The satellite broadcast industry is learning to deal with what is now the new “normal.” Over-the-Top (OTT) service adoption has skyrocketed over the last year. Consumers want to watch what they want, when they want. They want original and plentiful content and they want it at their convenience on the device of their choice. For linear pay-TV providers, this is a daunting prospect. Satellite pay-TV has always been a mainstay of the broadcast industry; it is a highly effective means of content delivery. However, the appeal of OTT is becoming very obvious as viewers start to question (and cut back on) their satellite pay-TV packages.
It is very evident that the entire broadcast market is undergoing huge change. A quick look at some statistics can back this up. In a recent report by Paywizard, the subscriber management specialist, OTT subscriptions doubled in 2016, driven by a rise in the amount of smart TVs purchased and an increase in content viewed on mobile devices and laptops. This increase has seen OTT becoming part of the mainstream due to these changing consumer habits.
So just what is so attractive about an OTT package and why are people turning to these services rather than simply sticking with their traditional pay-TV packages?
OTT is extremely convenient, immersive and tailored to the viewer in terms of content and advertising. It is entertainment that can be picked up and dropped when the user feels like it — there are no strings. OTT content is popular and often series-based, which means that viewers binge on a certain show and then go back to their traditional TV provider once they have finished a particular series. Due to this fact, there are very high churn rates and viewers will move from one OTT service provider to another due to different content choice, ease of subscription and ease of leaving the service. So the real challenge for OTT providers is how they go about reducing churn.
The habit of going to and leaving an OTT service plays into the hands of the pay-TV operator as viewers tend to have a long-term affair with linear TV, rather than a short-lived fling. “We can see that in some mature markets many cord cutters eventually are returning to their previous habits and go back to the classical pay-tv services,” says independent media consultant Dave Alpert, who formerly worked for U.S. broadcaster HBO. “It remains to be seen for the long run if the so-called ‘millennials’ will stick to multi-screen fragmented viewing, or if when getting older, will adopt their parent’s TV consumption habits.”
So, OTT means consumers are doing things differently. It varies greatly as to how people decide to watch their content. With more people “cutting” or “shaving” the pay-TV cord than ever, this is cause for concern for satellite pay-TV operators. Ooyala’s January report on the state of the broadcast industry found that 41 percent of adults in the United States are planning to cut the cord in the next year. However, many are not planning to do anything too drastic. There are so-called “cord cobblers” or “cord stackers:” people that build their own content packages across platforms and people that keep the traditional pay-TV packages, but combine them with streaming services.
However, it has to be said that lots of pay-TV subscribers feel that there is a lack of value in their platforms. How many of us have flicked through hundreds of TV channels only to say, “there’s nothing on”? Content is king, and original content is what OTT providers have in abundance. Satellite TV operators now need to revisit their offerings and ask themselves some serious questions.
The United States was an early adopter of OTT platforms, but outside of this region, it has been more muted. “To be honest the rise of OTT has been initially pretty slow outside the United States. The expectations from the consumers were there, but there were very few offers in Asia-Pacific two years ago,” explains Alexandre Muller, managing director of the Asia-Pacific (APAC) region for TV5Monde. “Things have changed in the past 12 to 16 months with a massive number of OTT offers. Adoption is good, but not as rapid as it could have been due to numerous constraints, including payment systems.”
The Asian market is interesting in terms of the dynamic between the OTT and satellite market. For a start, the Asian market is very fragmented in terms of the crucial requirement for OTT — a reliable broadband connection. Asia varies wildly in terms of infrastructure and in many regions, broadband is still is not available. In an emerging market like Asia, where terrestrial infrastructure is patchy, satellite TV distribution is still very much the staple. “[Satellite] is by far the fastest way to give access to communities, covering relatively large geographical areas,” says Alpert. “In many developing parts of the world it is the major means of TV broadcasting and content distribution for the coming years.”
Today, local OTT platforms are doing well in Asia, driven heavily by the demand for local content with players such as Hooq in Singapore, Viu in Hong Kong, and Iflix in Malaysia. Analysts and industry players envisage that these local OTT operators will eventually dominate the Asian market due to the hunger for tailored content.
“OTT companies have increased the competition for content, and their national footprints have shifted dialogue from common content licensing portfolios to a more unique and exclusive content focus,” says Sam Rosen, vice president of ABI Research. “The on-demand consumption model has altered consumer behavior, shifting to binge watching and moving consumers further away from schedule-based programming than DVRs ever could.”
According to ABI Research’s forecasts, OTT has played out very well. From a revenue perspective, the market has grown to be about 10 to 15 percent higher than the analyst firm’s forecasts from the 2012 timeframe. “North America and Asia-Pacific have been a bit more robust than expected, Europe on par, and Latin America and Middle East and Africa, while expected to be small, fell short of our overall expectations,” says Rosen.
We hear endless discussion in conference programs and industry events about the threat to satellite pay TV by non-linear TV services — “Diversify or die,” or “Change or else.” But is this really the case? Is satellite’s future being drastically threatened by the rise of OTT? Nobody can deny that OTT is competition, but surely it must depend on the attitude of the satellite broadcast industry as to whether they make this work or not. It is going to be down to pay-TV providers to take the right path and to turn what could be a significant challenge into a significant opportunity.
“I cannot talk on behalf of satellite operators, but for sure they are facing many challenges,” says Muller. “The fast deployment and more affordable and growing supply of fiber options, for instance, are definitely affecting the lead position of satellite. Some content providers are also moving away from satellite to favor OTT distribution.”
