time 2012 adl report ott video
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- 1.Telecommunication, Information,Media & Electronics Over-the-Top Video First to Scale WinsDoes this Mean the Return of National Heroes?
2. ContentIntroduction3The Traditional Value-chain Starts to Disintegrate 4Global Players Wont Steal the Market6Window of Opportunity For Strong National Players8First to Scale Drives Partnerships 9Consumers Rapidly Adopt OTT Video11Conclusion14Our Experience15Lead Authors:Co-Authors:Dr. Karim Taga Gregory PankertManaging Partner PrincipalGlobal Head TIME PracticeGlobal Lead Cable TVtaga.email@example.comADL BeneluxClemens SchwaigerRobin HunterManagerPrincipalGlobal Lead Digital Media Strategies ADL USAschwaiger.firstname.lastname@example.orgA detailed presentation of key trends inOTT video is available on request. 3. IntroductionOver-the-top (OTT) video services focusing on professional long-form content, such as Hulu,Lovefilm and Netflix, saw tremendous growth in subscribers and revenues over the last few years.These services are called OTT as they focus on the service component and piggyback on abroadband providers network for delivery. OTT video can be Linear (e.g. live streaming of currentbroadcasters channels or new online only linear channels) or On-Demand (e.g. ad-funded,transaction- or subscription-based access to a library of movies and TV shows).Over-the-top video offers of both hardware and services are evolving very quickly, made possibleby ever-faster broadband. Viewing habits are changing fast, triggered by a massive generationaleffect. These services are a potential substitute to Pay-TV services, which are usually sold as part ofa product bundle in the case of broadband or cable TV operators. From the perspective ofincumbent pay-TV providers, OTT video is a potential threat but for telecom operators and rightsowners OTT video is an opportunity. Furthermore, they allow for a disintermediation of traditionalTV broadcasters and could accelerate the decline in physical media sales volume.However,launching a market leading service has many challenges and the race to scale has started, shapingthe future TV and film entertainment industry.3 4. Over-the-Top Video First to Scale WinsThe Traditional Value-chain Startsto DisintegrateThe global filmed entertainment and TV industry combined is a nn Within the physical goods segment the Blue-ray priceUSD 468 billion ecosystem, which grew at a healthy 4 percent premium does not compensate for the DVD price dropCAGR between 2006 and 2011. The two industries combinednn Within the digital goods segment high-priced products (HDaccount for approximately 0.7 percent of global GDP According . movies, latest releases) do not halt overall price erosionto industry analysts, OTT video is a mere USD 2 3 billionmarket in 2011 but is expected to account for approximately nn Overall, compression of rights windows is destroying valueUSD 15billion by 2016, which would be roughly equivalent to(average revenue per title declines over windows)todays in-store video rental market.The industry thus faces a slow but certain move away fromHowever, this growth will not be incremental in full, as illustratedhigh-priced, physical goods to low-priced, digital goods.by developments in the home video market (i.e. retail of VHS,DVD and BlueRay Discs) in the US and France (see Figure 1). Pricing discipline is not expected to improve in the mid-term,Despite exponential growth in volumes, digital distribution as this emerging market segment is highly fragmented andof film entertainment through OTT services so far has not announcements of new players entering the market come oncompensated for the on-going decline in physical revenues,a daily basis. In addition, both traditional and new players try toalthough accounting for 11 percent (US) and 19 percent (France) take over multiple value chain steps on their own (see Figure 2),of total revenues in 2012. This is mainly due to average prices for thereby initiating a disintegration of the traditional TV and filmVoDs being 4 9 times lower than average DVD prices. entertainment value chains.The industry is also suffering from value destruction withinindividual segments:Figure 1: Digitalphysical home video markets USAFrance US home video market by value, 2007 2012France home video market by value, 2007 2012 USD bnEUR bn-0,8% -0,7%9,99,79,7 9,8 9,8100,6 9,52,0 1,5 1,6 1,50,1 0,1 1,0(6%) 0,1 0,2 0,2(11%) 1,5(10%) (15%) 81,4 (6%) 1,5 1,50,3 6(19%)9,99,79,7 9,7 9,21,0 48,51,5 1,41,4 1,41,31,2 0,5 2 Average Price DVD 3.54 Average Price DVD 15.5 Average Price VOD 0.38 Average Price VOD 3.58 0 0,0 2007 2008 2009 20102011 2012 200720082009 2010 2011 2012VOD + SVOD DVD + Blue-ray VOD + SVOD DVD + Blu-raySource: GFK, IHS Research March 20124 5. Over-the-Top Video First to Scale WinsFigure 2: Value chain movementsTechnical Technical ProductionAggregation MarketingDevicePlatform Distribution 1 Content players: Shift towards multiple licensingown distribution Content