance between becoming commodities and competing head on with the top OTT companies?
• TV 2025: How can distributors avoid being cut out of the loop?

About the DigiWorld Yearbook

The finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.
The DigiWorld Yearbook is published in English and French and available in print and PDF format.

> The 2014 edition can be downloaded for free on www.idate.org

> The 2015 edition is available for purchase. Print: €100, incl. VAT; PDF: €69, incl. VAT on www.idate.org

For more information: www.idate.org/digiworldyearbook/

infog yearbook15-EN

21May/150

Content is king. Still.

Yves Gassot

Yves Gassot
CEO, IDATE

 

Over the past few decades, TV service providers’ market power guaranteed them a certain leadership in production.

Vertical integration

Thanks to a steady relaxation of competition rules in the United States, the resulting vertical integration trend has seen production studios merge with TV networks and cable companies. In other markets, such as France, public authorities have continued to oppose such a trend, underscoring how vital production independent of the top networks is to sustaining diversity and creativity.

A new way of consumption

Here too the Internet is changing the status quo. We watch more and more videos. We watch them more on our own, and from increasingly global sources. Content providers and pay-TV distributors are being penalised both by their costs and their only national footprint, and are having to contend with two major threats: being cut out of the service equation and being cut off from customers. Market heavyweights like the ones found in the United States are having to weigh the pros and cons of working with a platform such as Netflix that is expanding worldwide, versus setting up their own over-the-top solution… and protecting what is still their main source of income, i.e. selling programmes to TV channels (including affiliate stations). But their dilemma is still less dire than the one facing Europe’s independent providers, who have a primarily national footprint and which are often restricted in the extent to which they can exploit the rights to the programmes they help finance.

Ecosystem and legislation

The European Commission likes the idea of having TV rights negotiated for the EU as a whole. It would provide an opportunity to introduce the idea of economies of scale in a lucrative sector, and one that has a tremendous cultural influence. Unfortunately, in its revised version, this plan, which is one of the pillars of the Digital Single Market proposal unveiled in early May, is coming up against Europe’s very disparate set of national TV ecosystems. As national laws – and especially the state of the industry – currently stand, very few companies in the EU can hope to come out winners in any negotiations for rights to all 28 European markets. Bluntly put, a very cut and dried application of such a scheme would more likely be a boon for outsiders such as Netflix, Google, Apple, Facebook, Amazon, etc.
Despite which, our desire to be optimistic leads us to hope that the steady and inexorable development of the OTT video model will drive a change in legislation across Europe, and lead to cross-border and possibly continental deals between Europe’s TV sector players.

For the publication of the last study about "OTT Regulation" and  the 15th edition of the DigiWorld Yearbook, IDATE is organizing a conference on the perspectives and key trends that will structure the digital economy for the next decade, DigiWorld Future

Register for the Conference in Paris the 16th of June     Discover the programme

More informations about IDATE's expertise and events :

www.idate.org      www.digiworldsummit.com      www.digiworldweek.com       www.gamesummit.pro

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

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

26Sep/13Off

Television 2025

Gilles Fontaine
Gilles FONTAINE

Deputy Managing Director
Director of TV & Digital Content Business Unit

 


Live TV vs. on demand viewing: what does tomorrow’s world have in store
for broadcasting?

The publication of our new report “Future TV 2025” provides us an opportunity to completely rethink the distribution models used for TV and video content, much in the way we believe content producers and providers, network operators and app stores are doing”.

We have elaborated a "Business as usual" scenario, characterised by several key points including:

  • live viewing partially overtaken by on-demand viewing;
  • piracy that creates obstacles to the switch from physical to online viewing;
  • increased competition in the pay-TV market, affecting prices;
  • ad rates for live TV decrease and increase for video on-demand (VoD).

According to this prediction, the video market on fixed and mobile networks worldwide will grow by an average 3.2% per year from 2013 to 2025 – which includes average 2% growth for live TV and 14% annual growth for on-demand service. The market’s growth will be much lower in developed markets, however. This means that in Europe’s top five markets (EU-5) – i.e. Germany, France, the UK, Italy, and Spain – average annual growth will stand at 1.6% from 2013 to 2025, with the live TV market (including broadcasters’ catch-up TV services) in decline by 0.7%, while on-demand services experience an average annual increase of 18.5%.

