The speed and impact with which over-the-top subscription and on-demand video services have hit the market has been nothing short of astounding. A perfect storm of new technological developments, new entrants in the market, and new expectations from consumers is challenging existing go-to-market and traffic monetization assumptions. Service providers have a range of options on how to respond to these new developments. The only untenable option, however, is to stay with the status quo.
On-demand video is a truly global phenomenon, greatly supported by improvements in both fixed and mobile wide-area networks, as well as the rapid proliferation of high-quality consumer devices that can display premium content, which meets increasingly high expectations of consumers. Perhaps the most disruptive dimension of how video services have evolved revolves around the desire for consumers to control what they want to see, whenever they desire, on any given device. This places a high level of importance on the technical hand-off between the wide-area network and home Wi-Fi networks.
While this shift in demand is challenging the way satellite, cable, and telco service providers have monetized their offerings in recent years, opportunities do exist to create successful business models going forward. Indeed, recent analysis from Pyramid Research suggests that an increasing consumer appetite for on-demand video services present an opportunity for operators to complement their core portfolio of services and add new revenue streams. This especially true in markets where high-quality networks are prevalent. “European markets offer a favorable environment for OTT adoption due to high fixed and mobile broadband penetration rates, high proliferation of connected devices, greater volume of online video catalogs and increasing pay TV penetration, which will reach 73% of households in Central and Eastern Europe and 69% in Western Europe by 2020.”
Similar dynamics are at play in North America, where the adoption of alternative video services (e.g., streaming services) are on the rise. In Canada, for instance, J.D. Power analyst Adrian Chung reports that 49% of television customers indicate they have used such a service in the previous 12 months, compared with 42% in 2015. Meanwhile, in the United States, the number of households that stream subscription or on-demand video from over-the-top providers has risen to 57% in 2016, according to analysts from Leichtman Research Group.
Clearly, incumbent service providers have a challenge on their hands. However, they also have a tremendous opportunity. The broad array of service providers, along with the fact consumers want video services to be disseminated throughout their homes over Wi-Fi networks, introduces a level of complexity that most emerging providers are not in a position to address. Moreover, the explosive growth in bandwidth-intensive traffic does translate into more demand for broadband access.
To successfully address these technology megatrends, many service providers are already committing to upgrade their infrastructure so video content is delivered in a high quality manner, according to Luis Martinez-Amago, President of Technicolor Connected Home North America. He believes that managing this new paradigm will be a great opportunity for service providers.
“There are challenges in the network and challenges in the home”, Martinez-Amago said. “In homes, for example, there is Wi-Fi, which is one of the pillars in how the content gets to the device. Wi-Fi is being stretched and has to perform in order to provide the experience that the user is expecting. That’s one aspect.”
The other aspect is the experience itself. “We have moved from a passive audience or a culture in which the video is shown to us, to an environment that is much more interactive,” Martinez-Amago explained. “All of this offers and opportunity for service providers to develop infrastructure and the software to support this changing consumption model in a profitable manner.”