Over the Top and Pay TV Opportunities: How are operators and content providers working together to create innovative platforms? - By Loren ...

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 “cherry-
          picking” 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 on-
  demand 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-south-
africa.html
                                                     14

Conclusion
• The market is becoming more competitive for Multichoice, Platco
  Digital, with its OpenView HD platform and other pay-TV and video-
  on-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