The observations in Part I of this article, “Developing OTT for the Emerging Markets“, outline specific challenges to entertainment providers in developing markets. But the weakness in capital in the emerging markets is somewhat offset by the strength in being able to peer into the future, by observing what the USA is doing today. This helps local players to assess what will come to their market several years from now and essentially creates a leap-frog effect for ambitious companies wanting to adopt the latest OTT solutions. Rather than wait 4+ years to adopt the latest OTT solutions, they can implement a service today, in parallel to their American counterparts.
Figure iii – Average Bandwidth Forecast by Region
Much of the adoption curve across the globe is driven by the behavior of local subscribers, as well as the adoption curve of new technologies in these regions. Here are a few areas where emerging markets differ from developed markets:
- In the west, consumers are enticed by the introduction of 4K Ultra High Definition TV. But in developing markets, service providers just want to ensure that their standard definition content (SD @ 528 lines) is served to their consumers in the best quality possible. In some cases, an even lower resolution is offered, such as 288 lines or even 144 lines, requiring limited bandwidth transmissions and mobile devices (Figure iii).
- 2nd screen and TV everywhere continues to be a hot topic in the west. In many emerging markets the second screen is, in fact, their primary screen. Mobile devices in emerging markets are used as a primary screen for voice, messaging, video, music, content, news, and even banking.
- In some emerging markets the penetration of smartphone devices is relatively low. A device such as the iPhone is considered a luxury item. With some markets lacking a well-established middle class, the iPhone becomes the Prada of the mobile market, left to the top percentile of society. In the west, the iPhone is another high-end smartphone, but in developing markets the iPhone helps define one’s identity. This has allowed some of the lower cost Android manufacturers to gain market share.
- HTML5[ix] and responsive design[x] may be at the top of the agenda in web design, but the emerging markets’ focus on serving video content to a much wider range of feature phones does not support advanced web features. There are thousands of feature phones that have limited video capabilities. Smartphone penetration is low, although gaining market share rapidly, but there is a concerted effort to support video to a wider range of legacy devices.
- In the west, pay TV providers concern themselves with a growing number of cord cutters and cord shavers. In fact, some emerging markets have a large population of cord-nevers, where the market penetration of pay-TV is much lower (Figure iv). For example, the sub-Saharan region has less than 8% market penetration in pay-TV. Even though this market is expected to double by 2020, their market penetration still won’t come close to many developed countries[xi]. It is also possible that if a country misses the adoption curve of pay-TV, then they may prefer to use the Internet as their primary source of entertainment[xii]. This will further limit the penetration of pay-TV subscribers.
- The west obsesses about BIG data. Many clients in the west have several years of experience in OTT services, so their focus changes from “We need to make sure the service works”, to “How do we increase our average revenue per user (ARPU)?” Reaching this goal results in focusing on collecting, correlating and analyzing more and more data. Emerging markets, on the other hand, don’t yet have a BIG data frenzy. It’s about basic reporting on what the service provider is selling, who is consuming their content, and which devices are displaying their video. Reporting is seen as providing the basic data needed to measure the success of an OTT service. It’s not yet treated as a complex analytics engine that will generate a higher ARPU[xiii]. Emerging markets are still building their first OTT service, or just investigating its commercial viability. OTT v2.0 features like complex analytics and recommendation engines will come in due course.
Figure iv – Pay-TV Average Revenue Per User
(Bubble size represents the relative number of household with PayTV), Sources: iDate, Ofcom, & Wikipedia
Often conversations around entertainment and the Internet lead to, “trading analog dollars with digital pennies”, an analogy popularized by Jeff Zucker, head of NBC Universal[xv]. In the context of this discussion, however, a far closer truth would be broadcast dollars vs. OTT pennies. But in developing markets there are no dollars to be earned since their Average Revenue per User (ARPU) is a fraction of that in the west (Figure iv)[xvi]. On the other hand, OTT pennies can be generated by high subscriber volume since many developing regions have a sizable consumer market. The selling strategy in these regions is less about increasing ARPU and more about generating a subscriber footprint reflecting orders of magnitude higher than can be achieved in the west.Possibly the most challenging issue for emerging markets is the accessibility of premium western content. 90% of American premium content is owned by nine majors in the USA: Disney, Fox, Time Warner, Comcast/NBC Universal, CBS, Viacom, Discovery, Scripps and AMC. These companies spend over 45 billion US$ on this content per year according to Todd Juengerfrom Bernstein Research[xiv]. Service providers in developing markets simply don’t have the capital to purchase these libraries. At best they can afford a tiny fraction of titles for commercial availability to local subscribers. Plan B is to consolidate content from local studios and producers. This focuses their library of titles on entertainment from regional content owners and delivering culturally diverse content that is much more affordable.
