As traditional pay-TV subscriber growth flattens or declines in most mature markets, operators are evolving their video product sets to accommodate changing audience needs and to tap into new segments and territories. Subscriptions to traditional network operators' standalone OTT video services will grow by more than 40 million between 2018 and 2023, while traditional pay-TV subs will grow by just 7% (62 million). But standalone services are only part of the picture. What's striking about the evolving landscape for operator OTT video is the ongoing diversity of approaches to delivery, service packaging, and business models. Just as the lines between traditional TV and OTT video are blurring, so too is the distinction between a pay-TV distributor and a telco/ISP. There's plenty of variety to these services as operators experiment and explore different packaging and positioning configurations. Examples can be divided into four models:
Standalone SLIN. Subscription-based OTT video services based on linear streaming (SLIN) are helping established pay-TV distributors offset declining growth in traditional subscriptions. They also enable those without full national TV coverage – such as Sky in Spain and more recently Deutsche Telekom (particularly in Eastern Europe) – target otherwise unreachable video customers. Standout examples of operator-provided SLIN success includeDirecTV Now (now at almost 2 million subs within two years of launch), DISH Network's longer-established Sling TV with 2.4 million, and Sky Europe's OTT combined operations with an estimated base of 2.3 million paying customers.
Mobile-first SVOD. Aimed primarily at off-net and international expansion, take-up of purely standalone services such as PCCW's Viu and Singtel's Hooq – each currently with an estimated 900,000 subscribers – is proliferating in multiple countries independently of their owners' fixed or mobile operations. Meanwhile MNOs in Japan and South Korea enjoy robust uptake of their proprietary SVOD services, which mainly target their own mobile bases, with Korea's LGU+ reporting 6.5 million paying users of its LTE Mobile Video Portal service as of mid-2018.
OTT aggregator. Multiscreen portals providing access to third-party OTT video services – such as Claro Video, which operates across Latin America, and Singapore's StarHub Go – enable integrated operators to offer their customers access to premium content without the need for a pay-TV subscription. These portal services also provide global premium content providers such as HBO and Fox with a secure delivery and payment mechanism as an alternative to offering a pure D2C proposition.
Broadband value-add. Improvements in broadband availability and online distribution and the wider availability of cheap media streaming devices are enabling larger numbers of telcos – many without a significant prior pay-TV presence – to develop video entertainment products that enhance their broadband value propositions. Several telcos are adding video RGUs to their broadband customer bases by bundling or discounting such services either as a loyalty incentive or as a means of enhancing overall consumer ARPU – or both. In Italy, for example, Telecom Italia has 1.6 million TIMVISION subscribers among its fixed broadband customer base – and expects to triple this by 2020 – while take-up of Vodafone TV has more than doubled during the first nine months of this year to reach 78,000. With 1.3 million boxes deployed by mid-2018, Australia's Telstra TV is a good example of how the retail device model can work for telcos. It is also illustrative of the crucial need for network operators to forge service integration alliances with relevant OTT partners if they want to develop a compelling video entertainment add-on.
Figure 1: Operator-delivered OTT video service types
While the multiplicity of evolving video service options helps both transform and expand audiences and service opportunities, direct revenue potential on a per-customer basis for these typically slim OTT offerings is much more limited than with traditional pay TV. That said, DISH has noted the positive impact of Sling TV in propping up both blended ARPU levels and the overall video customer base through the gradual upselling of OTT customers to higher-value subscription packages. So, while in the short-to-medium term, standalone services rely on aggressive pricing to establish themselves, in the long run, as OTT delivery gains further critical mass and becomes an increasingly mainstream outlet for paid video offerings, there is scope for expanding SLIN ARPU and revenues. On the broadband VAS side, the revenue opportunity is more indirect than with SLIN. For telcos, bundling an OTT video service – and perhaps a subsidized device – can serve as an enhancement to more expensive fiber access and multiservice packages, attracting higher-spending customers as well as securing their loyalty. While direct revenue expectations are modest in comparison with those of traditional pay TV, so too is the cost and risk associated with going for a predominantly OTT solution, which bypasses the need for expensive content rights deals.
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