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IP Video: The big picture

IP Video: The big picture

2

The irresistible rise of IPIntroduction

The onward march of r esidential IP video ser vices hasbeen one of the big industr y stories of the last f ew years.Originally implemented as a way for telecom operators tolaunch pay TV services targeted at set-t op boxes(primarily seen as a def ensive move to counter the entryof cable into the fixed broadband and telecom business),interest in IP video in r ecent years has been boost edhugely by the proliferation of devices capable of pla yingback video c ontent and b y improvements in fix ed andmobile bandwidth.

These developments have led existing non-IP-based videoservice providers, including both cable and sat ellite TVproviders, as well as public and c ommercial broadcastersand other content providers, to develop and implement IPvideo services, either to complement existing pay and freeTV services by delivering ‘anytime’ on-demand and‘anywhere’ multi-screen, multi-device offerings, or t oextend their base b y appealing t o new user seg ments.They have been joined b y a new set of o ver-the-top TVaggregators that seek t o deliver paid f or or adv ertising-supported offerings without the need t o make hea vyinfrastructure investments of their o wn. However, while avariety of use cases and business models ha ve beendiscussed, the business goals and monetization strategy ofthe majority of players remains to some extent unclear.

In December, DTVE Intelligence surveyed over 190 IP videoindustry players, of whom 58% identified their primar ybusiness line as O TT consumer IP video ser vice provider,11% as telecom service provider, 8% as br oadcaster and6% as cable operat or, to capture their view s on this fastdeveloping industry. (Other players who t ook partincluded systems integrators, consultancies, satelliteoperators and technology providers.)

The survey revealed that:

● The vast majorit y of ser vice providers had alreadylaunched or planned to launch IP video services in thenear future, with the lar gest single g roup havinglaunched a ser vice over two years ago. Almost halfwere providing a companion IP video service linked toa pay TV subscription, with about half that numberagain providing a pure OTT service.

● While the set-top box and laptop or desktop remainkey target devices for IP video service provider, a largeproportion – almost half our sample – ar e alreadydelivering services to smartphones and tablets , withsmaller proportions targeting Smart TVs and gamesconsoles.

● A significant proportion of r espondents to oursurvey are already monetizing IP video viasubscription and transactional video-on-demand, andthis remains at the c ore of futur e monetizationstrategies. Advertising is the next most likely source offuture revenue from IP VOD, followed by other types oftransactional sale and churn reduction.

● While technical complexity remains a challenge forsome players, obtaining appr opriate content rightsremains the g reatest hurdle to launching IP videoservices and making a return on that investment.

● The level of suc cess of oper ators in meetingbusiness objectives so far has broadly been in line withexpectations. However, one possible r eason for themodest level of success in operations so far is that themajority of services still lack significant scale.

IP video offerings of one kind or another are now a partof the mainstr eam of the video distribution business .However, the proliferation of IP video ser vices does notnecessarily imply that the existing pa y TV ecosystem isunder sustained assault from disruptive new entrants, orthat established pay TV providers are failing to respondto the threat posed by those new entrants.

In fact, our survey highlights the fac t that a great manyof the IP video ser vices currently available are providedas complements to existing services – whether those arepay TV services or fr ee-to-air commercial or publicbroadcaster services.

Varieties of service: companionversus pure OTT

The vast majority of respondents to our survey – 81.9%– have launched or plan t o launch an IP video ser vicewithin the nex t year, with o ver two thirds – 68.7% –having already launched a ser vice. The largest singlesegment of respondents – 37.9% – have had an IP videoservice in an implementation phase for over two years.

A further 13.2% plan t o launch a ser vice in the nex t 12months. Of those that have no definite plan to launch, amajority – accounting for 12.6% of the total respondents– said they were ‘likely’ to launch a service at some point[fig. 1].

In relation to the t ypes of video off ering ourrespondents provide, there is a clear bias t owards aservice that is designed to complement an existing payTV subscription. Some 44.5% of r espondents said theyprovided a companion IP video ser vice linked to a payTV subscription.

Of the remainder of respondents, 22% offer a pure OTTsubscription service, while only 16.2% offered a free OTTservice unrelated to another offering.

A further 11.5% of ser vices are provided as advertising-funded complementary catch-up type services fromcommercial broadcasters, while 15.7% of r espondentsprovide public br oadcaster-funded services. Theremaining 29.8% of respondents either did not pr ovidea service themselves, offered a business-t o-businessservice or had implement ed a mix ed business model[fig. 2].

IP Video: The big picture

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The IP video market in 2013

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Fig. 1: Deployment of IP video services Fig. 2:Video services provided

The range of net work types over which IP video ser vicesare offered can offer an insight into the goals of providers.Our survey suggests that established pa y and fr ee TVplayers account for a high proportion of existing IP videoservices. The goals of those pr oviders could includeoffering access to services via a r ange of devic es otherthan the TV to their existing cust omers as w ell asextending their r each to new subscribers outside theirexisting network footprint.

