There is no doubt that OTT video is growing at a rapid pace. Based on our 2015 ConsumerLab TV and Media study*, 80 percent of teenagers and 30 percent of 60 to 69 year olds who watch video watch streamed on demand TV and video at least once per day, and this trend will continue to accelerate. With much of the current discussion focused on the delivery of OTT via fixed and cable lines, another topic worthy of discussion is the impact OTT services might have on satellite capacity in the future. While demand for satellite capacity might diminish somewhat, it is likely not attributable to OTT.
The Need for Satellite in OTT
OTT content originates from somewhere, and that “somewhere” is more than likely a linear channel currently being distributed to operators over satellite. That is unlikely to change for the foreseeable future, because satellite is still the most cost-effective distribution method for content to thousands of points of reception at one time. It is true, of course, that for long-tail content watched by relatively few people, satellite is possibly not the most cost effective method of delivery, so it is likely that some channels will come off satellite and be solely distributed in an OTT fashion over broadband.
How likely is that to significantly impact the demand for satellite capacity in the future? Consider that when MPEG-2 compression first made an appearance, people started to talk about the death of satellites due to a decline in demand for capacity. What happened? More channels ended up launching, more than filling the capacity vacated by compression. This process repeated with MPEG-4, due to a sharp rise in the number of High Definition (HD) channels that launched in addition to Standard Definition (SD).
Today, more than 70 percent of the video channels on air globally are still transmitted in SD, giving rise to the very real likelihood that any capacity freed by channels leaving for OTT-only distribution will be quickly filled. Even with HEVC around the corner, between HD and 4K channels launching in the next several years (and don’t forget about 8K!), satellite demand is likely to continue.
The Challenge of Operator Consolidation
However, while the rise of OTT itself is unlikely to significantly reduce the need for satellite delivery of content, satellite operators are facing competition from some of the very customers they serve today. Large operators, who traditionally were the folks who installed thousands of receivers in individual headends to receive content, are consolidating. Architectures are moving from local to regional or even national headends where content is received once and onward distributed to every location being served.
To give themselves a competitive advantage, some operators are no longer receiving the top tier channels over satellite but rather are installing their own encoders at programmer locations and backhauling content at higher quality levels than can be achieved in limited satellite capacity. The trend, while not widespread today, is growing. It is unlikely to ever be cost effective to handle all channels in this manner, so satellite distribution will continue to be needed long into the future. Nevertheless, it is another sign that some decline in demand may prove inevitable.
Therefore, while there is no question OTT is increasing in popularity and will very likely continue to do so, in and of itself OTT content is unlikely to have a major impact on future satellite capacity demands. While some long-tail channels are likely to come off satellite in favor of cheaper OTT delivery only, the continued growth in HD and subsequently 4K will likely make up that shortfall. Instead, where satellite operators need to be wary is with continued consolidation both between operators and in the way their existing headend systems are architected. Moving from systems needing 10,000 receivers to systems only needing five to 10 receivers for the same job is likely to cause more channels to come off satellite and feed those locations more directly via OTT than satellite ever will. VS
*For the qualitative study for the Ericsson ConsumerLab report, researchers conducted 30 in-depth interviews in San Francisco, Mexico City, Paris and Stockholm. For the quantitative study, 20,000 online interviews (1,000 per country) took place for the 16 to 59 age range, with an additional 2,500 online interviews for the 60 to 69 age range, across: Brazil, Canada, China, Colombia, France, Germany, Greece, Ireland, Italy, Mexico, Portugal, Russia, Spain, South Korea, Sweden, Taiwan, Turkey, United Kingdom, Ukraine and United States.