Although a highly visible TV industry sector, profitability is less certain for both new and established operators. For part two, we look at how OTT operators can utilise core OTT technologies and services that can potentially meet new subscriber expectation and drive down costs.
The evolving pay-OTT delivery model
Alongside a better understanding of consumers, for pay-OTT to turn from start-up to long-term business success, operators need to deliver efficiencies within in the delivery model. This includes control over content delivery, options to scale to meet demand with the ability to tweak services to ensure quality and changing business drivers.
In the view of Edgeware’s Ling Koay, one of the most important decisions to be made in the quest for a scalable option that delivers the control necessary to be successful is whether to buy or build a CDN. “While buying capacity from third party CDNs may be the path of least resistance at first glance, it means putting the most valuable asset – the content – in the hands of a third party who delivers it on a best effort basis. Build, on the other hand, gives a solid tool to be successful.”
Koay suggests that ‘build’ does not mean building from scratch. It means leveraging the best-in-breed products available in the market. This gives guaranteed performance, faster time-to-market, and flexibility in putting together a solution that works at much lower costs. It also gives you control over your capacity to grow – for example, you know exactly how much you will need to invest in IT spend in order to grow X% of subscribers by the end of the year.
Koay suggests a three point strategy. The first is adding a local origin server offering a more powerful and flexible headend with the capacity to ingest, record, repackage, and encrypt content before pushing it to a third-party CDN provider. It provides time shift TV offerings, and advanced services, such as targeted ad insertion or replacement for both linear and non-linear content, with simplicity. As you take more control of your content, you earn the freedom to switch between the CDN service providers or work with multiple CDNs at the same time. You can even stream directly when serving long tail requests.
Next step is to scale via geographical distribution. As the audience grows, there is the opportunity to scale by distributing origin or cache servers to the points where the content is handed off to ISPs. This step allows bypassing CDN providers and gaining control of the video delivery chain with a lower OPEX compared to outsourcing services. Content is repackaged, encrypted, time-shifted, and personalised with replacement ads from these distributed origins or simply cached if these functions are not required.
Lastly Koay suggests that pay-OTT operators explore a broadcaster CDN model. This step in the evolution involves putting cache servers at ISPs to get a dedicated delivery network for the content. A deal with the ISP is required but more ISPs favour this idea because they can eliminate significant network traffic by allowing dedicated pipes for the video content.
Figure 3: Image from Garland Partners Limited
Pay-OTT going live
Yet for all its growing significance, pay-OTT is still weak within the TV industry’s big money maker, namely live events - specifically sports. While the OTT market, led by the likes of Netflix, has created incredible platforms for watching content on-demand, anytime, anywhere, and on any device, it has failed to create an environment where live OTT can thrive.
In the view of Per Lindgren, senior vice president strategy and business development at Net Insight: “Today’s OTT delivery platforms and CDNs are missing a significant piece of the puzzle. They are not optimised for true live distribution. Without the ability to harmonise OTT delivery across all devices, consumer viewing experiences, and industry opportunities, including new revenue generating possibilities, will suffer.”
According to Lindgren current live OTT delivers an added delay of 25 to 35 seconds which is potentially growing over time to several minutes compared to traditional broadcasts. This is devastating for social interaction and has a huge impact on the consumer experience, destroying OTT’s promise of real-time audience engagement, along with the multitude of opportunities that this can bring.
In addition, network operators have been encumbered with huge costs of upgrading networks to accommodate the explosion of new OTT video and have been left well outside of the OTT value chain. This means that while the delivery and distribution of OTT content has increased significantly, revenues have failed to do so in conjunction with this upswing. In particular, ad revenues have not seen the same rise. For example, live sports is probably one of most lucrative advertising vehicles in the media industry, yet live OTT sports content has not generated anywhere near the kinds of revenues that live sports on linear TV has seen. With true live OTT, network operators can pave the way to monetise the massive commercial value found in live content, such as major international sports events.
Welcome to the second screen
“For the OTT market to create new opportunities for revenue growth it needs to address the delay and synchronisation issues that plague the distribution of live OTT content, while enabling true integration of the first and second screen,” said Lindgren. “Combining low and predictable delay with synchronisation of the primary and secondary screens ensures customers are viewing the same content at the same time. When you add in seamless and sophisticated integration of the primary screen with mobile devices, this is game changing and allows new opportunities to unfold.”
For example, enabling the second screen to serve as an extension of the viewing experience paves the way for mobile devices to become sophisticated viewer remote controls and tools for social interactivity, which also allows for new functions such as ‘Swipe-to-Swap’ (instantly changing primary viewing screen between the first and second screen) or Fast Channel Change (changing channels without delay) to be introduced. The significance here is that this opens up massive business potential through better viewer engagement, creating opportunities for new ways to advertise as well deliver real-time interactivity in gaming, true live interactive betting, voting, and polling, and as a device to interact via social media – all within a real-time TV viewing experience.
“The synchronisation and integration of the first and second screen is also crucial because it invites the audience to stick with the content they are watching for longer, enabling broadcasters, content owners, and service providers to enter the OTT value chain,” said Lindgren. “This will happen because they will now have a platform to allow audiences to interact socially and engage in real-time, which can lead to new advertising models based on more than one screen.”
With Netflix now expanding to over 140 countries, the OTT battle is truly in full swing. However the cards are not all stacked in the newcomer’s favour. In the classic Facebook beats Myspace analogy, first mover advantage is not always enough. More so in the pay-OTT space where many providers are just conduits for other content owners. Increasingly, many of these content providers are looking at distribution alternatives such as direct to subscriber models as witnessed by Major League Baseball, WWE, and global giants like Disney. It’s clear that there is no one answer, single technology or platform that will solve all issues. However, an innovative approach backed up with a deeper understanding of the consumer and the use of newer technologies can give every operator a fighting chance to carve out a niche and thrive.