CSI, February 2017 – The era of VHS video popularity in the 1980s seems a very long time ago now, but the pleasure of being able to get hold of the content you want to watch quickly and easily has a universal, timeless appeal. This is part of the reason why online subscription video-on-demand (SVoD) services appear to have such a bright future. Or – to be precise – some of them do.
The number of homes with a subscription to some kind of SVoD service should reach 428 million, across 200 countries, by 2021, compared to about 248 million at the end of 2016, according to Digital TV Research. Global SVoD revenues grew from $12.2 billion in 2015 to $17.46 billion in 2016; and may reach $32.18 billion in 2021.
Any SVoD strategy is shaped by and depends upon the interaction of factors including country- specific consumer preferences, regulatory conditions and the existing TV landscape within a country. But the emergence of global SVoD services has had a significant impact in some markets. In November 2016, Canadian SVoD service Shomi, a joint venture run by cable providers Rogers Communications and Shaw Communications, ended operations. It had around 700,000 subscribers, compared to the 5.2 million households in Canada with a Netflix subscription.
It is now ten years since Netflix launched its streaming service. With a business model now based in large part on original content, since January 2016 its services have been available in almost every country on earth (exceptions include China, Syria, North Korea and the territory of Crimea). Digital TV Research suggests Netflix will have 118 million subscribers worldwide by 2021, 27.5 per cent of the global total, although
44 per cent will be in the US, which will provide 52 per cent of its predicted $13.14 billion revenue. This is despite the fact that its impact in Asia, which may by then be the fastest growing SVoD region, is expected to be limited.
Meanwhile, since December 2016, Amazon’s SVoD services have also been available almost everywhere; and Amazon is also investing heavily in original content. Further global competition for Netflix may soon come from other technology giants: in January 2017 it was reported that Apple is planning to produce original TV and movie content to offer subscribers to its music services by the end of 2017, while Google is also expected to continue to invest in original programming to add to Google Play services and catalogues.
“I think what Netflix and Amazon have done means that the market changed dramatically in 2016,” says Mihai Crasneanu, CEO at VoD content service provider Grey Juice Lab.
In addition, a growing number of content owners, from broadcasters to sports organisations, are developing direct to consumer (D2C) SVoD propositions. Recent launches include BritBox, an ad-free SVoD service being launched in the US by BBC Worldwide and ITV to showcase the best content produced by both broadcasters.
Nor does the emergence of OTT SVoD seem to have been a purely negative development for all payTV providers. For example, research released by Decipher in December 2016 suggests that SVoD usage in pay TV households in the UK increased from 10 per cent to 45 per cent over the past four years, while the whole pay TV base increased from 61 per cent to 69 per cent of the UK population. Top tier pay TV subscribers seemed to be buying SVoD services at a faster rate than subscribers to cheaper pay TV packages.
The same research suggested that households without pay TV subscriptions were less willing to subscribe to SVoD: take up of such services had increased only from nine per cent to 28 per cent. The study suggests that households favouring free TV but also using OTT apps and SVoD were not a large enough group to affect the pay TV segment to a significant degree.
Understanding local audiences
Local knowledge can also play an important role in helping broadcasters and other players develop viable SVoD services that can prosper alongside Netflix and other global players, says Tom Williams, chief executive of content delivery specialist Ostmodern.
“Established broadcasters know they can’t compete with these content giants with their endless budgets, and must instead coexist with them,” says Williams. “Localisation, personalisation and content discovery are personalisation and content discovery are all concepts these players can and should use to adapt and thrive.
“It’s important for VoD services to understand the changing behaviours of these local audiences. In Brazil, for example, evening TV has in the past been dominated by telenovelas but in recent years, a new trend has emerged in which younger people increasingly turn away from linear broadcast towards OTT content like US sitcoms or dramas and short-form content on YouTube or Facebook. Pay TV operators need to respond to this change by providing SVoD services tailored to these preferences that does not replicate the operator’s cable offering.” With the right strategy, he suggests, incumbent operators and broadcasters may be ideally placed to capture SVoD market share.
Niche and not-so-niche D2C services
Other service providers are focusing on a particular niche of content, such as children’s programming, content in a specific language, non-mainstream sports, or telenovelas. A number of technology companies offer solutions enabling delivery of D2C services via multiple platforms and devices. In January 2017 Turner’s Cartoon Network App was adapted as a cross- platform app using the You.i Engine One solution, which is pre-integrated with widely-used online video platform backends.