Growth of video service revenue on fixed and mobile networks (EU-5, million EUR)

TV 2025 Revenue

Source: IDATE

Alongside this “middle of the road” scenario, we outline two alternative possibilities that depict how the increased replacement or parallel use of live and on-demand viewing would affect the TV industry’s future:

  • "The music industry syndrome": in this pessimistic, disruptive scenario, the video services market in the EU-5 will shrink by an average -0.8% a year, and not be offset by on-demand services, including catch-up TV services that will decrease by an average -4% annually.
  • "Best of both worlds": at the other end of the spectrum, this optimistic viewpoint puts average annual growth at +3.9%, including 2% growth for live broadcasting services
The three development scenarios for the TV market, 2009-2025 (EU-5, million EUR)

TV 2025 development scenarios

Source: IDATE

IDATE has released the latest edition of its report devoted to the future of TV, and to video distribution as a whole: "Future TV 2025". Supported by their latest research, IDATE indicate a tipping point in TV industry evolution, predicting changes in viewer behaviour and evolving business models, as the new industry player hierarchy is now taking shape. In this report, IDATE identifies how current consumer behaviour is shaping TV services for future years.

6Aug/13Off

Next Gen TV: OTT and on-demand services

Gilles Fontaine

Gilles FONTAINE

Deputy Managing Director
Director of the Business Unit TV & Digital Content Business Unit, IDATE

The video distribution chain is evolving. Traditional programming models have been turned on their head (shortened release windows; Netflix releasing all episodes of a series all at once); video consumption on tablets is growing, before connected TVs really take off; and linear TV is relying on social networking faced with the growing strength of Internet platforms with a native specialisation in personalised recommendations.

Evolution in action

The various categories of player are seeing their historical models under threat. Cable and IPTV network operators have had to review their content distribution strategies. Some (Comcast) are strengthening their offerings to compete with OTT services, while others (Telecom Italia) are offering as a minimum a combination of linear television and on-demand services without quality of services guarantees. Television channels, whose core business is aggregation, want to keep their added value in a climate of growing on-demand. On the one hand, the major free channels are looking to promote live events to maintain the link with their mass audience; on the other hand, pay-TV services are introducing VOD to increase their attractiveness and are also investing in exclusive rights.

VOD service revenue worldwide

Fragmentation before convergence?

The growing number of offerings and players coming onto the video market is leading to fragmentation. New players, from the Web and also consumer electronics manufacturers, are coming out with new free or paid services that fi ll market segments ripe for exploitation, such as subscription-based VOD services, which compete with pay-TV, and ad-supported premium programming, which competes with the catch-up TV services of free channels.
The lines between linear services and on-demand services are likely to blur with the advent of mixed services that combine linear (or relinearised) television and directly competing on-demand programming. Fragmentation is also occurring due to the proliferation of proprietary ecosystems that are breaking away from the traditional ‘standardisation’ of television distribution and reception. In an effort to both promote their proprietary devices and to exploit customer loyalty, TV manufacturers and developers of mobile phone, tablet and connected TV operating systems are seeking to create their own ecosystems.
However, this fragmentation should be reversed in the medium term as a few distribution platforms start to dominate, offering the major content services and differentiating themselves by the quality of experience delivered to their customers. We should see the situation return to something like the traditional television model, where the various distributors are generally offering the same services, but packaged differently.

We can therefore identify three opposing visions for the long-term evolution of video content distribution:

  • The traditional model of packaging access and content together: Using an intelligent network equipped with a smart box, telcos and cablecos distribute packages that they have negotiated with content service providers or directly with the producers.
  • The self-supply model: Strong-brand content services use the open Internet to reinforce or re-establish a direct link with consumers.
  • The digital store model: E-commerce sites offer all content and make it available to consumers through recommendation and personalisation engines.

