OTT in Asia: Feeling the Heat from Netflix

30 March 2016

In the run-up to last year’s Broadband and TV Content Asia conference, held in Singapore in May, BBC Worldwide’s Asian EVP, David Weiland, was asked: “What’s driving you to attend TV Connect Asia?” He replied, “What’s interesting about Asia is that, with the exception of China (which already has a lot of digital video platforms) the rest of Asia is now getting into OTT.”

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In the run-up to last year’s Broadband and TV Content Asia conference, held in Singapore in May, BBC Worldwide’s Asian EVP, David Weiland, was asked: “What’s driving you to attend TV Connect Asia?” He replied, “What’s interesting about Asia is that, with the exception of China (which already has a lot of digital video platforms) the rest of Asia is now getting into OTT.”

He continued: “Netflix is arriving this year, starting in Japan, and there’s been other new services launching. It feels like digital disruption is beginning to take off, certainly in those markets where broadband mobile speeds are fast enough to deliver video.”

The Netflix juggernaut’s seemingly unstoppable global process not surprisingly generates huge interest and stirs up the VOD market in every country it enters. Moreover, this year many markets will find out if the predictions about Netflix made by commentators in 2015 come true. On  January 6th at the CES Show in Las Vega Netflix CEO Reed Hastings announced that the company had switched on its services in 130 new countries. “The aggressive expansion includes major markets like India, South Korea, Turkey, and Poland,” Wired Magazine said. “According to Hastings Netflix is now available in nearly every country on Earth… [except] China.”

Australian OTT VOD subs to triple

OTT video certainly took off in Australia in 2015. Netflix’s entry into Australia coincided with the launch of two competing services: Presto, backed by TV broadcaster Seven in partnership with pay TV provider Foxtel; and Stan, backed by rival TV channel, Nine, and the Fairfax media group.

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This sudden increase in the number of OTT video on demand (VOD) services prompted consultancy Ovum to predict — in a report Australian OTT Video – Creating a New TV Market commissioned by nbn, the company building a national FTTX network — that there would be 4.7 million OTT streaming video on demand subs in Australia by 2019 – a 300 percent increase from 2014.

Ovum defines OTT video as that delivered over the open internet (i.e. where no organization controls end to-end delivery). It points out that this video can deliver great customer benefits, but it also creates tensions between different players in the value chain: tension that, it says have erupted into open conflict in some markets. In South Korea, for example, it led to Korea Telecom briefly blocking video services to Samsung smart TVs to relieve capacity problems in 2012, prompting intervention by the regulator.

China: Netflix’s final frontier

There’s no shortage of speculation about Netflix’s ‘final frontier’: China. Bloomberg reported in May 2015 that Netflix was in talks with Jack Ma-backed Wasu Media Holding Co. and other potential partners to enter China’s online video market. However, it faces considerable hurdles, as Wired reported in January this year, pointing out that Netflix is a content company trying to enter a country where the government heavily monitors what its citizens can see.

A week later Wired reported Netflix CEO Reed Hastings saying of the company’s plans to enter China, in a call with investors to discuss the company’s fourth quarter earnings, “We have a very long term look. It could be a many years discussion or it could happen faster than that,” Hastings said. “We’re going to take our time.”

Meanwhile, in November 2015 the Chinese State Administration of Press, Publication, Radio, Film and Television established new rules governing set-top boxes that included banning 81 third-party apps, Tech in Asia reported that some were very popular among Chinese TV consumers. They included Fengyun Live, a video streaming app that could broadcast content from Chinese TV stations, including news and sports channels; Ximalaya FM, a radio streaming app that allowed users to create their own stations and listen to hundreds of established ones; and Xiongmao Tingshu, an app for audiobooks.

In a further blow to Netflix, or any other overseas OTT player’s China ambitions, Forbes reported in June 2015 that Beijing’s municipally-owned cable TV monopoly has announced a partnership with Alibaba and two state-owned media companies to expand its Netflix-style video streaming service across China, saying: “The move puts the China ambitions of … Netflix in significant jeopardy.”

