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The Age of Disruption: OTT Players Take Aim at DTH

The rise of Netflix in the United States could be a sign of things to come, putting more pressure on DTH to maintain and grow marketshare. But it’s not only in the United States where this threat is growing. In Asia, which has been a DTH Wild West in recent years, the growth in DTH subscriptions has been nothing short of phenomenal. Is all that about to change?

The aptly named iflix is part of the new generation of Over-the-Top (OTT) players trying to take marketshare and build a promising OTT business in Asia. David Goldstein, Chief Commercial Officer (CCO) at iflix, says the overall OTT industry is a threat to the established pay-TV industry. “If people want live action sports and lots of linear channels, they will want traditional pay-TV. Satellite operators do provide the best means of consuming a particular type of content. However, the threat comes with how fairly easy it is to launch an OTT operation,” he says. “Hence, various niche OTT players can emerge — which when combined together, can meet the needs of an individual and then pose a problem for the traditional pay-TV player. I think you will see live sports on OTT emerge, for example. People will be able to get all the programing they want, but it won’t be via a single OTT player — rather a combination of them.”

Goldstein describes iflix as “a huge disruptor” given that it aims to fundamentally change how people consume video. “We are a part of that disruption. We want to be a leader in that disruption. That disruption is going to happen no matter what, and we just want to have our fair share in the OTT space,” he adds.

But what will happen in traditionally strong DTH markets in the region? An interesting case study is Indonesia, which is almost the perfect prototype market for DTH. It has a large dispersed population and low pay-TV penetration, as well an emerging middle class population. Goldstein believes Indonesia represents a huge opportunity for the company, as despite the success of DTH, household penetration of pay-TV is 10 percent at best. “So although they have a number of players, they actually haven’t been very successful in penetrating the market,” he says.

Iflix is in 10 countries across Asia, and Goldstein sees all of them as having “unique opportunities.” He says the company is “especially excited by Myanmar, Pakistan and Vietnam,” having recently launched in these markets where pay-TV penetration is very low. He believes once people understand the OTT offering, the demand is massive. Iflix is also in Malaysia where there is an established pay-TV industry. It has partnerships with various mobile operators, including Telekom Malaysia (TM). “There is a different type of growth potential there as there is a slower shift from the old to the new, yet we are already serving over half a million customers in Malaysia. In terms of growth and hours watched, we have our fair share of the overall industry, and we see a lot more potential going forward. Malaysians are rapidly shifting to OTT because the traditional pay-TV industry is addressing the household and not everyone has a satellite dish,” Goldstein says.

In terms of consumer behavior, iflix’s peak usage time is very different from the traditional pay-TV operator. It is much later at night. Its customers peak usage time is just before they go to sleep.

However, similar to Netflix, it isn’t just content to be a regional player in Asia, and iflix could bring its content to other markets where there is also a strong DTH presence. The company has pursued partnerships with telcos in virtually all of the territories where it operates. Through these partnerships, it aims to make it very easy for customers to get iflix by making the experience seamless and simple to use. “We are focused on emerging markets, and we get to the market in partnership with mobile as well as fixed line operators. We have just launched in the Middle East with our partner Zain. We are also planning a launch in Africa with another telco partner. Our addressable population is going to up incredibly in the coming months, and our aspiration is to entertain a billion people in emerging markets,” says Goldstein.

Broadcasters

While iflix is a new player, established broadcast brands are also looking more and more at OTT as they seek better engagement with their audiences. Lam Swee Kim is the chief marketing officer at Star Online, one of the region’s biggest broadcasters. Lam sees OTT as having “huge potential” for a company such as Star. She says Star is going into the OTT business as part of the group’s digital strategy to expand the subscription audience. Its intention is to grow its audience by providing the best Asian content.

