The Battle for OTT Revenue Heats Up – And Wireless Operators Could Be on the Bleeding Edge

09 March 2015

Research RoundupAs potential customers and competitors await the official launch of HBO’s standalone, over-the-top (OTT) content service, industry analysts already are viewing the move as a game-changing (and potentially disruptive) strategic move.

The Biggest Takeaway: A perfect storm of competition and consumer pressure is driving a surge in over-the-top (OTT) content volumes – and that convergence is a game changer for wireless operators, as well as media and entertainment content owners.

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Research RoundupAs potential customers and competitors await the official launch of HBO’s standalone, over-the-top (OTT) content service, industry analysts already are viewing the move as a game-changing (and potentially disruptive) strategic move.

The Biggest Takeaway: A perfect storm of competition and consumer pressure is driving a surge in over-the-top (OTT) content volumes – and that convergence is a game changer for wireless operators, as well as media and entertainment content owners.

As the OTT market experiences dynamic growth, it poses a challenge and an opportunity for global telecom operators, who will need to differentiate their services with speed, density, flexibility and future-proof architectures.

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Media and entertainment companies are making huge investments in entertainment video transcoders and digital content workflows that will position them to deliver OTT multiscreen offerings at a price point comparable to traditional primary screen content.

Frost&SullivanThese OTT trends will also have a direct impact on technology investments. According to a recent Frost & Sullivan report, the video entertainment transcoder market earned revenues of $270.0 million in 2013 – and that figure will more than triple to $959.8 million by 2020.

Although on-premises products and services will continue to play a role, software- and platform-as-a-service for multi-screen workflows will gain faster traction due to their agility, scalability and convenience.

That’s why Frost & Sullivan analysts advised operators to implement direct carrier billing to retain a foothold in the lucrative mobile content space. They also need to enhance their analytics packages to monetize consumer ‘Big Data’, because if they fail to do so, mobile data delivery costs are on track to triple over the next three years.

Look for operators to invest heavily in Network Functionality Virtualization (NFV) because it helps operators realize cost savings and reduces time-to-market.

Consumer Interest in Broadband is Strong

Parks Associates LogoA survey from video research firm Park Associates last week revealed that 17 percent of U.S. broadband households are likely to subscribe to an over-the-top (OTT) video service from HBO . Among these likely subscribers, 91% are currently pay-TV subscribers, and roughly one-half would cancel their pay-tv service after subscribing to this HBO OTT service.

Park, which surveyed 10,000 U.S. broadband households in the fourth quarter of last year, discovered that an HBO OTT offering will create competitive challenges for all ecosystem players, including Netflix, Amazon, and pay-TV providers.

HBO, which announced its OTT plan last October, is far from alone: DISH Network announced its own OTT service, dubbed Sling TV, at the CES 2015 show earlier this month.

OTT Revenue in Emerging Markets will Triple by 2019

Pyramid Research LogoAccording to a recent report by Pyramid Research, paid OTT revenue in emerging markets will rise from $1.9 billion in 2014 to $6 billion by 2019. This surge comes at a time when mobile operators are beginning to transform their business models by introducing more innovative data pricing.

“With revenue per voice minute declining rapidly and growing 4G network availability, more and more operators are primarily focused on selling mobile data services worldwide,” said Ozgur Aytar, Research Director at Pyramid.

“Competitive pressures call for operators to take a dynamic approach to tariff plans, whereby they constantly revise pricing and introduce new schemes to gain market share and increase data usage among existing subscribers.”

Are Some OTT Models a Threat to Mobile Operators?

It makes sense that wireless operators would be concerned about the meteoric rise of certain OTT content delivery platforms. In a white paper released last October, UK-based Juniper Research said voice and messaging traffic lost to OTT services like Skype, WhatsApp and Facebook would reduce global network operators’ revenue by a whopping $14 billion by the end of 2014 .

Juniper ResearchJuniper analysts believe that the threat is greatest in some European markets like Spain, Italy and the UK, where operator mobile voice revenues already have fallen to less than 60% of their value five years’ ago.

The report, “Mobile Operator Business Models: Challenges, Opportunities & Strategies 2014-2019″, blames the combination of instant messaging, voice over Internet Protocol (VoIP) and social media substitution not only for the revenue hit, but for the higher costs that accompany such exponential growth in signaling traffic.

The news is not all bad – the Juniper report also identifies an array of new revenue streams with the potential to deliver cumulative revenues to operators in excess of $66 billion over the next five years.

The resulting revenues could more than offset the decline from core service revenues on an annual basis by 2018. “In areas such as M2M (Machine to Machine) and mobile money, operators can achieve a substantial revenue uplift by focusing on full service provision rather than simple connectivity”, said Dr. Windsor Holden, Juniper’s head of Consultancy & Forecasting.

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