When we talk about disruption in the pay-TV sector, OTT video is often at the top of the threat list. And no surprise - OTT video services like Netflix, Hulu, Hooq and Amazon Prime have become viable sources of video entertainment. Even Twitter is getting in on the act - in April it signed an exclusive rights deal with the US National Football League (NFL) to livestream Thursday-night football games. (The Washington Post’s clickbait headline: “Twitter is basically a cable company now”.)
OTT video has certainly been disruptive in terms of its impact on the way people watch video, especially the younger demographics. Straight linear TV is boring - the future is TV Everywhere, with single sign-on across multiple devices (TV sets, smartphones, tablets, laptop and eventually your car dashboard), single-touch control, on-demand viewing and flexible billing options. Put simply, watching TV is no longer just a lean-back experience in the living room, and broadcasters and pay-TV service providers had better deliver what viewers want.
Interestingly, however, there’s one area in which OTT video is not much of a disruptor: the bottom line.
At the recent Broadband TV Connect Asia conference in Jakarta, several speakers made the case that OTT video isn’t the major threat to the traditional TV industry that some have made it out to be - not if you go by market share and actual revenues. Market forecasts suggest that by 2020 OTT video will only account for a fraction of the overall pay-TV revenue base in APAC, and the majority of that will be driven more by ads than subscriptions.
In fact, for all its reputation as a disruptor of pay-TV, OTT is actually the industry’s future - or at least a key and lucrative part of it. Business models and strategies will vary, of course, but at the very least OTT video players are emerging more as potential content partners than serious competitors for a slice of the pay-TV revenue pie. Some OTT players are already positioning themselves as programmable premium channels that deliver TV everywhere and - thanks to big data analytics - will take TV viewing to the next level.
A small slice of the pie
The last year has seen a sudden spike in OTT video services across Asia-Pacific, with Netflix entering Australia, New Zealand and Japan via telco partnerships, and almost globally as a pure OTT service. Meanwhile, we’ve seen the emergence of new regional players like Hooq, iflix, Klix and PCCW’s Viu.
But while it may feel like a full-on invasion of the pay-TV space, David Ratner - digital specialist at Pioneer Consulting Asia - says some perspective is needed.
Also, while OTT SVOD services are growing very fast, that’s from a small base, he notes. “The numbers are indicating that they’re going to reach about $340 million by 2020 in SEA, excluding Hong Kong. That’s compared to a $5 billion pay-TV market, so it’s still relatively small on that side.”
One reason OTT SVOD services aren’t generating all that much revenue in SEA is because there’s still a reluctance from consumers in those markets to pay for content, especially in markets like the Philippines and Indonesia where piracy is rampant. The other problem, says Ratner, is that even people who want to pay find it difficult to do so.
“For example, how do you pay in Indonesia?” he says. “There are something like ten million credit cards in Indonesia and you can’t necessarily use all of them. It’s the same with the Philippines.”
Krishnan Rajagopalan, co-founder and chief content and distribution officer at OTT video service provider Hooq, adds that it’s hard to be a revenue disruptor in Asian markets where pay-TV ARPUs aren’t all that high to begin with.
“The scope for disruption is much lower, because you can’t really disrupt a $3 ARPU market unless you give it away,” Rajagopalan says. “It’s different in developed markets like the US where they’re charging anywhere from $75 to $150. There’s a lot of scope for disruption there because you can take it all the way down to $10 and still make a lot of money. That’s not the case in Asia.”
This is why OTT video is more likely to be advertising (AVOD) driven than subscription (SVOD) driven in terms of revenues. By some estimates OTT video will be around an $8 billion revenue opportunity by 2020 - and AVOD is expected to account for around two-thirds of that.