Iddo Shai, director of product marketing for OTT at online video management firm Kaltura, suggests that many smaller companies now have more options in terms of template applications and end to end solutions provided by his company and others. “This really lowers the barrier to entry for the smaller companies,” he says.
Overall then, the picture is complex for consumers and for industry strategists alike. “There are a lot of OTT platforms,” says Peter Docherty, founder and chief technology officer at content recommendation technology provider Think Analytics. “You’ve got content owners with OTT services going direct to the consumer, you’ve got Netflix and Amazon, you’ve got “Many consumers now have multiple OTT subscriptions. That’s a technical challenge for the industry, but also a big commercial opportunity.”
VoD broadcasters, pay TV operators with an OTT VoD arm and other OTT VoD services on top of that. “Many consumers now have multiple remember where everything is. That’s a technical challenge for the industry, but also a big commercial opportunity. But it all comes back to the content. You’ve really got to make sure you have the right kind of content; and that means you’ve got to understand your customers.”
“There is a battle underway,” says Kai-Christian Borchers, founder and managing director at multiscreen service software provider 3 Screen Solutions (3SS). “The key will be to use analytics in the smartest way, adapting the user interface and content display for users, with all of the cloud and big data abilities in the background; to constantly adapt SVoD services to become more efficient and attractive to end users.”
However, it is still generally the case that the best way for a service to be found by a potential viewer is through some form of EPG.
“When these services are available as part of a TV service, usage is much higher,” says Jeff Miller, president and CEO at cloud- technology content delivery provider ActiveVideo. “The real challenge for those services is how to be discovered.”
Ultimately, the niche service providers will depend on different forms of aggregation mechanism, whether this comes in the form of a specific consumer technology platform or device, or the EPGs of larger service operators.
Redefining service quality
But just capturing eyeballs and good content may still not be enough: the last
piece of the strategy must be ensuring a very high quality of service (QoS). Ian Munford, director of product marketing, media solutions, at Content Delivery Network (CDN) and cloud services provider Akamai offers a few details about research commissioned by the company that will be published shortly, in which the company sought to quantify the impact of good and poor quality TV experiences on specific business models. It measured consumer responses to a range of VoD experiences, created for the purposes of the research to avoid any brand bias. The researchers tested the responses to free ad-based VoD and SVoD services in standard definition form; and in HDR/4K with very high quality audio.
“We found that the SVoD services actually had a much higher propensity to be impacted in terms of viewer engagement than any other form of business model,” says Munford. “SVoD is seen as a premium service, so if you introduce a quality impact you reduce the engagement an individual has with the service. The responses suggested many people would stop using the service or cancel subscriptions if [QoS problems] persisted.”
This underlines the need for a strong infrastructure. One option that successful SVoD providers may consider taking in future is – to some extent – to emulate Netflix, which has effectively created its own CDN capability by placing video servers within operators’ premises rather than relying on CDN service providers.
Nivedita Nouvel, vice-president, marketing, at video delivery technology specialist Broadpeak, notes that it is among the technology specialists that can offer equivalent capabilities and efficiencies to smaller content owners and service providers.
Cloud technologies are also likely to play a more important role within SVoD infrastructures, particularly for smaller service providers, suggests says Sam Orton-Jay, sales and marketing director at video delivery specialist Simplestream.
“Cloud makes it easier for a niche broadcaster, or content owner to launch SVoD,” he says. “We’re able to deploy services for some of these small content owners very rapidly and at low cost. We have services running with less than 2,000 subscribers, very profitably.”
Getting a slice of the SVoD pie
But even with strong technology, a very good service and great content, there is still no guarantee of success. “In the next couple of years there will be attrition of smaller SVoD players,” says Chris Alner, business development director, satellite and media, at Arqiva. “It will be increasingly hard for them to make meaningful returns in terms of the cost of content and of running the platforms, and the number of customers they can get.”
Yet this is no reason for any content owner to give up on the idea of getting a piece of the SVoD pie, says Matt Nelson, director of strategic alliances at You.i TV. “This market is so huge and is only going to keep growing,” he says. “By 2020, 95 per cent of all traffic on the internet is going to be video. Higher bandwidth services for consumers is only going to drive more video.”
For consumers, even in markets where service providers fail to develop genuinely effective, personalised content discovery/ recommendation capabilities, competition in the SVoD market should continue to encourage the development of ever-improving SVoD services, with a growing range of content.
Interactivity features may well continue to be developed, but service providers must never forget that, ultimately, it is the quality of content that decides the fate of any video service, says Docherty at Think Analytics. “It all comes back to the content in the end,” he says. “It doesn’t matter how cheap your service is if there’s nothing interesting to watch.»