Netflix is now a worldwide brand and a disruptor in pay-TV. But will we see Over-the-Top (OTT) disruptors in Asia? If the answer is “yes,” will this ultimately impact the amount of satellite capacity that DTH operators will buy going forward?

Discovery Communications is one of the most globally recognized broadcasters and uniquely positioned to talk about the changing pay-TV environment in Asia. Winradit Kolasastraseni, senior vice president of innovation at Discovery Networks Asia Pacific, told Via Satellite that when you compare satellite and OTT across Asia, that “the numbers don’t lie.” He concedes that if you compare the revenues between OTT and satellite, there is still a long way to go. He says you are seeing a lot more players dropping subscription-based services on satellite for an OTT package model like Netflix.

“I think short-term it’s not much of a threat, but mid to long-term, it is a huge threat,” he adds. “I see Asia has two to three different clusters, where in the more advanced markets like Japan, things might go a lot quicker than people anticipate. In a market like Thailand, it could also happen rapidly, as infrastructure is already reasonably good. In India, it will take a lot longer as there is still one TV per household, but I do foresee this happening,” Kolasastraseni says

Another broadcaster monitoring developments in Asia is the BBC, the United Kingdom’s largest public service broadcaster. David Weiland, executive vice president of the Asia region for BBC Worldwide, believes that the business models for cable and satellite operators “will need to change.” He says consumers no longer want hundreds of linear TV channels that they don’t watch.

“I think one thing that the pay-TV industry needs to embrace, particularly when they talk to partners like us, is traditionally they have been very happy for us to curate and create branded channels to fit on their platform. But in the digital space, that is something they have felt they can do themselves. You often have very deep, uncurated digital services offered by those platforms. I think we are moving to a space where they should look to content companies to create digital services for them, but you still access it through your pay-TV bundle,” he says.

The BBC is changing its approach to reflect this different user behavior. In Singapore and Malaysia a few months ago, the broadcaster launched a service called BBC Player, which is a Streaming Video-on-Demand (SVOD) service. The BBC launched the service with its pay-TV partners, so in Singapore it is with StarHub and in Malaysia with HyppTV. This gives people access to a wide range of up-to-date BBC content that they can stream and watch on-demand on any device. The service also allows users to download and keep the content for 30 days. The BBC is preparing to have branded and curated BBC digital services alongside its linear channels.

Unmish Parthasarathi, global head of digital sales at the International Cricket Council, comes at it from a unique perspective, given the importance of cricket content, particularly in India. He says from a demand side perspective, OTT in Asia “will explode” over the next three years given the smartphone penetration and the more than a dozen 4G licenses issued in the last year or two. Parthasarathi says from the supply side, there will be two trends: increased delayed or secondary window sales of mainstream content, and a more buoyant niche content distribution. He believes the optimal OTT approach of TV channels and platforms doesn't have to be the same.

“The former [TV channels are] more about second screen, catch up and TV everywhere. For platforms, the opportunity is about enhanced content discovery to activate a larger share of wallet through higher data consumption or e-commerce,” Parthasarathi says.

When asked to define the threat to satellite players, Parthasarathi says the threat is considerable and growing. He also says it is unlikely to be mitigated by anything satellite can counter offer on current evidence.

The New Players

Kolasastraseni says India is the most vibrant OTT market in Asia because companies like Star are introducing services into the market (i.e. Hotstar) with cricket as their de-facto content, which makes the whole migration much more inorganic. “Beyond cricket, at the moment, nothing really sticks in India. I think everybody in India is going to go OTT. There will be definitely consolidation across OTT in India,” he adds.

Outside of India, Kolasastraseni thinks the iflix model in Malaysia is quite interesting as they are trying to undercut Netflix on price. So, while they are following the Netflix model they’re trying to be twice as cheap and trying to go much more local. It is a very interesting move doing a $3 play across a number of markets, which is a pretty unique proposition, according to Kolasastraseni.

So, who are these new players? Weiland highlights local providers such as Viu, a player that specializes in Korean dramas, which are focusing on local content he says “is proving very popular.” Like Kolasastraseni, Weiland also highlights iflix, which he says is concentrating on emerging markets rather than established ones. “They launched in Malaysia, Thailand, Indonesia, etc. They have a slightly different business model. They are now starting to go into markets like Sri Lanka, Myanmar, Pakistan which are not as well served as others,” he says.

When looking at the different country markets across Asia, Weiland says a market like China is dominated by local OTT services for younger audiences. He says, similarly, Japan, South Korea, Taiwan, and to lesser extent Singapore and Hong Kong, where there is superfast broadband, are “perfect” markets for streaming video. “You have emerging Asia, where that infrastructure is not there. In India, the linear channel is very healthy. Places like the Philippines, Thailand, and Indonesia, you also have those markets emerging. So, there are lots of different speeds; there are lots of players. When you break it down, there are big local incumbents like Tencent, Yuoku, SK Broadband, and then you have the global players like Neflix and Amazon. You have got Viu, iflix. It is a really interesting ecosystem,” he adds.

Aravind Venugopal, vice president of Media Partners Asia, writes research on the pay-TV markets in Asia and has his own perspective on the different dynamics across the markets, as well as the impact of OTT.

Venugopal describes OTT as “becoming a crowded space” right now. He highlights potentially one huge difference between the United States and Asia is the affordability of pay-TV. While Netflix has been able to get a fair amount of traction because of the high TV prices in the United States, in Asia, this simply isn’t possible. Venugopal says in most markets in Southeast Asia, even if you include more developed markets such as South Korea, Hong Kong, and Taiwan, pay-TV prices are affordable.