However where Netflix fears to tread, Disney is marching in. Rethink Technology Research reported in December 2015: “Despite failing in almost every attempt to go to market with a branded TV service, Disney is going for the big one, taking on China with a service it hasn’t even launched in the US yet. And it will partner e-commerce giant Alibaba to achieve it.”

It said that Disney would open its new OTT streaming service DisneyLife in China, just months after launching it in the UK, and would simultaneously enter the streaming dongle market. “Disney is ignoring all the basic tenants of the OTT market place,” the report said. “It wants you to just watch Disney programs on this particular dongle when all the successful device, even Apple TV, have had to open up to all the major OTT brands out there in order to be successful.”

HBO is also in China. TechCrunch reported in November 2014 that Tencent, China’s largest ISP, would become the official provider of HBO content through Tencent Video and would show a range of popular HBO programs including Game of Thrones, Rome, Band of Brothers, Boardwalk Empire, The Newsroom and True Detective.

Great potential for OTT VOD in Japan

Netflix launched in Japan in September 2015 with CEO Reed Hastings saying he expected the market to be the company’s slowest in terms of subscriber growth. However, he added, “It may be one of our best markets in the long-term because when the Japanese society embraces a brand, it’s a very deep connection, very long-term.”

Fierce OnlineVideo editor, Samantha Bookman also predicted that Netflix would succeed in Japan “First, Hastings and crew have studied the heck out of the last SVOD provider to try and crack the Japanese market: Hulu. The broadcaster-backed streaming service launched in Japan in 2011, but gained very little traction with the market. It ultimately sold off its unit to Nippon Television Network Corp. in 2014,” she said. “Further, Netflix is putting plenty of weight on catering to a different consumer culture.”

On the down side, there is plenty of competition in Japan. Bookman quotes Colin Dixon of nScreenMedia, saying that at least 10 major TV networks have launched SVOD platforms, including NHK On Demand, FujiTV On Demand and TBS On Demand, in addition to Bonobo, a joint venture between 29 content owners. Dixon also said that five Tokyo-based TV networks were due to launch ad-supported video on demand services in late 2015. However, he said that less than 20 percent of Japan’s 36 million broadband households subscribed to SVOD services.

Korean market in Flux

It’s a different story in Korea, where the idea of Netflix entering the market caused a fair degree of angst in 2015. Business Korea, in April 2015 under the headline “Will Netflix Dominate Domestic OTT Market?” said: “The pay broadcasting market at home is in disarray.  While some providers are examining the cooperative potential of Netflix, most of them are scrambling to come up with measures to strengthen media services in order to compete.”

The report quoted Kim Jin-seok, CEO of CJ Hellovision, operator of the hello tv VOD service, saying: “While the US OTT market has rapidly grown to outrun existing pay television, Korea’s market remains in the infant stage. Since the OTT service business has little entrance barrier, the domestic OTT market can be dominated by global enterprises like Netflix once they make inroads into Korea.”

In a paper presented to the Research Conference on Communication, Information and Internet Policy at the George Mason University in the US in September 2015, Business Strategies of Korean TV Players in the Age of Over-the-Top (OTT) Services  Euna Park, professor at the University of New Haven, said the Korean OTT market differed significantly from that in the US in that  domestic telecommunications service providers, terrestrial broadcasters, cable TV providers and IPTV providers had led by  OTT video services as part of their multi screen strategies.

“About six service providers have led the OTT content market, including traditional telecom service providers: (KT’s Olleh TV Mobile, SK BB’s Btv Mobile, and LG U’s U HDTV), terrestrial broadcasters (POOQ) and cable TV providers (TVing by CJ HelloVision and EveryonTV, a joint venture between Hyundai HCN and Pandora TV) (KT, 2014),” Park said.