Long-term growth outlook for on demand television services

What impact will we see on the market?

While digitisation will bring more growth to certain developed markets, the next decade will show a marked decline in linear television revenue in the video sector, and a corresponding increase in new on-demand services. For the incumbent audiovisual operators, their capacity to generate revenue from these new services will dictate whether they can sustain their levels of turnover. They will, for all that, only find growth opportunities in emerging markets.

TV: the top on-demand service market in 2022

About the Digiworld Yearbook

While digitisation will bring more growth to certain developed markets, the next decade will show a marked decline in linear television revenue in the video sector, and a corresponding increase in new on-demand services. For the incumbent audiovisual operators, their capacity to generate revenue from these new services will dictate whether they can sustain their levels of turnover. They will, for all that, only find growth opportunities in emerging markets.

digiworld yearbook 2013
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.

the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.

The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT

 

  • You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/
5Aug/13Off

TV Advertising faced with the New Media Challenge

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

Despite strong competition from the Internet, television is still a dominant media platform among those currently available.

Television is adopted at an unrivaled rate across all age groups combined, is used frequently and for considerable lengths of time, and these consumption patterns are still showing growth. It is both a source of information and leisure time, and with its ability to reach a mass audience, television wields incomparable influence. Therefore, it is no surprise that, having captured a large audience, advertisers have also been drawn to television looking for visibility and brand building.

Television is still the leading platform for ad spending

40% of advertisers' above-the-line media spending is received by television, on average (excluding below-the-line investment). Revenues are also continuing to rise, while those of the press are crumbling faced with the rapid increase in the Internet's influence.

However, despite resisting well so far, the first signs of slowing growth are appearing, especially in Western markets where TV is beginning to lose market share to the Internet. The sector is in fact facing two phenomena:

  • The proliferation of new channels is resulting in audience fragmentation, which is detrimental to the major channels' audience figures and, by extension, to their advertising revenue;
  • TV program consumption is becoming more personalised. It is transferring to "new" screens, in real time and delayed (via time-shifting, recording programs or catch-up TV services). Although the same content is being consumed, these phenomena are leading to a decrease in broadcast audience figures and therefore to decreasing advertising revenues in some cases.

The capacity of traditional TV channels to capture a wide audience allows them to keep rates high, even to increase them despite decreasing viewing time and audience share, at least at certain times of the day (the "premium to the leader" phenomenon).

Cost of a 30 second spot on national channels according to time slot, USA, 2009-2012

TV ad cost evolution in USA

Source: IDATE based on TVB, TV ad faced to new media challenges, June 2013

However, channels are questioning the ability of online video services to become genuine growth drivers. For now, broadcast TV seems to retain certain benefits:

  • In terms of coverage: The current gap between an online video service and a free national channel remains substantial. In the United States, the major networks have a reach of around 70%, compared to 32.4% for YouTube's and 9.0% for Hulu;
  • In terms of exposure: A viewer in the United States is exposed to an average of 72 minutes of TV advertising per day, while an online video service user will be exposed to an average of 23 minutes 30 seconds of video advertising per month;: A viewer in the United States is exposed to an average of 72 minutes of TV advertising per day, while an online video service user will be exposed to an average of 23 minutes 30 seconds of video advertising per month;
  • In terms of average cost: Broadcast channels and premium video sites are still comparable, though. The average CPM on a site like Hulu or on the sites of US television channels cost between 15 and 20 USD in 2012, compared to 13.8 USD to reach 1,000 homes via a national channel.

Although TV advertising has so far largely demonstrated its effectiveness, it's the concept itself that may lose focus in the next few years. Will it still only involve ads broadcast on the TV set during the programming stream, or will it be any ad spot aired at the same time as a TV program, be it broadcast or streamed, in real time or time-shifted?

Even if they invest heavily in online advertising, TV channels are facing new competition and especially different requirements from advertisers, who are seeking efficiency and ROI rather than more visibility and branding. How will channels adapt to this new paradigm?