Over half of respondents to our survey – 52.4% – off eredIP video services only via their own network, while 27.7%of respondents also pr ovided a ser vice via thir d-partyfixed networks. 19.9% pr ovided a ser vice off their o wnnetwork via Wifi or another t echnology and 18.8%provided a ser vice via a thir d-party mobile net work.About a third – 32.5% – of r espondents were pure OTTplayers without a network of their own [fig. 3].

The range of devices: from set-top toSmart TV

While an earlier phase of IP video implementation wasdriven primarily b y telecom operators attempting tolaunch pay TV services targeted at set-top boxes and by

various service providers targeting consumption onPCs, IP video is much br oader. Growth in IP video isincreasingly being driven by the proliferation of devices– smartphones, tablets, games consoles and Smart TVs– that are capable of playing it back to viewers.

If fact, the set-top box and computer – the tr aditionalrecipients of IP video – remain extremely popular. WhileIPTV from telecom operators accounts for a significantshare of the IP video market, the pr eponderance ofrespondents who self-identified as primarily O TT videoservice providers suggest that the set -top box remainsa key device for a wider range of service provider types.Of our r espondents, 58.1% deliv er IP video t o set-topboxes, while a slightly smaller pr oportion – 50.8% –deliver services to desktop and laptop computers.

However, the c ontinued popularity of the ‘traditional’set-top notwithstanding, our sur vey highlights theimpact of new er IP devic es including smar tphones,tablets and Smar t TVs. Of our sample , almost half –48.7% and 45.5% r espectively – deliv ered IP videoservices to tablets and smar tphones, while almost athird – 28.3% – deliv ered IP ser vices to Smart TVs.Games consoles were less popular – 14.1% ofrespondents delivered an IP video ser vice to thesedevices [fig. 4].

IP Video: The big picture

4

Reaching the consumer

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Fig. 3: Availability of IPTV services Fig. 4: Device to which service delivered

Traditional IPTV services offered by telecom networkservice providers were seen primarily as a def ensivemeasure to combat the entr y of cable operat ors intobroadband and t elephony and as a means of bindingcustomers to their existing ser vice providers via a bundleof services at a competitive price. While one might expecttraditional fixed line telcos to continue to look at IP videoat least in par t as a defensive measure (while at the sametime looking for new ways to monetize it more effectively)the business model for new IP video entrants such as pure-play OTT providers is more likely to be a straightf orwardrevenue-raising exercise. Such c ompanies – without aninfrastructure business of their own – will live or die eitherby selling c ontent to subscribers or b y monetizing theirservices via some form of advertising.

Our respondents were asked t o score four reasons forlaunching IP video ser vices – t o increase revenue, toincrease customer satisfaction, to reduce churn and t ooffer new ser vices – on a scale of one t o five. Churnreduction scored the highest rating average with a scoreof 2.63, closely f ollowed by increasing revenue andincreasing customer satisfaction with scores of 2.35 each[fig 5].

Monetization: SVOD, transactions,advertising and churn

While churn reduction clearly is v ery important to manyof our respondents, a significant proportion of them havealso attempted to monetize their IP video ser vices eitherthrough subscription or tr ansactional on-demand. Amajority – 53.4% – off er IP-based subscription VODservices today, with 44% off ering transactional VODservices. Of our sample , 47.6% off er linear pa y TVchannels via IP, while 42.4% off er free-to-view channels[fig. 6].

When it c omes to forward-looking plans t o furthermonetize IP video, the responses of our sample f ollow apattern that br oadly fits the t ype of video ser vices thesample says it off ers today. Just o ver half the sample –51.3% – said they intend to make money from transactionalVOD sales, while just under half – 49.7% – said they int endto monetize IP video via incr eased subscription f ees.Additional advertising revenue was cit ed by 40.8% ofrespondents, while 31.9% said they planned t o makemoney from other transactional sales such as merchandise,music and apps . Churn r eduction was cit ed as amonetization strategy by 31.4% of respondents [fig. 7].

IP Video: The big picture

The IP video business model

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To increase revenue To increase customer satisfaction

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Fig. 5: Reasons for providing IP video services

Fig. 6: Services offered Fig. 7: Monetization

5

IP video service providers confront a number of challengesin deploying services. In particular, the abilit y of ser viceproviders to make a decent return on their investment bycharging for content or winning adv ertisers depends onstriking viable deals with c ontent providers. Despite thelessening of concerns about the security of IP video, thereis still evidenc e that ser vice providers are finding thisdifficult. Content rights-holders still appear to be reluctantto license content to service providers on terms that makesense to the latter, for a variety of reasons.

When asked to rank the difficulty level of finding c ontentfor particular use sc enarios, respondents indicated theywere experiencing difficulty in acquiring rights to distributecontent to IP devices internationally, with an average scoreof 4.08 out of fiv e for difficulty (and 18% of r espondentsgiving this a sc ore of 5 on a range fr om 1-5 with 5representing the greatest degree of difficulty). Cloud DVRwas the sec ond most difficult use case f or obtainingcontent rights, with an a verage score of 4.01, f ollowed byStartover (restart live TV) and Pause Live TV with scores of3.89 and 3.85 r espectively. Respondents had a slightlyeasier time acquiring content for distribution to IP devicesin the home (3.25) and, to a lesser extent, distribution to IPdevices outside the home in the domestic market (3.54).Nevertheless the fact that the a verage degree of difficulty

for these fundamental use case sc enarios was significantlyabove 3 out of 5 indicat es the ex tent of the challengeservice providers perceive they face [fig. 8].