OTT VOD in India will need mobile broadband

In India too, Netflix’s entry prompted scrutiny of the local OTT VOD market. Two days after Hastings’ announcement, India’s Television Post asked: “Will Netflix’s entry shake up the Indian OTT market?” It said, “A lot will depend on what kind of local content Netflix offers and at what price point. Then there are other challenges like low bandwidth, piracy and lack of digital payment options.”

Certainly, there is no shortage of appetite for content in India: the massive Bollywood movie industry is testament to that. It exceeds the annual output of Hollywood but reaches only a fraction of the potential audience. In 2013, in an article to mark the 100th anniversary of the Indian movie industry, IBTimes quoted one Bollywood director saying that, of the 1.2 billion population of India, movies should reach out to at least 300 million people — the size of India’s middle class —  but reached only 45 million. “If we figure out how to cover this gap, it will be a game-changer,” he said.

Bandwidth however is a big barrier. Terrestrial bandwidth is slow, and penetration low. Mobile broadband penetration, which is much greater, is prohibitively expensive for many Indians. As media industry blogger, Nitin Narang, bemoaned in 2014: “India’s online ecosystem remains devoid of needed infrastructure, broadband is in a sorry state (average speed less than 2Mbps), internet penetration remains low (less than 16 percent), online commerce is still nascent and regulatory delays are the order of day.”

According to an Ericsson ConsumerLab report of April 2015, 88 percent of Indian smartphone users found broadband too expensive, and “30 percent do not have the digital knowledge … and therefore do not perceive any value in subscribing to mobile broadband,” Ericsson reported. Among those that do use mobile broadband 70 percent stream videos, 40 percent stream music and 54 percent download videos

The IBTimes report was fairly bullish about the prospects. It quoted Sony Pictures Networks India EVP and Head of Digital Business, Uday Sodhi, predicting that the OTT market in India would see rapid growth. “The market is huge in terms of size. With smartphone penetration going up, bandwidth set to improve with the launch of 4G, and payment systems improving, the market is set to grow and there is room for everyone here,” he said.

The report predicted that existing OTT players would increase their investments and said there would soon be two new players. “Viacom18 will launch Voot and content production house Balaji Telefilms will get its OTT platform up and running under the Alt brand.”

However, price and penetration are not the only determinants of success in a market where video is viewed primarily on mobile devices: short form content tends to take preference over long form, the mainstay of Netflix’s business. As Viacom18 Digital Ventures COO Gaurav Gandhi, told IBTimes: “With telcos launching 4G services and broadband penetration increasing, the availability of price-rationalized infrastructure will happen in the near future. How Netflix adopts its strategy to account for this difference in the current data delivery mechanisms will be crucial to its impact in India.”

SOURCES:

http://www.wired.com/2016/01/netflix-just-launched-in-130-new-countries-like-this-morning/

http://www.nbnco.com.au/content/dam/nbnco2/documents/ott-video-in-australia-creating-a-new-market.pdf

http://www.wired.com/2016/01/netflix-may-never-break-into-china/

http://www.wired.com/2016/01/netflix-is-in-no-hurry-to-go-to-china/

http://www.forbes.com/sites/robcain/2015/06/16/announcement-of-chinas-netflix-may-be-the-death-blow-for-netflix-in-china/#644f95997deb

http://techcrunch.com/2014/11/25/tencent-becomes-hbos-exclusive-online-distributor-in-china/

http://www.businesskorea.co.kr/english/news/lifestyle/10318-foreign-media-power-will-netflix-dominate-domestic-ott-market#sthash.auOd7cIk.dpuf

http://tprc2015.sched.org/event/3vH8/business-strategies-of-korean-tv-players-in-the-age-of-over-the-top-ott-services#

http://www.televisionpost.com/special-reports/will-netflixs-entry-shake-up-the-indian-ott-market/ | TelevisionPost.com

http://www.ericsson.com/res/docs/2015/consumerlab/ericsson-consumerlab-the-changing-mobile-broadband-landscape-india.pdf

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