providers/ Free-To-Air : Move on new platformsdevelopment of new revenue models broadcasters PayTV: Development of unique programming/contentshift on new devices 2 Spreading out on new platformsdevices,Internet players focusing on better content aggregation 3 Telecoms: Utilization of network capabilities to provide enhanced TV services Distributors Cable: Increased focus on own packagingOTT 4Consumer IP enablement of devices and integrationelectronicsof own value-added services manufacturersSource: Arthur D. LittleMarket players follow distinct strategies, some of which areConsumer electronics manufacturers (e.g. Apple, Samsung)known, others entirely new: leapfrog value chain elements and bypass traditional distributorswith an own B2C offer with the help of partnerships withContent providers (e.g. Disney, Warner Bros.) engage directly/broadcasters and OTT players.deeply with existing consumers and tap into new customersegments by (i) providing services directly to consumers, and Also Pay-TV operators, such as DTH or CATV players (e.g.(ii) distributing content through OTT players, while keeping B2BComcast, Sky), (i) complement their existing TV propositionrelations with their traditional distributors.with OTT services to preserve the attractiveness of theirproduct offering, (ii) address the growing multi-screen demandBroadcasters (e.g. ABC, RTL) extend their business model by by consumers and (iii) reach beyond the constraints of theirdiversifying into premium services and following eyeballs ontoown platforms.on-demand platforms as advertising revenues will come underpressure from time shifting.Internet players (e.g. Hulu, Netflix) establish superior distributionplatforms in terms of usability by leveraging their knowledge ofonline distribution (e.g. recommendation tools) in OTT video andfostering integration between TV and PC. Some, like Netflix areeven rolling out own CDN infrastructure, large geographicallydistributed system of servers to bring content closer toconsumers and thereby increasing performance.5 6. Over-the-Top Video First to Scale WinsGlobal Players Wont Steal the MarketThe single most important factor for success in OTT video is anOne key barrier to the establishment of harmonized contentattractive content library. However, these content rights are stilllibraries, and thus global negotiations for OTT players, are thecumbersome to acquire. This is due to the fact that OTT videoheterogeneous windowing regimes for film entertainment acrossrights form an entirely new category and that the value of suchmajor markets, in particular in Europe. Figure 3 illustrates that,rights is yet to be determined. Consequently, content rights are with the choice of a purely subscription-based business model innegotiated on a piece-by-piece, geography-by-geography,France, a player like Netflix would essentially have access only tobusiness-model-by-business-model basis. This is an issue for OTT movies that are three years old. This is an issue as the value ofproviders, but not one which will block them from launching an content to consumers is decreasing rapidly over time. As aappealing content offer to the mass market, with the notable consequence, the growing pressure from SVOD retailers isexception of premium sports content. The valuation of theseexpected to result in shorter release windows in the mid-term.rights is based on large Pay-TV subscriber bases and a key toolfor high-value subscriber acquisition and retention. For rightsThe US market may also provide an example of howowners, granting OTT players the rights would mean abandoningcompetition between OTT video players and traditional Pay-TVa proven distributor for a to-be proven new partner with volatileoperators will evolve. Although already comparable in terms ofaudience. In addition, OTT players are not typically in a financialsubscriber figures, OTT players are significantly out-spent byposition to outbid regular Pay-TV players. As a consequence, Pay-TV operators on overall content procurement (see Figure 4,international expansion of leading OTT video players, such asoverleaf). The latter are increasingly using their procurementNetflix and Hulu, and aspiring ones, such as Apple and Google, isclout in negotiations with main content rights owners to secureprogressing slowly due to the complex content rights preferential treatment and, increasingly, also exclusivity.procurement. Netflix is the undisputed leader ininternationalization, with its roots in the US, followed by a launch This pushes OTT video players into fierce competition forin Canada, then 43 markets in Latin America and the Caribbeanstreaming rights, putting upward pressure on prices in this(essentially one large rights geography), followed by the UK and a category. This also explains why Netflix and Hulu have started torumored launch in another large European geography this year.invest in original content (i.e. own produced content), gaining exclusivity of attractive content at lower cost. This trend shouldFigure 3: Release