However, looking at Asia as a prime example, satellite still wins out in terms of its capability to provide coverage where fiber cannot reach or has not yet penetrated. “Nevertheless satellite still has a major role to play in the broadcast ecosystem, especially in APAC,” Muller continues. “In some markets Direct-to-Home (DTH) operators are even facing some lack of transponder capacity. The golden time of satellite might be over, but I believe there are still some good years ahead. Satellite still remains the best point-to-multi-point offer!”
Alpert agrees that OTT does not present an immediate threat due to satellite’s unique offering, which makes it a highly efficient means of broadcasting, but he is undecided about whether this shift toward the internet could represent a threat. “So far I haven't seen any impact on the satellite market and I don't see changes in this matter for several years to come,” he says. “I see a shift toward internet being further leveraged, as non-linear services are being combined with satellite in hybrid boxes to drive and balance the costs of distribution for telcos providing Internet Protocol Television (IPTV) services, who simply cannot give up all of their network capacity for TV services.”
OTT is here to stay. That is a fact — and now is the time for satellite service providers to make critical decisions about their future. This is an industry that has to think long-term and must embrace these changes in order to ensure that their businesses can adapt. Satellite broadcasters need to use OTT to adapt to the on-demand consumer world.
“Both DirecTV and Sky have driven broadband customers to connect their boxes in order to provide [Video on Demand] VOD services on top of [Digital Video r=Recorder] DVR capabilities to provide higher levels of interactivity, as well as collecting measurement data,” says Rosen. “AT&T’s acquisition of DirecTV shows that a national household reach to pay off large exclusive content licensing deals must adopt a network-agnostic distribution strategy, relying on a mix of technologies to reach every screen. Sky Deutschland, similarly, has distribution relationships with Vodafone and others.”
We have already highlighted the fact that satellite broadcasting holds clear benefits for large live audiences and this is one reason why sports rights are so important to satellite broadcasters. “There have been some interesting proof-of-concept trials of using satellite as part of a content delivery network. This may be one interesting technology developing over the next few years,” says Rosen.
Pay TV is evolving and, today, rather than being all about distribution, it must focus on the content. OTT is a clear driver of this transition. All operators, however, whether they are satellite or not, will need to redefine their business models and their approach to the market. There are distinct opportunities that come along with these changes.
“Many DTH players around the world are finding various ways to take benefit of those new opportunities,” says Muller. “Dish Network in the United States is now operating Sling TV, whereas BSkyB in the United Kingdom did find ways to monetize its sport and Premier League soccer rights to non-DTH subscribers thanks to OTT.”
Satellite pay-TV operators must retain existing customers, attract new ones, or combat OTT upstarts. “Every DTH operator has at least one good reason to take benefit of what OTT has to offer,” says Muller. “It is very likely that those who will not redefine their business models and/or approach to the market will be facing a massive churn in the near future.”
OTT will continue its march into new markets but Alpert believes that, in parallel, many of the smaller, local or regional services will rise (and eventually merge or close down). Many believe that the larger OTT operators will try to enter into more traditional major pay-TV niches and buy, or attempt to buy, major distribution rights for sports events and selected TV programming.
The OTT business model is also set to evolve and move away from purely advertising-based revenues. With online short-form video being used increasingly via social media platforms, there is an opportunity to migrate to a combination of advertising and subscription. “OTT purchases (pay per view) and rentals (together transactional VOD or TVOD) continue to make digital transitions, driven by early release windows and premium experiences,” says Sam Rosen. “Subscription services increasingly have niche audiences. Current Ultra-HD (4K) and High Dynamic Range (HDR) at the top end of the quality spectrum beg for downloadable models, but this faces challenges in a device-agnostic and on-demand world.”
Muller believes that everything comes back to monetization and that broadcasters can go down the Subscription Video on Demand (SVOD) or Advertising Video on Demand (AVOD) road, which is simply an extension of the cable and satellite business model. However, Muller believes that there are massive opportunities in terms of localization and interactions that are currently underused. “There are some solutions available on the market to maximize the revenues or give more relevance to the content provided to an individual,” comments Muller. “But as long as the traditional business models continue to bring enough cash back, no one will really start looking at it with different eyes.”
The future for satellite 10 or 20 years down the road is as yet unknown, but for the foreseeable future, the traditional pay-TV business appears to be safe. People still want linear TV. OTT very much has its place, but it has not replaced linear viewing, and many believe that it can never replace traditional TV viewing habits. Linear TV is something that people come back to. Once they have binged on their OTT services, they return to their traditional TV set in the living room. However, that should not give DTH operators cause to rest on their laurels because OTT is not going away and is only going to increasingly compete. Unless operators look at their business models and adapt, they will be hurt in the long term. By creating alliances and partnerships with OTT providers and playing to their strengths, satellite pay-TV providers can carve out a very positive future for themselves.
“Altered consumer behavior and decreased regulation has led to increased integration of satellite platforms with other methods of distribution, either via their own OTT distribution or via distribution agreements with cable or IPTV operators,” Rosen explains. “At the same time, satellite’s economical distribution works very well in emerging and low Average Revenue Per User (ARPU) markets, as well as with highest video quality levels. Interestingly, this means that satellite continues to be one of the best choices for the low and high end of the market, while ceding the mid-range to other providers.”
According to Rosen, satellite TV providers will need to focus on delivering premium services. Provision of original content that keeps viewers hooked is going to be absolutely essential, as will early release movie content in Ultra-HD and HDR via broadcast with set-top box storage.
Satellite TV providers and operators have much to consider. This is a critical point in their evolution and they will need to embrace the challenge to secure their long-term future. VS