Intigral CEO Ben Kinealy looks across the current sea of data to the Internet TV tsunami that’s on the horizon, many seem relaxed – almost unaware of what’s about to hit.
I guess when you are standing on a beach and watching the sea roll back to a large tsunami that dwarfs the waves before it, many would drop everything and run to the hills. A huge tide is coming in for the video world. Video currently makes up 60%+ of all Internet data flow across mobile and fixed networks, with expectations that it will grow to 85% in the next five years. Moreover, this growth is not based on a steady state, with some telcos seeing up to 500% growth in consumed data in the last year, with only a slight increase in revenue. To make matters worse, most of this video data is unmanaged, meaning the networks need an ongoing build to supply the customer demand without being able to profit from it.
In the US, 70% of households are viewing TV shows and movies online with 64% paying for the content, while in the UK it’s 55% of households with only 30% paying (mostly for VOD). Even though this seems a lot, it’s only 10% of the international long-run addressable market with projections this will more than double by 2020.
Furthermore, we’re now seeing live sports – the main driver of pay-TV – heading online in droves; straight over-the-top and direct to the customer, reducing the value proposition of traditional pay-TV and costing telcos in network usage. This new entrant isn’t small either; over the past two years 16% of US households subscribed to an OTT sports service and this trend is expected to continue worldwide.
This growth signifies a major shift in consumer viewing habits and content rights that will test the models of traditional TV companies and telcos alike. Previously, major TV channels and programs were carried only by traditional TV networks and delivered via broadcast technologies (satellite, terrestrial, cable and even IPTV). However, as TV channels come online – and I mean all of them – the effect on traditional businesses will be devastating if they don’t evolve quickly.
TV companies will, and are, losing customers to these new OTT players on a daily basis, further reducing revenue from advertising and/or subscriptions. The telcos, many of which have stood behind the mantle of being a ‘dumb pipe’, will be slammed by the increase in data and the refusal of the customer to pay more.
To put some weight behind this prediction, you just have to look at what’s happening with the main online video players. Yes, Netflix has been expanding worldwide, but they are VOD - at least for now. Instead look at Now TV, the UK online streaming service and set top box that offers live channels, including sports. This service seems to be driving most of the net new additions for Sky and is now expanding to Germany and Italy.
Then there’s Sony’s PlayStation Vue and Sling TV in the US, which offers OTT packs of 55 premium channels for $30. Hulu, the free and premium SVOD provider owned by Disney and Fox, just announced it is entering the Internet TV game with skinny channel bundles priced at $40. Then there’s CBS, HBO and Comcast who have all entered the Internet TV space over the last year with their own propositions.
Meanwhile Apple TV and Amazon Fire TV are looking to expand beyond VOD and apps, with live TV propositions of their own; they are betting on their premium set top boxes, impressive customer base and customer knowledge to give them the edge.
Then there’s YouTube, Facebook and Twitter who are all moving into the live TV space. Unplugged, YouTube’s new pay-TV service, is expected to follow a similar line of skinny bundles of premium pay channels. With their knowledge of internet video and associated recommendations, they will be the one to watch as the value of Internet TV will not just be the content, but how well it is delivered and customised to your needs.
Yet the big one to watch could be Facebook who will continue with its ad-supported model powered by an in-depth knowledge of the customer, allowing targeted ads to drive the highest CPMs in the market. This in turn will enable Facebook to negotiate premium content rights, starting with sports and the rest to follow. In fact, the first of these deals went to Twitter, who stole the NFL Thursday night game away from Facebook with its platform built around live events.
Now this video data tsunami might seem like it’s only affecting the US and Europe, but the rest of the world will follow suit as international content rights usually flow on from those markets. As this shift rolls out across the world, traditional players (TV networks who program other providers’ content and telcos who deliver all this data) will be affected more than ever before. So what can they do?
Well, the TV networks must go online and change their content propositions and business models to suit. They must make this a priority and delegate their best to this pursuit. If they can’t, perhaps a new group/company directly reporting to the CEO or Board may be able to create the right proposition to be competitive. But to be frank, most won’t evolve quickly enough and their ad and/or subscription revenue will decline as their audience migrates to international Internet TV networks.
For the telcos it’s about keeping up with the demand for data in a viable way, while creating opportunities from the content they already deliver across their networks. Luckily, telcos are a crucial player when compared to the local TV networks. However, managing the data explosion will be difficult.
To start with, smart content delivery networks (CDNs) and partnerships with content providers can turn unmanaged data into managed data, which will be crucial to reducing the telcos’ costs. In turn, content partnerships should allow telcos to offer exclusive content, which can be used to drive up the revenue from their core services via new bundles.
This approach needs telcos to understand the cost of content and how to market it effectively to create desire. It also needs telcos to understand what is required to make a competitive online video proposition work, not just create an overpriced placeholder. In most cases – similar to TV networks – this may not be achievable internally due to the telcos DNA, and therefore external models should be embraced.
In parallel, telcos should be looking at ways to improve the cost of data flow across their existing and future networks. For mobile this means 4.5G in 2017 with speeds of 1Gbps+, and 5G in 2020 with speeds of between 10Gbps to 100Gbps. In the meantime, pricing can be managed by using content bundles to differentiate propositions, reducing the need to drop price in a competitive market.
For fixed networks – apart from fibre to the home – which is usually slow and expensive to roll out, new technologies like G.fast and XG.fast (delivering 200Mbps and up to 5Gbps over existing DSL lines into the home) should be embraced. Beyond this a range of wireless street solutions, including 5G, could be used to deliver 10Gbps+ into the home. Luckily, some major networks are doing just that. BT and AT&T are investing heavily in premium content and new broadband technologies such as G.fast to further monetise their existing large copper networks, along with ongoing deployment of fibre networks.
BT has bought the rights to the Premier League and is now deploying ultra-fast broadband to more than 25,000 homes. AT&T has bought Direct TV, and apart from gaining a large pay-TV company with its premium content and a large paying customer base, it is deploying G.fast technologies across their copper network so it can offer a bundle of Direct TV with high-speed broadband.
So there is light at the end of the tunnel. The successful broadcaster will embrace the Internet, produce unique content and may even expand to international markets. The successful telco will embrace video data, improve its delivery and partner with leading content players to create winning bundled propositions for their market. Having said that, what will you do?
Source: http://www.rapidtvnews.com/2016071843656/the-internet-tv-tsunami-is-coming.html#axzz4EqSabM5q
