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November 27, 2012
How do you plan to spend your evening most times when you order a pizza? You’re very likely to watch a video.
In the UK, Domino’s Pizza Group saw the value of over-the-top (OTT) online video to boost customer loyalty, and back in October launched the Domino's Pizza Box Office video streaming offer. Customers order a pizza and get a download code to stream a movie at home. This is just another example of how OTT is revolutionizing the way video content is delivered to consumers: Today almost anyone can become a content provider.
Exhibit: Evolving video delivery environment and video platforms
Source: Pyramid Research
Many operators see the proliferation of OTT as a threat to their established IPTV business models. They fear that OTT will subvert their role in the pay-TV value chain and cannibalize revenue. We’ve found, however, that the opposite is just as likely to be true. In our new report, “OTT Growth Sparks Innovation Multiscreen Video Business Models,” we argue that OTT is serving as an innovation stimulus for the pay-TV market, pushing telcos to enhance their IPTV services with more screens. We also find that an increasing number of operators, alongside their managed IPTV services, are directly entering into non-managed OTT environments. This means that more operators are using the open Internet to offer video services to potentially any consumer with a broadband connectivity, being their existing customers or not.
Operators are warming up to the idea of launching their own OTT services, especially in emerging markets. While IPTV remains a premium service, which requires subscribers to purchase more expensive bundles, OTT is more flexible and only requires a good broadband connection. This means that in the more price-sensitive markets, where there is still strong demand for online video, OTT is becoming an attractive option for users. Besides, OTT services are typically delivered over a wide range of screens and at different price points, including smartphones, tablets and gaming consoles, making them more accessible to different consumer profiles.
In Colombia, for example, ETB has announced that it will shortly launch an OTT service to complement its upcoming IPTV deployment. In Mexico, the OTT service provided by fiber-to-the-home (FTTH) operator Totalplay, dubbed Totalmovie, has rapidly become the main competitor to Netflix. It offers video content in Mexico alongside the operators’ IPTV platform and across Latin America by using third-party operator infrastructure. As of October, it had 1.9m registered users and 5m unique monthly visitors.
We expect to see more Latin American operators launching OTT services. The second largest regional group, Telefonica, is considering positioning OTT commercial offers in several countries. The decision between managed (IPTV) or unmanaged video delivery (OTT) ultimately depends on each country’s infrastructure, competitive environment and operator position. Telefonica has, however, confirmed that there are already ongoing OTT initiatives outside Spain.
In Turkey, TTNET, the ISP of fixed-line incumbent Turk Telekom, has already been quite successful in combining its IPTV and OTT offerings. TTNET wants to add value to the bundles, which in turns helps increase customer loyalty and reduce churn. This is crucial in preventing the decline of Turk Telekom’s fixed-line base. While IPTV is positioned as a premium service, OTT is priced very competitively. As of August this year, TTNET had over 1.2m OTT and 150,000 IPTV subscriptions.
OTT can provide significant benefits to operators. In the case of TTNET, positioning OTT alongside IPTV is encouraging consumers to break through their broadband allowances, thus creating the need to migrate to higher-value packages. In the case of Totalplay in Mexico, OTT is contributing to the monetization of the operator’s superfast fiber-based network. For both operators, using third-party infrastructure breaks the link between content delivery and network management.
In the near future, we expect to see significant revenue-generating opportunities associated with VoD, catch-up TV, and targeted advertising, especially when telcos can integrate their OTT and IPTV offerings with interactive and social media functions.
Using the open Internet for content delivery, however, has its downsides. The main shortcoming with OTT is that the operator is not in control of quality of service (QoS). Especially in emerging markets, quality of service and network speeds vary wildly from country to country, making it challenging to ensure the same quality of experience (QoE) that can be guaranteed through a managed IPTV network. Another challenge for operators is securing in-demand content for OTT platforms. Without doubt content is king, but content is also costly. Unless they are backed by multimedia and broadcasting groups, operators tend to be the weak link in the content production and delivery value chain. But that is a challenge with IPTV too.
All in all, if telcos are serious about developing a pay-TV offering that can resonate with the demand for multiple viewing platforms at different price levels, they need to seriously consider the opportunity of complementing IPTV platforms with OTT.
— Daniele Tricarico, Analyst
Related resources:
OTT Growth Sparks Innovative Multiscreen Video Business Models
Telecom Insider published November 2012
This report examines the growth of OTT video services and the impact on the traditional pay-TV market. We discuss the opportunities for pay-TV providers and telcos to monetize the growth of multiscreen video and how telcos can adapt their network and service strategies to the multiscreen world. Five multiscreen business models are presented, and we detail the advantages and disadvantages of each. This report presents case studies from BT, Sky, AT&T, Turk Telekom and TotalPlay and examines how these different operators seek to develop successful business models for multiscreen video. We conclude with some recommendations.
OTT IP Messaging: Operator Strategies for Over-the-Top Communication
Telecom Insider published October 2012
The main focus of this report is on mobile IP messaging. We examine the significance of OTT communication (voice and messaging), and more specifically the impact of OTT messaging, and take a closer look at six different strategies that operators are currently using to respond to the threat posed by OTT. The report presents case studies from SingTel, Claro, Orange, Telefonica, T-Mobile, Vodafone and Three and examines how these different operators are approaching OTT communication. We conclude with some recommendations for operators as they rethink and refine their strategies.
Pyramid Research Mobile Data Forecast
Forecast published quarterly
A premium version of the Mobile Demand Forecast, it tracks current and future demand for mobile data services, within the context of overall mobile demand. This forecast includes all the same tracking as the standard Mobile Demand Forecast but breaks down mobile data ARPS, revenues and subscriptions at the service level.
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