“We feel there is a gap in the market for an OTT player that can purely provide Asian content. We have only launched in Malaysia and Brunei so far. We don’t have the legacy of a broadcaster and there is no cannibalization of our audience. However, bidding for good content remains a challenge because the established broadcaster will have higher purchasing power,” Lam adds. “It is a very tough market to monetize, because for example, there are issues of piracy. There is a public perception that content is always ‘free’ when you go online. We have to change that mindset. There is an education element to what we are doing. The business model for us will be subscription based.”

When assessing the competitive threat of OTT to DTH and cable in Asia and beyond, Lam echoes Goldstein’s point by saying OTT is already a significant competitive threat to cable and satellite. She says you only have to look at Netflix in the United States and the fact they are already doing original, high-quality productions. But what does this mean to Asia?

“Even though it is a couple of years behind, Asia is known to catch up very fast, particularly in the areas of developing technologies or even getting people to sample it. When you look at the moves to digital across the world over the last 10 years, when it comes to Asia, it usually takes half the time. With China, it is even shorter. China has seen enormous growth in terms of OTT. The market for pay-TV based on satellite is still sizeable. The only thing that OTT brings to the table is the flexibility to have on-demand services and also probably a lower entry price to access content,” Lam says.

Asia has a number of different country markets, which have different dynamics in themselves. Lam says China has had by far the biggest movement toward OTT the last few years. But other markets are also ripe for growth. “If you look at markets like Indonesia and the Philippines, the local content is very, very good. You can’t ignore it. Markets such as Singapore, Malaysia and Vietnam, I would say people are more receptive to international content. They are more open. In Thailand, there is still strong demand for local content also. But when you look at the OTT industry, it is definitely growing across markets where the demand for international, including Asian, content is strong,” Lam adds.

Lam believes most OTT players will start with syndicated content to penetrate the market, but says that original content will be key to their success. “It has taken years for satellite players to build these types of content so the OTT players are trying to catch up. The dynamics will change. We have simulcast, for example, from the country of origin, like Japan, Taiwan, China and we get exclusive titles. It gives consumers the value that they are paying for and we work closely with telco partners who help us with distribution. In the digital world, we are more open to working with different players,” she says.

Message is Clear

The OTT industry is here to stay and players such as iflix and Star aim to play a full part in this market. Goldstein believes OTT will emerge strong in certain countries where the infrastructure and pieces of connectivity to make OTT viable are present. “The markets where OTT can emerge the strongest is where there is not a large incumbent pay-TV industry. Customers are ready to leapfrog and embrace new ways of consuming video entertainment,” he says.

Aravind Venugopal, vice president of Media Partners Asia, says the OTT industry has done a good job in taking the market to the next stage beyond just YouTube. “The market is going towards OTT. When we started doing our research on the online video market a few years ago, we saw that online video was equal to YouTube. That was pretty much it. The consumption on other platforms was extremely limited. This has changed over the last three years because of education. Telcos and OTT players have gone around educating the market. So, this is not just TV on your phone, but TV on whatever device you want. They have drilled that point into consumers’ minds,” he says.

In terms of how he sees the Asian pay-TV market developing, Venugopal believes that over the next five years, Asia will in essence split into two different markets: developed Asia and developing Asia. Developed Asia will include Malaysia, China, Taiwan, Singapore, Japan and South Korea and other parts of North Asia. The developed part will be other parts of South East Asia.

“In developed Asia, pay-TV is already mature. Some of these customers are moving towards online video platforms. In certain other markets, customers are moving towards pirated services, so they are going toward Android STBs, where they are still getting access to linear TV services. In Singapore, it is very easy to pick up an Android Set-Top Box (STB) for SG$200 ($146). But, you get access to all HBO channels for example and other channels all across the world. They are churning to cheaper alternatives. So, the availability of Android Boxes is a big issue. That is going to spread as fixed broadband penetration improves. Having said that, we are still seeing pay-TV services grow in emerging Asia. Pay-TV subscriptions will continue to grow over the next five years or so. So, the growth is coming from operators that have TV as well as broadband. Broadband is pushing video services into the home.” VS