When looking at the market, Venugopal says over the last two years a number of players have launched into this market, but unlike the United States, where Netflix has targeted homes, in Asia, they are targeting individual users. “They are building partnerships with telcos either through the fixed broadband pipe or via mobile. As broadband becomes commoditized, and as 4G services launch for the first time in some of these markets, the telcos are keen to add more video services. Telcos like Indosat in Indonesia, or Globe in the Philippines are differentiating their pipes using video services, and bundling them with mobile and fixed broadband services,” he says. “What they are hoping is that this convinces consumers to stick around longer term. They also get incremental Average Return Per User (ARP)U on the back of customers upgrading to higher tier plans, which include more data. But as a replacement for pay-TV, we’re still some time away from that in most markets.”

Venugopal thinks OTT is the next phase of the pay-TV industry in Asia. He looks to history to make his point. He says if you look back five to seven years, every telco that stepped into the IPTV business, with the exception of a few in South Korea, Japan, Hong Kong and Singapore, struggled to build a successful IPTV platform. He highlighted there were a number of understandable reasons for this. “For example, many telcos really didn’t understand content — [how] to buy it, make it or market it. Secondly, they didn’t understand the technology requirements. The networks were also slow, and oftentimes the channel change time was slow. It didn’t compare well to satellite and cable. A lot of the IPTV operators decided to step away from the pay-TV business as they got their fingers burned. Content costs were going through the roof and they could not afford it. But with OTT, telcos are getting a new lease of life in the video space. They would rather do deals with one or two OTT players like an Iflix or Viu rather than with over 20 broadcasters, all with minimum guarantees,” he says.

Learning Lessons

Telcos are seemingly learning the lessons from what went wrong before. According to Venugopal, the biggest challenge online video platforms face today is the limited penetration of credit and debit cards. He highlights the fact that in Southeast Asia, credit card penetration is well below 10 percent. “One of the only ways you can get some of these consumers to pay for online services is by going through the telco. In the early days of Value-Added Services (VAS), telcos used to take 50 to 70 percent of the revenue. But now telcos have a much greater understanding of the economics of the video business, and they also realize that those models aren’t sustainable longer term. They now charge around 20 to 25 percent of the monthly subscription fee. For the OTT providers, it’s a good deal as they are getting access to the telcos’ customer base, but crucially, they are getting access to the telcos’ billing platform. That is a key cog in the wheel that did not exist a few years ago,” he says.

In a rather ominous tone, Venugopal says DTH players “should definitely be worried.” He comments, “They should be very worried in markets where fixed broadband networks are ramping up. In markets like Indonesia and the Philippines, where there are a lot of islands, fixed broadband is going to take time to get to some of those areas. This gives DTH players, and even one way cable operators, some time to build their online video strategies. But even in those markets, if these operators are targeting the urban elite or the ‘A, B, C’ demographics, they will need to have your own ‘TV Everywhere’ service or OTT strategy in the next year or two, or they will face significant challenges in retaining subscribers.”

“DTH and cable platforms provide a one-way linear TV service in most of these markets. We don’t think linear TV is dead in these markets, but we do think there is an issue with user experience. Customers were OK getting a set-top box a couple of years ago, but as smart phone penetration goes up, customers are realizing that there are better user interfaces out there than their existing pay-TV platforms. So that is the challenge," he adds.

What Next?

What is clear is that the satellite pay-TV industry faces a fight to remain relevant in the region going forward. Kolasastraseni says with the exception of India, the pay-TV markets in Asia are declining. He believes on the pay-TV side is up for grabs. “No one has really cracked that. I don’t think the Netflix model will necessarily work in Asia because when people ask me why it works well in Europe or the United States, I think the economics work really well. In India, pay-TV on average is $10 a month. But what is interesting for me is the middle ground between the advertising model and the subscription model, which I think is a much bigger market for Asia. I don’t think anyone has really figured out that market yet. Most broadcasters and players are looking to play in that space,” he says.

Weiland says smart operators are now moving towards offering both linear TV alongside on-demand services. “We have seen such an interesting engagement in our BBC Player because it provides both of that, but within the pay-TV environment. What consumers want is great content and the ability to watch it in the way they want to watch it, and on services that work and are simple to use. Nobody wants to have 15 to 20 payment relationships with different suppliers. We are evolving into this world where most services will be on one bill,” he says.

BSkyB Going OTT in U.K. – Something Similar in Asia?

Earlier this year, BSkyB announced in the United Kingdom that it would launch a new service in 2018 where consumers could get its pay-TV services without the need for a satellite dish. While the service could be seen as complementary to satellite, could it also lead to more an OTT approach on its behalf going forward? Also, could we see something similar happening in Asia? Kolasastraseni says, “I am very confident we will see a lot more of this happening including in Asia. Having talked to our partners across the region, I think this is something they are looking into doing anyway. It doesn’t have a lot of a short-term impact, but it will definitely have an impact in the mid to long-term. Broadcast and pay-TV is a two-pronged revenue model, advertising and subscription. Your advertising model but subscription revenue will be felt.”

Parthasarathi adds, “BSkyB is making some major changes to the way it works to best manage the sports rights cost incurred in the last English Premier League renewal. Offering a non-satellite version traces back to 4G licensees and a far deeper smart phone device strategy. Sky Go, a few years ago now, was a function of having fixed line connectivity so it's a tactical not strategic response, at the moment, to a rapidly maturing technical infrastructure.”

Weiland says BSkyB Sky has been at the forefront of innovation, and Asia will start to see some similar type initiatives. “Our partnerships with Telekom Malaysia and StarHub are evidence of this. They have a good relationship with consumers. They recognize people do want digital services, and they are working with content creators like us on improving these services. It is often about the end user. Pay-TV operators need to innovate to keep their consumers,” he says. VS