This analysis is an extract from our TV Advertising faced with the New Media Challenge Market Insight which we propose within our ongoing monitoring of Television & OTT markets.

10Jul/13Off

Smart Home

MICHAUD LaurentLaurent Michaud
Head of Consumer Electronics & Digital Entertainment Practice at IDATE


Challenges of Consumer Electronics of Entertainment and Home automation

Despite tough economic times, the consumer electronics sector continues to deliver innovations, both technological and in the realm of usage, which have caught on with consumers. They have demonstrated, if not that value could shift to services and software, at the very least that the sector can rely on a new set of market dynamics in the medium term.

Consumers’ love of mobile devices, smartphones and tablets has not waned. According to IDATE, more than 1.5 billion smartphones and 470 million tablets will be sold in 2017, compared to just over 640 million and 114 million, respectively, in 2012. This popularity can be attributed to several factors:


These devices allow users to make calls and send text messages anywhere, anytime. So they satisfy the needs of that portion of the population that wants to be connected at all times, and even have the potential to create that need;


They give access to a huge selection of varied, simple, affordable and entertaining applications. Games are especially popular, so much so that the makers of handheld gaming devices are being hammered by this new competition. In the coming months and years gateways with other devices, and especially TV, will open up new opportunities – if not at the industrial level, most certainly in terms of fostering innovation;


They are easy to use, in particular thanks to touchscreen technology and the efforts being made by engineers, designers, developers and programmers – all of whom are aware that the user experience is key to coming out on top. Never before has it been so vital to gaining a competitive edge.


Computer vs. tablet sales, 2013-2017 (milion units)

Evolution of computer and tablet sales throughout 2017

Source: IDATE, 2013

So tablets are taking hold as central devices in the digital home. Poised to replace the personal computer, the tablet is expected to continue its rise in 2013 at a rate that was already being underestimated a few months ago. In the coming years, its popularity will be ensured by an expanded product line that includes “phablets” (phone tablets). The aim of this hybrid device is to target the larger, less wealthy section of the population. IDATE estimates that close to 2 billion tablets or phablets will have been sold between 2009 and 2017.

Companion devices, be it a tablet, a smartphone or phablet, act as second screens, or complements to users’ main screens. This relationship paves the way for a tremendous range of applications associated with television. Internet companies, media content providers, TV networks and other pay-TV package vendors will no doubt capitalise on these opportunities, if not to win back a portion of viewers who have moved to the Web, at least to deepen viewers’ relationship with their programmes.

As a result, the connected TV will be one of the cornerstones of the digital home. Like applications sold through app stores, managed and OTT interactive services could prove enough of a drawing card to persuade households to replace their old set ahead of schedule. This would be an ideal opportunity for manufacturers to have their OLED and Ultra HD technological breakthroughs adopted en masse, thanks to the appeal of having an internet-ready set. IDATE forecasts that standalone connected television sales will rise from 22 million in 2012 to 550 million in 2017.

Typical lifecyle of a television incorporating a new technology

Adoptance cycle of a television incorporating a new technology

Source : IDATE, Smart Home market insight, June 2013>

This fiercely competitive landscape provides the battleground for global dominance in the consumer electronics, telecommunications and internet sectors. Thanks to the programme begun in 2006, China is now a serious up-and-comer, moving in on American giants like Google, Apple, Amazon and Microsoft, as well as Japanese and South Korean CE titans.

The technological innovations fuelling the consumer electronics market both serve and inspire the home automation sector. A host of innovations were on display at the Consumer Electronics Show 2013 earlier this year. Although there was no lack of original ideas, it nevertheless remains that a new paradigm is taking hold and enabling the emergence of a segment long awaited by the housing industry, energy companies and users alike. Combining fixed electronic devices (IP boxes, set-top boxes and integrated technologies) with sensors, OLED displays, recognition tools, augmented reality, an internet connection, a WYSIWYG software interface, and more economical home security, energy management and personal home services solutions (for now). Management and remote control features using a mobile device provide increased flexibility and the ability to supply a tracking system that could be monetised.

This is an excerpt of our insight "Smart Home"