Over the Top and Pay TV Opportunities: How are operators and content providers working together to create innovative platforms? By Loren Braithwaite-Kabosha CEO: South African Communications Forum
Disruptive Innovation: Innovator s Dilemma Clayton Christensen, Harvard Professor, observed how big very successful companies sustain their successes for long periods, and then fail with all their significant resources, when new smaller disruptive innovators think of better ways to compete with them on their own turf. Christensen described this age-old phenomena in theoretical terms: the dilemma of sustaining successful business models against an onslaught of numerous creative minnows that eat away at those successful businesses and create new markets.. The Global ICT Industry is particularly prone to disruptive innovators they are the drivers of the industry s growth: All ICT industries should take note: Successful disruptive innovators become large, develop deep pockets, high profits, processes that keep their customers happy, and corporate cultures aimed at sustaining these advantages; These sustaining processes soon become so entrenched that even if they are aware of minnows eating away at their businesses, usually from the bottom less attractive market segments, they find it difficult to change; Some disruptive minnows grow up and replace them the cycle continues. 2
A quick review of OTT and its impacts OTT Services are here to stay, and to grow: they will be disruptive: Operators must develop effective responses and strategies 3
Impact of OTT on traditional broadcasters 1. Traditional broadcasters are less prone to revenue losses by OTT services where broadband infrastructure remains under-developed: Traditional broadcasters control all content on their chosen transport paths; OTT services do not use traditional broadcast networks. 2. In countries where broadband infrastructure is reasonably well developed, OTT services can become a threat to broadcaster revenues: Alternative content access via broadband networks and smart TVs or PCs. 3. In the context of South Africa, with less than 5% penetration of fixed broadband, OTT remains a future threat to broadcasters in general, however.. One major broadcaster in South Africa perceives the opportunity for alternative content delivery set up a broadband subsidiary in readiness; Traditional telecommunications companies have identified new business opportunities and are building broadband infrastructure specifically to compete with broadcasters for content delivery some in carefully selected cherrypicking pilot areas. Fibre to the Home services enabling competitive content delivery with prices ranging from R570 for 100GB to R2899 for uncapped at 100Mbps Convergence, a key topic under consideration in South Africa, will become a game changer for broadcasters: They should begin the development of competitive processes that will ensure their sustainability, with or without OTT. 4
SA Internet Access Market According to PwC Annual Report on Entertainment and Media Outlook 2014 2018: Internet Access in South Africa will generate more consumer spend than any other media product or service in the next five years SA s Internet Access market is dominated by the mobile platform 72% of SA s mobile phone users by the end of 2018 will be mobile Internet users (35.2 million people) A growing number of South Africans are able to be connected through mobile Internet connections including WiFi. It is expected that by the end of 2018 there will be an estimated 53.7 million HSPA subscriptions in SA. 3G and 3.5G will drive Internet Growth as legacy GSM is phased out. Globally, mobile will generate 60% of every dollar spent on Internet Access by 2018. Increasing affordability of mobile broadband devices will contribute to the growth of the internet market. 5
SA Internet Access Market continued Factors impacting Internet Access Market High LTE roll out costs and other challenges with delays in 700MHz and 800MHz digital dividend spectrum limit high speed network expansion Delays in assigning high demand spectrum Relatively high data prices limiting consumer s ability to engage with OTT services In recent years data revenues have been subsidizing the losses in voice revenues BUT data prices are also dropping due to competitive environment. Regulatory Challenges Self regulation and globally fragmented structure afford OTTs a competitive advantage over telecommunications operators Unregulated mergers and acquisitions for OTTs compared to licensed operators that undergo competition reviews Telecommunications operators are subject to network coverage obligations, spectrum fees and quality of service regulations which OTT players are not. OTTs do not comply to privacy and protection regulations nor do they comply with switching and data portability requirements 6
How do/must operators respond? 1. Ban or strongly regulate: A few countries, mostly developing, have shielded their operators through national regulations (e.g. China, Middle East). No outright bans, but breathing room for operators to react; 2. Link OTT to Net Neutrality issues: a. FCC linked OTT to net neutrality debates: a level playing field where consumers can make their own choices about what applications and services to use, and where consumers are free to decide what content they want to access, create, or share with others. b. EU Committed to an Open Internet and Net Neutrality: Customer empowered to choose; c. Latin America and the Caribbean: First line of defence is bundling strategies offer bundled services that compete with OTT services as part of broadband services. This approach limited by poor broadband infrastructure. 3. Another defence is compete directly producing proprietary OTT costly 4. If you can t beat them, join them: The majority developed operator and regulator views are that regulatory interventions are unlikely to be effective, nor are they desirable. Best approach is to let the market determine operator responses. 7
Innovative Partnerships by Broadcasters SA Broadcasters approach: If you cant beat them, join them. South African Broadcasters are in a variety of discussions with content producers/ distributers to partner in offering OTT services Accessibility of local content and top international content will be key drivers in success of broadcaster digital platforms Brief summary of some applications of this model in South Africa follows. 8
OTT Innovations in South Africa Telkom identified media partners to complement VDSL and FTTH roll out. Demand for video services and streaming drives adoption of high-speed Broadband. Telkom position as pipe and portal player vs media house. Talks with Netflix failed to materialize due to content distribution restrictions. Telkom partnered with DSTV (Naspers) to offer ondemand services 9
OTT Innovations in South Africa Vodafone UK offer 6 month Netflix subscription with 4G service Netflix subscription can be used on xdsl connection Vodacom SA pursuing similar deal with Netflix (once available in SA) Vodacom currently offering zero-rated data streaming on DSTV mobile product 10
OTT Innovations in South Africa MTN in partnership with Frontrow International Offering Subscription Video on Demand (SVoD) at R179 per month 2 Tier film rental structure from R15 to R27 11
OTT Innovations in South Africa Altech Node Video on Demand and Home Automation services Pushes encrypted content to a STB via Satellite connection 12
OTT Innovation in South Africa Times Media Group owned video streaming service Offers television and film content on demand for R149 a month. Latest blockbusters rented for R15 to R27 13
In Summary Source: mybroadband.co.zahttp://mybroadband.co.za/news/intern et/116606-netflix-vs-frontrow-vs-vidi-vs-node-in-southafrica.html 14
Conclusion The market is becoming more competitive for Multichoice, Platco Digital, with its OpenView HD platform and other pay-tv and videoon-demand operators. A range of operators looking at launching OTT / on demand offerings. The launch of OTT and other services such as Netflix in South Africa is likely to stimulate competition in the local pay TV market OTT players are producing original content as part of competitive strategy. This represents a significant threat to obtaining exclusive broadcasting rights to top international TV shows through deals with international distributors. Who owns sports holds the trump card in South Africa New entrants (Siyaya and others conditionally granted pay TV licenses) need to consider establishing IP platforms in their offering to effectively compete. Linear channel content will still be key for on demand platforms in drawing audiences. 15
Loren Braithwaite-Kabosha loren@sacomforum.org.za www.sacomforum.org.za 17 February 2015