The delivery of over the top (OTT) video content has driven major changes in film and television broadcasting and rental markets over the last decade, as third party providers like Netflix, YouTube and Amazon Prime have taken advantage of higher speed fixed and wireless telecommunications infrastructure and the Internet to create services independent of the underlying network carrier.
The growth in the value of those OTT video services continues to explode as more users become more comfortable with the flexible payment options and large libraries of content they deliver. Changes in emerging markets too, where increasing availability and access to low cost mobile data services, coupled with growing smartphone penetration, is also pushing more consumers towards OTT content. That is likely to accelerate further with the imminent introduction of fifth generation (5G) mobile networks that offer bandwidth and latency advantages that enable a new generation of downloadable and live high definition video to smartphone owners.
Telcos, channel producers and big tech companies have recognised the opportunity and have recently introduced OTT video services of their own. Following its US$85bn acquisition of Time Warner, US telco AT&T launched is direct to consumer OTT service – HBO Max – last month [October 2019]. The BBC introduced its own OTT video library – BritBox – in the UK in November, the same month that Disney+ debuted. Reliance Industries, the conglomerate that owns Indian telco Reliance Jio, has also purchased stake in local OTT platforms, opening up an opportunity to provide video content to 355m users in the country.
Not all OTT VOD services are created equal though, with different providers taking slightly different approaches. Most are built on subscription platforms supplemented by video on demand (VoD) downloads though some are funded entirely by advertising.
The subscription video on demand (SVOD) services delivered by Netflix, Amazon Prime and Hulu, as well as new entrants Apple, AT&T and Disney don’t tie customers into long term contracts and give them greater freedom to opt out. Transactional video on demand (TVOD) sees consumers purchase content on pay per view basis, either through a pay once electronic sell through (EST) that grants permanent ownership or lower cost download to rent (DTR) for a limited time (Apple iTunes, Sky Box Office, Amazon’s video store for example). Another model is advertising video on demand (AVOD), which provides free access to content but compels users to view commercials between programmes (DailyMotion, YouTube and 4OD etc). App-based live TV services from companies including Sling TV, AT&T Now, Philo and PlayStation Vue are also popular.
SVOD is by far the biggest segment by in terms of the revenue it generates however, with total worldwide turnover growing expected to grow from US$47bn this year to be worth US$87bn by 2024. And with the SVOD market still at an early stage of its development – global user penetration stands at an estimated 14% in 2019 – the potential for growth is huge. Of those that are currently signed up to services, each user generates an estimated annual revenue of around US$23 – making subscribers very valuable customers to the providers engaged in OTT service delivery.
Asia is a particularly fertile and fast growing market suggests Digital TV Research, with the number of SVOD subscriptions in the APAC region expected to account for 43% of the global total by 2022, eclipsing North America with 31%. APAC providers that started out with AVOD platforms have also moved to SVOD, most notably in China where (in the absence of Netflix and difficulties using Amazon Prime) iQyi, Tencent Video and Youku have shifted their focus to subscription-based services.
Giving customers a way to quickly and securely access and pay for OTT content is critical to their success. While telcos can get involved via direct carrier billing (DCB) and eWallets, it is likely that several payment options will be needed to suit customer preference and budget. There will also be significant variations in those preferences across different age groups and geographies, more so considering the low credit card use amongst the younger generations most likely to use OTT services. Most popular OTT services in Asia for example already offer a range of payment options, including Apple Pay, credit/debit cards, PayPal, ATM bank transfers, store payments and scratch cards as well as LinePay. The end user experience will be equally as key to success as the quality of video streaming and updated library of content available, with content personalisation crucial to aiding navigation and pointing the customer to what they want to view.
Nor are telcos restricted to video when it comes to grabbing a large slice of OTT service delivery revenue – DCB and eWallet payments can be applied equally as well to games, music and other types of digital content. Indeed Bloomberg predicts the broader OTT segment will grow from US$94bn in 2017 at a compound annual growth rate (CAGR) of 16.7% to be worth US$332bn by 2025. Immersive online gaming and social virtual reality platforms like that due next year from Facebook (Horizon) which will allow users to access virtual reality sandbox universes where they can build their own environments and games, and play and socialise with friends, are likely to provide new avenues for growth. As OTT services continue to evolve to embrace new forms of digital platforms, telcos need to firmly establish their role as payments providers for that new content before somebody else does.