Analysis & Opinion

Chunghwa Telecom goes OTT with You Tube – is this a big deal?

Tony Brown, Informa Telecoms & Media

Tony Brown, Informa Telecoms & Media

Taiwanese incumbent Chunghwa Telecom’s Multimedia-on-Demand (MOD) IPTV service has been through some tough times this year, with its subscriber take-up slowing significantly and the company still unable to access many of the country’s most popular cable-TV channels.

But the company should get a lift from a deal, announced on Sept. 20, it has struck with US online-video giant YouTube for the Google-owned outfit to give CHT access to its application programming interface (API) and authorised content on the MOD platform.

Starting in October, MOD subscribers with the latest-generation MOD set-top boxes will be able to access YouTube content via their TV sets. About 150,000 of MOD’s 1.16 million subscribers will initially able to receive the content, and CHT is planning to gradually extend availability to the rest of its subscribers.

Although the YouTube move is by no means a game-changer in Taiwan’s pay-TV market, it does provide the MOD service with a much-needed shot in the arm by creating a significant point of differentiation between MOD and dominant cable-TV MSOs’ largely analogue services.

Although the arrival of the free-to-use YouTube does not present an immediate opportunity for CHT to boost ARPU – which at just NT$150 (US$5.10) a month is only 25% of that generated by the cable MSOs – it does make the MOD service more attractive to subscribers.

This is important, because if CHT is unable to dislodge cable MSOs as the primary TV connection in subscriber homes – a nearly impossible task without a level playing field in the content market – then it has to be able to make itself an attractive “secondary” TV connection in the home.

Bringing YouTube onto the MOD platform should enhance the MOD product and will help – at least partially – to reignite subscriber interest in the service and help it reach its goal of having 1.3 million subscribers by year-end, some way short of CHT’s original 1.5-million-subscriber target.

CHT really needs to kick-start subscriber growth for MOD if the platform is to retain credibility in Taiwan and have a serious chance of gaining carriage of the leading cable-TV channels it has failed to bring on board. If CHT can build up an MOD subscriber base of more than 2 million, it will put more pressure on program distributors to grant it access to leading cable channels.

The bigger picture

However, two broader issues are at play as CHT brings YouTube and most likely other OTT content onto the MOD platform – one an opportunity and the other a major threat.

The opportunity comes via the fact that the National Communications Commission is increasing the pressure on the country’s broadcasters to switch off their analogue broadcasts and move entirely to digital transmission.

With digital take-up rates among local cable operators dismally low, CHT says the analogue-broadcasting switch-off – if the government has the fortitude to push for it – could be a turning point in the market by forcing subs to take MOD subscriptions in order to access digital TV.

Therefore, CHT says that making MOD a compelling platform by bringing on board content such as YouTube will help it persuade analogue-cable subscribers to sign up for MOD subscriptions as they move into the digital-TV era.

The second part of the equation is the serious threat posed to CHT by the NCC’s proposal that the company be forced to open up its last-mile DSL and FTTH networks to third-party operators – news that delighted local cable MSOs and rival telecoms operators.

Some local equity analysts have speculated that CHT could lose about 35% of its share of the retail-broadband market if the last-mile liberalisation takes place – a nightmare scenario for CHT, which has invested heavily in its nearly nationwide FTTH/B networks.

As a result, CHT’s strategy is to make the MOD service as strong as possible so it can act as a key means of defence against, and differentiation from, any IPTV services launched by rival telecoms operators Taiwan Mobile, which already owns two cable MSOs, and Far EasTone on CHT’s FTTH network.

The YouTube angle

The benefits CHT gains by bringing a partner like YouTube onto the MOD platform are obvious. But how will the deal play out for YouTube?

Gaining a foothold in Taiwan does not bring the Google-owned company any closer to gaining entry into the gargantuan mainland-China market. But it does give it a good launching pad to strengthen its position in Taiwan.

YouTube already enjoys wide usage in Taiwan, but it faces tough competition from Chinese online-video giants such as Tudou and Youku. Thus, gaining the credibility and additional distribution of the deal with CHT can only be positive for the company.

Perhaps the most interesting question raised by the deal will be whether YouTube takes the opportunity of being embedded in the MOD platform to launch its own exclusive Mandarin-language content.

Much has already been made of YouTube’s new strategic direction of producing its own exclusive content on its channels for Western markets. The deal with CHT presents an intriguing opportunity for the company to at least dip its toes in the Chinese content market.

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