In the United States, demand for over-the-top (OTT) video is at an all-time high with no signs of slowing down. In a culture that values and expects the delivery of massive amounts of content at anytime, anywhere and on any device, the demand for OTT content will continue to expand for the foreseeable future. In fact, industry experts predict that OTT video will and ultimately become a mainstream method for viewing video content. The “TV Anywhere” dynamic is a current expectation regardless of age or geography.
For example, in a recent study conducted by MTM, an independent London-based research and strategy group, domestic (US) premium OTT revenues are expected to grow from $4bn in 2014 to between $8-12bn in 2018. Niche services, complementing more generalist pay-tv or OTT offerings, are also expected to proliferate with up to 15-20 new specialist OTT providers acquiring 100,000 or more paying subscribers by 2018, with even more attracting smaller number of subscribers.
Over the Top Meets 4K
As OTT video consumption ramps up, consumer behavior and technology will continue to expand and evolve accordingly. In order to keep pace with and more importantly, optimize the ever-expanding OTT universe, the industry must anticipate market changes, overcome the technical challenges and create flexible business models that monetize new opportunities that assure both a quality experience for the subscriber and profitability for the operator.
As expected, the emergence of OTT in Europe is following a similar path to the US experience and despite regulatory issues and technology challenges, the European OTT market is also expected to grow
exponentially and present great business opportunities over the course of the next few years in particular.
However, in order for Europe to experience the same success as the US OTT market, it is critical to understand subscribers’ high-speed data usage behaviors. As evidenced in the US, a granular understanding will allow providers to make optimal business decisions about their future broadband offerings.
THE US EXPERIENCE
According to the MTM study, the US premium OTT market has seen strong growth over the past years, largely driven by Netflix, YouTube, Amazon and Hulu. In 2014, the market was worth $4bn, having grown at a CAGR of 36% between 2011 and 2014. By the close of 2014, 40.3% of US TV households were subscribing to at least one premium OTT service. However, SVOD revenues, around $4bn, comprised only a relatively small share of the wider TV and video market estimated at approximately $185bn in 2014.
The rapid growth of premium OTT services in the US market has been due to a number of factors, including wide availability of broadband infrastructure; consumer demand and willingness to pay for content; scale and wealth of the US market; the fact that the US is a leader in media, entertainment and technology; and Netflix’s domestic success, which stimulates overall interest and investment in the OTT market.
Successful operators, programmers, service providers and broadcasters in the United States who recognize the revenue potential of these market changes and OTT growth have adjusted their business models accordingly. However, in order to monetize these new opportunities, several factors must first be addressed in order to ensure this transformative success. To begin, consumer’s new viewing habits and high-speed data demands present not only technical issues such as network congestion but also pricing/budget challenges and customer satisfaction concerns. Therefore, many Independent broadband providers have begun offering cost-effective solutions that respond to consumers’ evolving streaming behaviors, offer friendly data usage plans and flexible pricing models and yet do not require large capital investment into the network infrastructure.
A US Case Study
The Challenge: In a recent industry study of the effect of live sports streaming on high speed data (HSD) networks, broadband management company OpenVault reported that there was an average increase of nearly 20% in data consumption across its global customer base during a live stream of a Sunday NFL game as compared to normal Sunday usage.
This finding supports the idea that as more events are streamed live onto more household devices, subscribers will need to upgrade their service/increase their speeds to support the additional bandwidth requirements. For operators, this data growth means a necessary evolution across the board, including technical infrastructure to innovative product and programming delivery.
In order to be successful during this industry revolution, operators must make informed decisions and in order to do so, they must first understand subscriber HSD usage behaviors to develop new product offerings.
In addition, operators must effectively communicate with subscribers with targeted messaging to enhance their user experience. Lastly, operators must consider aligning this growing demand for data with growing revenues through Usage Based Billing and/or a well defined upgrade strategy.
In order to improve visibility into their networks and to automate management functions to proactively handle congestion, forecast network requirements and communicate with
subscribers, a US-based, Tier Two provider deployed the multipurpose, cloud-based OpenVault platform that is designed to bring network, data usage and marketing data together in a way that has never been done before.
In this way, OpenVault collects data from multiple sources and provides both dashboards and specific solutions, which allows operators to easily see where improvements can be made, and what the impact of those decisions across multiple disciplines will be. This powerful information, combined with deep analytics and real solutions, helps the provider not only monetize the high speed data usage on their networks, but equally important, to better serve and enhance the user experience through a cost-effective integration of subscriber communications, active policy-based network management, billing systems and in-browser messaging systems.
Through proper data collection, deep analytics and accurate reporting, implementing monetization levers and a subscriber education and communication strategy, the provider experienced a more than $10 ARPU (Average Revenue Per User) increase within six months of deployment. This positive result was experienced with negligible subscriber churn impacts.
This approach enables operators to align the growing demand for data with growing, rather than stagnant, revenues.
THE EUROPEAN WAVE
Not surprisingly, Europe is currently experiencing a similar OTT explosion that appears to be a mirror image of the growth experienced in the US market a few years ago. And despite the Western challenges surrounding the mass market with film and TV content, a recent industry study indicates that in addition to the subscription business model, there are significant opportunities for European content providers to increase monetization of video content, in the form of transactional services, ad-supported offerings and hybrid bundles. In addition, the research revealed that despite a number of barriers to entry, industry participants expect to see steady growth of premium OTT service in all major European regions. In fact, most markets throughout Europe are expected to conservatively double or triple their premium OTT growth by 2017.
As broadband penetration levels rise, IoT devices proliferate and favorable regulations are introduced, the OTT environment will continue to expand throughout Europe. In addition, as leading players, such as Netflix, continue to emerge, the competition and investment in premium OTT business models, experts believe the landscape will mimic the US OTT experience
with innovation and demand evolving simultaneously. Therefore, it is critical for European providers to understand the factors that have contributed to OTT success in the US market and get ahead of the market with optimization opportunities.
US LESSONS LEARNED
In conclusion, European providers are currently at a great advantage in that they can get ahead of, rather than simply keep pace with, the OTT growth explosion by observing the US evolution and incorporating strategies that have proven successful.
Specifically, by understanding subscribers’ high-speed data usage behaviors at a granular level will allow providers to not only make optimal business decisions, but also provide their subscribers with the most innovative broadband experience possible. By leveraging the network and user behavior knowledge with cost effective, cloud-based tools and solutions, European providers are in a unique position to not only provide an optimal user experience but actually monetize the market expansion.