Asked to choose which factor that was the greatest hurdlewith IP video, the highest number of respondents – 28.3%– cited “obtaining appropriate content rights”as the singlebiggest challenge, ahead of the t echnical complexity ofdeploying services (25.7%) and weakness of the businesscase for IP video (15.2%). C osts – especially fix ed costs –were not seen as a significant hurdle, with only 9.9% citing“upfront costs” as the greatest challenge facing them. Aslightly higher pr oportion – 14.7% – cit ed operationalcosts as the greatest challenge [fig. 9].

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Given the challenges , our sample ’s response to thequestion of how successful IP video services had been interms of meeting their business objec tives showed amixed picture of success and failure.

While the average success rating was 3.74 (on a scale of 1-5, with 1 being “much worse than expected” and 5 being“much better than expected”), the largest single numberof respondents (35.1%) gave a score of 3, indicating thatexperience had br oadly been in line with expec tation.While over a third (35.6%) gave a score of 4-5, indicatingthat their experienc e had outshone expec tations, afurther 14.1% ga ve a sc ore of 1-2, indicating adisappointing performance [fig.10].

This mixed picture, together with the survey’s findings onthe difficulty experienced by service providers in

IP Video: The big picture

IP video: the experience to date

Distribution to IP devices in the home

Distribution to IP devices outside of home

in domestic marketDistribution to IP devices

internationally

Startover (restart live TV)Pause live TV andother trick modesCloud DVR

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Technologycomplexity

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Upfront costs9.9%

Operationalcosts

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Obtainingappropriate

contents rights28.3%

Weak IP Videobusiness case

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Other6.2%

6

Fig. 8: Difficulty in obtaining content rights

Fig. 9: Greatest challenge with IP Video

TThe majority of ser vice providers in our sample ha vealready launched or intend to launch IP video ser vices inthe near future. Although pure OTT services get most ofthe headlines in fact the majority of IP Video services arecomplementary to existing pa y TV services. While‘traditional’ devices including the set-t op andlaptop/desktop computers remain key target devices foroperators, the pr oliferation of IP devic es – especiallysmartphones and tablets – has alr eady had a hugeimpact.

Although IP video is now ubiquitous, many of the servicesthat have launched still lack scale , and significant hurdles

stand in the wa y of ser vice providers achieving theirbusiness goals. Content rights in particular remain a criticalissue. Despite the challenges , the lev el of suc cessexperienced by the majority of service providers is broadlyin line with, or has ex ceeded, expectations. Vitalcharacteristics of a compelling IP Video service are range ofcontent, availability on many device types at any locationand time-shift capabilities.

For IP video pr oviders there is a wide range of businessmodels today and many options for the future. There aresome well-established business models working today, butthis is still a fast evolving situation.

IP Video: The big picture

7

Conclusion

negotiating content rights perhaps highlights the fac tthat the majorit y of IP video deplo yments are still at arelatively early stage and lack the scale that w ould givethem leverage with rightsholders. This is borne out by thenumber of unique view s per month r ecorded by ourrespondents for their IP video ser vices. An absolut emajority – 56.5% – r eported fewer than 100,000 uniqueviews per month, with a fur ther 19.9% r eportingbetween 100,000-500,000 views. 9.4% reported between500,000 and one million view s, with 4.2% r eporting oneto two million and 9.9% reporting two million or above.

But while content rights are the key challenge for providers,the appeal of IP video services to consumers, in the view ofservice providers at least, is based on convenience as muchas choice of content. Asked to rate the factors they believedmade IP video compelling to viewers on a scale of 1-5, “theability to view c ontent whenever they want ed” scoredhighest with an average rating of 3.55, f ollowed closely by“the availability of content on multiple devices” (3.48). (Theclosely related “availability of content wherever they were”scored 3.28). A wider r ange of content came nex t with ascore of 3.38. Less important in the view of service providerswas “the availability of trick modes” (such as pause, rewind

and startover), “lower cost expectation” and ‘increasedinteraction with the c ontent’ (such as additional pr ograminformation and social interaction) [fig. 11].

Availability of contenton many devices

Availability of content‘wherever’ they are

(inside and outside the house)

Increased interactionwith content (eg. program

related info, Social interaction)

Wider range of content

5 4 3 2 1

Most compelling 5-1(5 = most compelling,1 = least compelling)

Availability of content‘whenever’ they want to view

Trick modes (pause,rewind, startover)

Lower cost expectation

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14.9% 11.2% 14.4%

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Better than expected 5-1(5 = much better than expected,1 = much worse than expected)

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Fig. 10: Success at achieving objectives Fig. 11: What makes IP Video compelling to your viewers?

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