High levels of smartphone penetration, increasingly reliable mobile network coverage and capacity, and a preference for accessing multimedia content on small screen devices is driving extraordinary growth in revenue derived from over the top (OTT) video content to people around the world. And while that trend began (and continues) in the US and Western Europe with the rise of Netflix, Amazon Prime and Hulu (and latterly new entrants Apple, HBO and Disney) it is the emerging markets of the world which are expected to see the highest rates of growth over the next few years.
Statistics compiled by Digital TV Research estimates that total over the top (OTT) TV and video revenue within the Asia Pacific (APAC) region, for example, totalled US$21bn in 2018 but will more than double to be worth US$48bn in 2024. China is forecast to account for an incredible 57% of that total, with Japan taking 14%, South Korea, Australia and India around 6%.
Similar SVOD growth is forecast to come from emerging markets in Latin America (LatAm), with estimated total SVOD subscriptions in the region almost doubling from 2018 to hit 51m by 2024. That expansion will be led by Brazil and Mexico which together will account for two-thirds of total LatAm SVOD subscriptions, which at that point will collectively be worth almost US$8.3bn.
As elsewhere, established SVOD giants like Netflix, Amazon Prime and Hulu will be instrumental in driving much of the market, but they are not the only game in town by any means. Digital TV Research suggests again that the APAC region is home to the fastest-growing SVOD subscription market in the world, on course to take 43% of global revenue by 2022. And that includes China wherein the absence of Netflix and difficulties using Amazon Prime, a host of local alternative SVOD providers have come to market with their own propositions, including IQyi, Tencent Video and Youku. Similar players have come to the fore in LatAm, including Blim, Claro Video and telco provided Movistar Play.
The challenges involved in breaking into a competitive OTT video market with an SVOD model in emerging markets characterised by lower incomes and limited access to established payment mechanisms has prompted other providers to build their proposition around advertising video on demand (AVOD), a model that gives free access to content but compels users to view commercials between programs (DailyMotion, YouTube and 4OD are all good examples). Brightcove’s Asia OTT Television Research 2018 Report found that most consumers had no or few objections to seeing ads within their VOD programming, though many also gained access to VOD content for free through illegal streaming sites and pirate TV channels.
As a volume led model, AVOD can be difficult for start-ups with no established subscriber base to build and sustain in the early years, yet forecasts suggest it is still on the cusp of considerable revenue growth. Digital TV Research forecasts that AVOD revenues will exceed SVOD revenues in China, India and Japan by 2024, with the value of China’s AVOD market alone set to exceed US$16bn, two-thirds of the APAC total. The company also estimates that LatAm AVOD revenue will increase by a slightly slower rate (and from a smaller base) than SVOD to more than double from US$511m to US$1.2bn between 2018 and 2024. It is a similar story for emerging markets like Russia, Poland and the Czech Republic in Eastern Europe, where AVOD revenue is expected to grow by 159% between 2018 and 2024 to be worth US$972m.
Lower cost SVOD services may alter the mix in the future, however. In July this year , Netflix launched a mobile-only plan exclusive in India priced at under US$3 per month. The deal reflects the more acute focus many OTT providers are putting on mobile video content delivery, with research from eMarketer estimating over 75% of worldwide video consumption already occurring on mobile devices.
That trend is apparent not only in India where smartphone penetration will hit 63% by 2025 according to GSMA Intelligence but also in other emerging markets in Asia and Latin America (Brazil and Mexico for example) where faster, more reliable fifth-generation (5G) cellular networks will be rolled out in the next couple of years.
Increasing numbers of OTT video providers are also offering both SVOD and AVOD in parallel. A multi-tiered or hybrid approach delivers several advantages – not least the ability to tailor fees to customer budgets but also as a soft way to transition customers to a premium subscription model by giving them a glimpse of the content and user experience they can enjoy through a free, ad-supported version first.
It’s notable many of the same companies offering HVOD in countries like the Philippines, Thailand, India, Indonesia and Singapore, – including PCCW-backed Viu – also offer SVOD for example. One is HOOQ, the Sony and Time Warner backed SVOD service which has expanded to offer AVOD in Indonesia and now estimates it receives an equal 50/50 split of revenue from both types of service where subscriptions are tailored to different countries. Another of south-east Asia’s largest providers – Malaysia-based iflix – also blends SVOD (iflixVIP) and AVOD (iflixFREE) across a user base of approximately 17m at last count covering DigiMalaysia, Indonesia, the Philippines, Thailand, Brunei, Sri Lanka, Pakistan, Myanmar, Vietnam, Cambodia, Nepal, and Bangladesh.
Whatever the balance between SVOD, AVOD and hybrid the world’s emerging markets eventually evolve to accommodate, the opportunity for telcos bundling OTT video with their services is clear – Ovum estimates that on a global basis video will account for over half of all carrier-billed digital goods and services by 2023, with mobile video bundling specifically representing around 64%.