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The UnTelco Concept in Video |
BACKGROUND |
ABI Research coined the "UnTelco" principle where both telcos and vendors break free from their established – but stagnant – connectivity-driven business and enter the B2B market, where they become enablers for several vertical markets. From the video standpoint, an UnTelco strategy is to offer Pay TV services that generally compete against OTT operators, compete in markets greater than existing footprints, or offer services in an unregulated environment to consumers.
From a competitive perspective, UnTelco video services should break out of legacy thinking around business model. Cable TV providers started with Pay TV offerings and moved into broadband. Traditional fixed-line telco’s have moved from voice services to voice plus data services. Most major have some IPTV services – these have been especially strong in France, but exist in most major markets, especially among the urban footprints with good fiber reach. Many markets, such as Belgium and the Netherlands, IPTV services have substantial market share. Satellite Pay TV operators in a few cases today offer rural broadband connectivity. Further, in North America market leader DIRECTV is now part of AT&T, offering truly converged services as well as the DIRECTV Now unbundled, OTT product. Sky in the UK offers broadband services (using the BT OpenReach network) while in parts of Western Europe (i.e. Germany) Sky offers its full programming package via cable and IP with some operators, in addition to the fully OTT Now TV service. Mobile-first telcos have generally not offered video services recently. We often use the term “service provider” or “operator” as an umbrella over all types of offerings. In this research, we use the term “telco” to align with the “UnTelco” concept. However, it can be applied equally well to cable operators focused on an all-IP migration.
OTT Video |
NEWS |
To understand the UnTelco video opportunity, one must first understand OTT video. The press is full of discussions of OTT video eating into Pay TV. OTT isn’t one unique business model, nor do OTT players sit within a single class of player. ABI Research publishes MD-OTMS, and will have upcoming research on the OTT ecosystem. However, it will be beneficial to briefly break down key elements of the OTT ecosystem here, before discussing opportunities for telcos.
From a business model standpoint, the major revenue streams for OTT video include:
From a business entity standpoint, OTT providers come from several business models or core competencies; the key ones include:
While subscription video on demand (SVOD) services such as Netflix, Amazon Instant Video, Hulu Premium, transactional VOD services (TVOD), such as iTunes, Vudu, Fandango Now, Google Play and Ad-supported VOD (AVOD), such as Hulu have existed for some time, the newest business models include Pay TV Light as well as broadcaster direct to consumer (B2C) offerings. (see related research: AN-2381)
Understanding OTT Video Operator Opportunities |
IMPACT |
With that lay of the land, then, the following are the most exciting opportunities for telco to capture in the OTT space are part of their UnTelco video strategy.
Early Successes and Problems |
COMMENTARY |
A few years ago, in evaluating the opportunity for OTT services, ABI Research concluded that the first services to market would attract the most attention among consumers, and have the best chances for success. There remains some truth in that, although we have seen that good content and willingness to invest in marketing are also critical factors in these services.
In both Europe and the United States, a number of services have already launched and are starting to reach scale. Netflix’s international rollout in 2016 accelerated the plans of many companies trying to put out regional services to compete. Of course, Netflix is struggling with regulators determined to give their own local video services political in a few geographies (Thailand, Russia, China and to a lesser extent even France).
Cannibalization of existing services clearly exists; in general, launching your own video service may accelerate this trend a little, but the benefits outweigh the costs of losing to other providers. Pricing in this early market is another problem. Consumer expectations are that OTT services are very inexpensive. However, this can’t justify content acquisition costs in some markets. In addition to aggressive promotional pricing, OTT operators have been aggressively increasing package pricing through removing lowest cost packages, shifting some channels into premium bundles, etc. In other cases, operators appear to be subsidizing the service with hopes that they prevent churn of other, profitable services (i.e. mobile plans).
Carriers also must carefully choose their launch strategy. Some partners offer turnkey platforms with very fast time to market, however, these may not have as much customization or flexibility is required. In the middle sit some platforms which have prototypes, but can be fully customized. Finally, some operators develop fully customized and integrated products. This has the longest lifecycle, but may best meet long-term needs for complex multi-market carriers.
All in all, however, its impossible to ignore video as a driver of the next phase of carrier monetization, and IP-based and OTT strategies are the way to go. Telcos must carefully look at their assets, business model, and competitive / media environment to craft an appropriate strategy for OTT video.