As digital video continues to grow at a phenomenal rate, I’m inclined to believe that western companies are more educated about the cultural, political, and economic dynamics of international expansion. For the entertainment community, it may be the case of realizing that earning 100 pennies is far more practical than trying to generate every single dollar.
• Synopsis
In the digital era of the 21st century, ’emerging markets’ have evolved into what we now call ‘developing markets’. If companies in the west are considered the adults of the business world, then developing markets are still at the adolescent stage. A developing market at least acknowledges that the emerging markets have entered their next growth phase. As digital video and entertainment proliferates around the world, the tide is not rising for everyone at the same pace. Developing markets still have to overcome obstacles in adopting streaming solutions due to cultural, technological, and financial challenges. This article has taken a look at some of the differences between developed and developing markets in the adoption of Over the Top solutions (OTT) and digital streaming. By examining some of these, we can help them mature into healthy and robust teenagers.
• About Gabriel Dusil
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Gabriel Dusil was recently the Chief Marketing & Corporate Strategy Officer at Visual Unity Global, and a member of the core management team that successfully secured 7.2m US$ in series “A” funding for the company in 2014. Before joining Visual Unity, Gabriel was the VP of Sales & Marketing at Cognitive Security, and Director of Alliances at SecureWorks, responsible for partners in Europe, Middle East, and Africa (EMEA). Previously, Gabriel worked at VeriSign & Motorola in a combination of senior marketing & sales roles. Gabriel obtained a degree in Engineering Physics from McMaster University in Canada and has advanced knowledge in Online Video Solutions, Cloud Computing, Security as a Service (SaaS), Identity & Access Management (IAM), and Managed Security Services (MSS).
• Tags
?4K, Broadcast, Connected TV, Digital Rights, Digital Video, DRM, Gabriel Dusil, H.265, HEVC, Internet Piracy, Internet Video, Linear Broadcast, Linear TV, Multi-screen, Multiscreen, New Media, Online Video, Online Video Platform, OTT, Over the Top Content, OVP, Recommendation Engine, Search & Discovery, Search and Discovery, second screen, Smart TV, Social TV, TV Everywhere, Ultra HD, Ultra High Definition, Visual Unity, emerging markets, developing markets, developed markets, Digital Trends Video Opinions
• References
[i] Internet Traffic, Wikipedia, http://en.wikipedia.org/wiki/Internet_traffic & Cisco’s Visual Networking Index Forecast (’13)
[ii] Cisco, Visual Networking Index (VNI), http://www.cisco.com/c/en/us/solutions/service-provider/visual-networking-index-vni/index.html
[iii] YouTube, Wikipedia, http://en.wikipedia.org/wiki/Youtube
[iv] Skype, Wikipedia, http://en.wikipedia.org/wiki/Skype
[v] 50 million concurrent users online!, by Jean Mercier, http://skypenumerology.blogspot.cz/2013/01/50-million-concurrent-users-online.html
[vi] Blu-Ray, Wikipedia, http://en.wikipedia.org/wiki/Blu-ray
[vii] Apple iPhone, Wikipedia, http://en.wikipedia.org/wiki/IPhone
[viii] Sandvine – Global Internet Phenomena Report (1H ‘13)
[ix] HTML5, Wikipedia, http://en.wikipedia.org/wiki/HTML5
[x] Responsive Web Design, Wikipedia, http://en.wikipedia.org/wiki/Responsive_web_design
[xi] “Sub-Saharan Africa pay-TV numbers to double by 2020”, by Jim O’Neill, Ooyala VideoMind, http://videomind.ooyala.com/blog/sub-saharan-africa-pay-tv-numbers-double-2020
[xii] A similar trend occurred in the payment industry over the years. Markets that introduced a check-based payment system in the 80’s migrated to credit cards in the 90’s and then to debit cards in the 00’s. In the USA, where checks were introduced, that method of payment is still used to this day. But markets in Europe that missed the boat with checks flourished with credit cards. Emerging markets, on the other hand, missed the boat with credit cards and went straight to debit cards. Furthermore, many of the smaller emerging markets still remain a cash-based purchasing society.
[xiii] Average revenue per user, Wikipedia, http://en.wikipedia.org/wiki/Average_revenue_per_user
[xiv] “Pay-TV Prices Are at the Breaking Point — And They’re Only Going to Get Worse”, by Todd Spangler, Variety.com, http://variety.com/2013/biz/news/pay-tv-prices-are-at-the-breaking-point-and-theyre-only-going-to-get-worse-1200886691/
[xv] Trading Analog Dollars For Digital Pennies, by Zemanta, http://avc.com/2008/11/trading-analog/
[xvi] Consolidated figures for Wikipedia, http://en.wikipedia.org/wiki/List_of_countries_by_number_of_households, Ofcom, and iDate, http://stakeholders.ofcom.org.uk/market-data-research/market-data/communications-market-reports/cmr13/international/icmr-3.23
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