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Huawei: How to become an OTT service provider

How to become an OTT service provider

How to become an OTT service provider

Guest post by Kevin Cochrane SVP, Global Content Partnerships at Huawei Technologies

Traditional telcos and MSOs are looking to get into the OTT content provision game, but the guy in the hardhat fixing your phone line might not have the skill set to negotiate a multibillion dollar media agreement with a team of Hollywood lawyers and later draw a profit from it. He might need a friend in the business…

Content matters

The word content downplays its own significance by reading as a glorified equivalent of stuff or things, but its importance cannot be overestimated as a driver of online traffic.

Over the top (OTT) video distribution refers to the delivery of video content over one or more carrier networks, as opposed to IPTV, which sees content delivered over an exclusive network. Globally, digital media consumption grew by 11.8% in 2013, with consumers spending an average of six hours per week watching online content. According to a recent survey, more than 60% of consumers have watched content on an IP-enabled device in 2012. For video on demand (VOD), the rates were 10 to 20% higher in Canada, the U.S. and the U.K.

The increase in content viewing online has also led to increases in the revenue streams available to operators in terms of advertising, subscriptions and transactions. However, it is important to note that these three major revenue streams differ in scale by region. For example, advertising is the leading revenue stream in markets such as Germany, but less so in the U.K. For transactional revenue, it is clear that consumers are increasingly willing to spend on preferred content. Globally, they spent USD57 billion in 2013 on video content, compared to USD44 billion in 2012, a 30% increase year on year. A Quickplay survey found that 60% of Canadian subscribers were willing to pay for advertising-free content, with U.S. and U.K. consumers at 55% and 50%, respectively; 40% of all survey respondents indicated willingness to pay for content of excellent quality, with 20% indicating willingness to pay between five to seven U.S. dollars for premium content.

The success of an OTT service will depend on the range and quality of content offered. Operators such as Kabel Deutschland in Germany have built substantial content libraries with 3,500+ movie titles, 650+ TV channels, and a diverse range of games and apps. The rub lies in the fact that these libraries must constantly be refreshed, and this is a key pain point for any operator who wades into the content pool.

Case study

The revenue streams of both traditional telcos and pay-TV providers are under threat from the likes of Netflix, with the former coping with the added burden of all that unmonetized traffic being generated. OTT services can be delivered to any connected device; telcos and pay-TV providers who have a single point of delivery, such as satellite providers, have responded by launching their own OTT services. One example is the Sky NOW OTT service in the U.K.

Sky has not seen much growth recently in its digital broadcast or satellite businesses in the U.K. This prompted the launch of Sky NOW, which utilizes a ROKU set-top box, giving consumers the chance to access the premium Sky Sports and Sky Movies channels on a per day or per event basis for the first time.

The service is available across a broad range of devices – PCs, smartphones, gaming consoles, the YouView hybrid OTT/DTH platform, and LG’s smart televisions. Sky NOW also allows access to various catch-up TV services, social media such as Flickr and Facebook, and music platform Spotify.

How content impacts OTT provision

When an operator looks to launch an OTT service, the role of content is often underestimated, due to either a lack of familiarity with the business models associated with key content types (such as movies), or because the focus is on the OTT hardware solution and not what constitutes a quality OTT service and platform. There are four key pain points an OTT service provider must consider when launching a service – content availability, appeal, delivery, and “sociability.”

Can we buy it?

An OTT service provider must be fully familiar with all issues involved in securing content, including the likely prices major content providers will demand. In the U.K., BT paid over GBP1 billion to secure exclusive coverage of the Champions League for three years on their BT Sports TV channels and BT Vision OTT service. It’s the exclusive part of that previous sentence that warrants consideration, because if BT is covering the Champions League in the U.K., no one else can, at least until BT’s contract expires. Thus, content is a strategy and not just an expense. New OTT players must consider not only what spaces they would like to fill, but also what spaces are available, and this issue extends beyond sports to other types such as movies or television. The primary content types that an OTT entrant must source from are movies, sports, TV channels & programming, content for children, lifestyle shows, and foreign/ethnic programming.

Should we buy it?

The question of who the content will appeal to is absolutely crucial to the success of a new OTT service. Operators seeking to launch a new service must fully understand the demographic profile of the target audience while ensuring that the content secured for the service is suited to all of the many different demographic groups that will compose it. This is a complex task. In the U.K., there are seven adult age groupings used to buy and sell TV advertising., with the smallest group covering a paltry four years (age 16 to 19). Thus, stringent market research will be required, involving web analytics, TV panel surveys, proprietary customer research, and industry sources.

How do we deliver it?

A key question for any new OTT entrant is how content will be delivered into an OTT platform and served to the customer. Content can be in the form of a “live” linear TV channel or an on-demand program. Said content will require encoding, formatting, encryption, rights management, ad insertion, social media integration (for recommendations and delivery in different formats) and bitrates before delivery to the consumer. Therefore, the OTT middleware must be of sufficient breadth to perform all of these functions so that content is properly served, processed, and consumed.

Can it be tweeted?

It is important to understand how content is now shared between friends and families over social media. According to Havas Media, nearly 40% of all tweets in the U.K. are generated during the prime television viewing hours of 18:00-22:30, and it’s a safe bet that a fair number of them are about what’s on the tele. Operators need to consider a wide range of vendors and technologies if they intend to launch an OTT service. While watching a live soccer match, customers may want to interact with an expert panelist via Twitter. Accordingly, several OTT operators make athletes, celebrities, and experts available on social media to encourage viewer interaction and to add to enhance the dynamism of the viewing experience.

You might need some help

There is a huge opportunity for operators to cash-in on OTT services, with Ovum expecting OTT revenues to double from 2014 levels by 2017, reaching USD2 billion. But in my opinion, those considering it do not yet fully appreciate the issues that need to be addressed if the service is to succeed. The decision to launch an OTT service will take an operator from its traditional voice and data business model to one based on video (content), effectively making that operator a media company. This requires a new skill set, one that revolves primarily around understanding the role that content plays in OTT success, the costs involved in acquiring suitable content, and the changing content preferences of customers (which will require constant monitoring).

Operators will need a partner who offers a complete end-to-end OTT platform, as well as access to a wide range of content partners in all aforementioned categories who are willing to offer content to a global client base. Huawei has the end-to-end technical capabilities, the partnerships, and the expertise to do just that, whether in the IPTV or OTT space. Our content partners have the rights to over 50,000 video titles, 150,000 games, and 100,000 apps, from 25, 10, and 5 content providers, respectively, making for a global entertainment pool for a global audience. Our Business Network Consulting team has advised operators in all regions of the world on how to create a go-to-market strategy, source content, develop sales and marketing plans, and design consumer propositions (content packaging & pricing).

Thus, we can remove a great deal of the risk in launching an OTT service by reducing its OPEX, allowing operators to focus on their core strengths such as their customer relationships. Whatever you need, Huawei is here to help.

 Kevin Cochrane will be appearing at this year’s TV Connect (28 – 30 April 2015 ExCel, London)

 

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