The Win-Win solution for OTT
I recently engaged with several companies looking into OTT video services, 2 of which were Content Service Providers and the other 2 telcos. In one case the CSP and telco were owned by the same parent company but, as often the case, had internal political issues in terms of ownership. The discussions highlighted there is a significantly different approach in how the OTT players expect their future to play out. I wanted to provide a quick recap of those discussions along with a few articles that further support this concept.
Content providers are in the business of content and therefore understand the intricate relationships and responsibilities of content licensing. Long term they stand a far better chance of becoming the OTT Digital Content Providers of the future since their content is already access agnostic and is the real reason people get online in the first place. It may be small business to chase, but it will have long-term implications as it will indirectly drive the need for bigger bandwidth from operators. Our role should be to educate CSPs on device habits, consumption of OTT on mobile platforms vs. TVs, encoding, interactivity, STBs, etc.
The biggest challenge for CSPs is in successful transition from an analog world where movies are on DVD, video is on TV, music is on CD, etc; and move them to fully digitized content which can be leveraged across all technologies. This transition is surprisingly not a foregone conclusion and there is a good chance many traditional CSPs will fail, overtaken by leaner digital versions. For example, where previously a concert was in an Arena and only ticket holders saw the show, a digital version could be simulcast live to mobile phones, tablets, laptop and video subscribers at home while also allowing instant purchases of the groups albums, fan-wear (merch), and price bundling with other services.
Telcos are in the business of bandwidth and will always use OTT (regardless of video, voice, music) as a way to promote sales of bigger bandwidth services. As such, telcos will never understand the real licensing issues of OTT nor the benefits of access agnostic OTT. Instead they will try to offer OTT for free or at a very low cost to get users to adopt bigger pipes. This is short sighted but at least helps drive our core business. For now infrastructure may not be able to support a full CSP OTT model and the telco could use the next 12-24 month window to offer an improved service level. Ultimately, all telcos will build out bigger bandwidth ironically making themselves irrelevant in the long-term OTT game.
The best approach is to work with several strategic CSPs and help transition them to digital OTT players (build CDNs, source low cost STBs, develop mobile video). Once they are established they will understand that one of the current barriers to widespread adoption is access speed (for now). At that point we can take their services to the telcos and leverage our integration know-how to offer premium delivery. The telcos need to understand however, that long term, infrastructure will be adequate to support OTT across all operators making tie-ups unnecessary. Further, the telcos cannot expect exclusive relationships with CSPs since 3-5 years from now, the content players will be able to survive entirely on their own without the need for specific telco relationships.
One issue is how to create a “tiger” team that is OTT focused and isn’t overruled by driving sales of network infrastructure. The CSPs won’t be buying routing and switching. Instead they will be smaller opportunities but strategic since we can use them as partners to offer new services to telcos. Further, by enabling more CSPs to deliver content over the network, the demand for bandwidth will increase, meaning LTE, FTTH and other bandwidth enhancement technologies will arrive sooner. The alternative of telcos building OTT models by themselves is doomed to fail. If we take successful content delivery models to them as part of our OTT telco solution, we have helped both sides and we will all stand a considerably greater chance of success, whether it is short-term with telco OTT, or long-term with CSP OTT and telco pipe.
The first reference article shows real data comparing cable subscribers that adopt OTT versus non-subscribers that adopt OTT. Essentially, cable TV subscribers and non subscribers are equally as likely to subscribe to OTT video. For now it seems cable cutting is not the trend however today that is likely due to the significant difference in content options when switching to OTT alone. In other words, OTT can be used to enhance existing cable/satellite services.
“As consumers consider cutting the cord, and TV advertisers and other stakeholders wonder how many will, research examines the differences in video content viewing behaviour between subscribers and nonsubscribers to cable TV.” – emarketer.com
The second article talks about the real cost of OTT to telcos in terms of lost revenue in messaging. No doubt a similar prediction can be made for VoIP and video. The only thing stopping an even faster take up of IP OTT services like voice is cleaner integration into existing mobile OSes. That small step of making people sign-up and add friends is enough to hold the masses at bay.
“Ovum has put a dollar figure on the estimated threat to messaging revenue posed by OTT social messaging service providers. The research firm expects operators to have lost $23 billion in missed SMS revenues by 2012 as a result.”