‘Over the Top’ services, or how telecom is threatening TV

UPDATE 01/02/2012: Another post related to OTT has recently been published. Please check it here: Is there a business case for IPTV in ME?


Over the Top Television services (also known as Internet TV or TV over Broadband) are soon to become common place in the home. Most of the triple-play operators with which we work think that “Over the Top TV” is the next natural evolution of the personalisation of how we consume audio visual content in the home. Broadcast and broadband video content is now truly converging. As a result, pay-TV operators are now competing against TV players offering much of the choice and flexibility that were previously exclusive to pay-TV, but without the requirement to commit to a monthly subscription.

Whilst traditional linear TV will still continue to provide the backbone of home viewing for some time, it is likely to be increasingly demoted in the home in favour of “Over the Top TV” services as the primary means to watch your favourite content. Over the Top Television represents a fundamental shift in TV consumption and whilst it brings many opportunities it will also carry many challenges.

First, a brief definition of the service. Over the top Television allows you to view content that is available over the internet. It is delivered via your broadband connection and so bypasses the traditional providers of TV services – hence the term over the top television.

Examples of current over the top TV services include video hosting services like YouTube, blockbuster films direct from the studios or even niche content from micro-operators. Viewing this content will be achieved either via a PC (which is what you can do now) or through a more integrated approach via an Over the Top TV enabled Set Top Box or Television.

So far, most of the growth in the consumption of broadband video content has been due to what we refer to as ‘online video’ (video content delivered over the public Internet). Online video content is usually delivered to the PC because of the lack of user-friendly solutions allowing it to be displayed on the TV. For this reason, despite the rapid growth of the online video market in the last five years, it has evolved in parallel with, or complementary to, the TV market.

Pay-TV operators’ early fears that subscribers would cancel their subscriptions in favour of online video have so far not come true. On the contrary, pay-TV has gone from strength to strength. As an example, the subscriber bases of the major UK pay-TV operators BSkyB and Virgin Media increased by 5.1% and 3.4%, respectively, during 2009. This is in spite of the fact that, by April 2009, UK Internet users were viewing nearly 5 billion online videos per month, which represents an increase of 47% in the course of one year.

According to industry’s reports, revenue from the delivery of Internet video to the TV will grow nearly six-fold in the next five years, from a meager $1 billion in 2009 to $5.7 billion in 2014. Specialists posits that in 2009, pay-per-view services accounted  for 96% of global OTT revenue, leaving subscription revenue with only 4% of the revenue mix. By 2014, however, annual OTT subscription revenue will have grown 50-fold and account for 31% of global revenue. You can check some figures in the following slides (in spanish, sorry):

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Specialists point to current hardware trends as fueling this growth, specifically the ongoing shift to broadband-enabled TVs and the rapid diffusion of ancillary web-enabled platforms such as game consoles, Blu-ray players, and hybrid set-top boxes. Widespread penetration of such platforms will set the stage for a rapid uptake of Internet-to-TV video services, both pay-per-view and subscription-based.

As these platforms more widely diffuse and consumers become more comfortable with using Internet-based TV services, the market will be primed for the arrival of full-fledged PayTV replacement services. Subsequently, TDG expects major OTT service announcements in virtually all global regions in 2010 and 2011, both in terms of stand-alone OTT and hybrid PayTV/OTT TV services, both of which will help fuel growth in OTT subscription revenue to $1.8 billion worldwide by 2014. At that time, North America will account for the vast majority of global OTT subscription revenue ($830 million) followed by Asia ($490 million), and Europe ($407 million). Other global regions will collectively account for only $60 million of this total.

The situation is now changing rapidly. Hybrid TV hardware, which fuses traditional broadcasting technologies with IP connectivity, is becoming more readily available. This, together with the ubiquity of free-to-air (FTA) digital TV services and fixed broadband in developed economies, has made it possible for new players, such as Fetch TV in the UK, to combine linear programming with online video on the TV screen. Features such as VoD can now easily be added to augment the FTA experience, without the costly investment in infrastructure that was previously a barrier for new entrants wishing to provide an experience comparable with that of pay TV. Table 1 compares the features offered by FTA, hybrid over-the-top and pay TV.

Table 1: Features of FTA, hybrid over-the-top and pay TV [Source: Analysys Mason, 2010]

FTA TV Hybrid over-the-top TV Pay TV
Number of linear programming channels Traditionally small; increasing in most markets because of the launch of DTT Based on the number of DTT channels or those available through FTA satellite services Basic packages may not include many more than DTT, but some (notably satellite services) offer many more
Catch-up TV Very limited, and supplied through ‘+1’ channels Can easily be offered as on-demand content, connecting to broadcasters’ existing online catch-up TV services, such as BBC iPlayer Increasingly often offered as on-demand content
Additional channels Not available Can be added as ‘Web TV’, or as a paid-for channel over DTT or satellite infrastructure Usually included in basic packages, with the option to add more channels by migrating to higher-tier packages, or subscribing to add-on packages or individual channels
On-demand content (VoD) Not available Can easily be offered by connecting to online VoD services Access to VoD is now part of most pay-TV services
Digital video recorders Available on relatively high-end DTT set-top boxes (for example, Freeview+ in the UK) Can easily be included in the set-top box, by providing flash memory or a hard disk Included in the set-top box, or network PVR services offered by some operators

So far, these emerging TV services, which use existing third-party infrastructure, have remained embryonic, but real impetus for their growth will come from initiatives such as Project Canvas in the UK, HbbTV in Europe and the global Open IPTV Forum (OIPF). These initiatives differ slightly in nature and scope, but they all aim for greater standardisation to make it easier for players to enhance FTA TV with features previously associated with traditional pay-TV services. HbbTV-certified equipment is already available in the German retail market, and we expect that Project Canvas and OIPF-compliant devices will become widely available in their respective markets within the next 12–18 months.

If the benefits of these devices can be explained clearly to the average consumer in the store, and if the pricing of the devices is sensible, then the temptation for pay-TV subscribers to ‘cut the cord’ and abandon their subscriptions will increase, particularly for those who take the more-basic packages.

Enjoy the reading, CVA

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