Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
In the past three to four years, over-the-top video has grown as an alternative to established pay-TV platforms in many emerging markets. As a result of improving broadband infrastructure and growing demand for video content on second-screens, a plethora of OTT video services have appeared such as Clarovideo in Latin America, ivi.ru in Russia and Icflix in the Middle East. According to Pyramid Research 2014 predictions, OTT pure plays will expand their customer base over 2013 at rates between 20% and 50% in the most established markets, and between 60% and 100% in emerging markets.
New OTT services will also be launched by pay-TV operators and telecom operators, and new ventures will not be confined to developed markets. The success of Sky’s Now TV by Sky in the United Kingdom has shown the potential of OTT to penetrate new segments in a mature pay-TV market. In the same way, Telefonica’s launch in Brazil and Argentina of Play, the operator’s OTT service fully integrated in the multi-technology Global Video Platform, shows the potential, or at the very least the trust, that established operators are putting into OTT platforms in emerging markets.
With consumers still not quite accustomed to pay for video streaming, the revenue opportunity will be initially limited. Nonetheless it is important to tap into the OTT market now to expand pay-TV penetration into new lower-income households, and drive the monetization of multi-screen. Investors and vendors should look at emerging market hot spots for expansion.
Netflix international expansion points to the Middle East, South Africa
In its third-quarter 2013 report, Netflix announced that net additions from its international markets in Europe, Canada and Latin America had surpassed net additions in the United States. In the long run, the Los Gatos, Calif.-based company expects this trend to sustain, offsetting the slowing growth in the United States. International markets should drive 70% to 80% of revenue in the future. Netflix also announced its intention to expand into new territories in 2014, with several emerging markets in its radar. While initially the international expansion will interest Western Europe, Netflix will continue going after a mix of developed and developing markets for expansion in an effort to mitigate risks.
Africa and Middle East markets such as Turkey and the United Arab Emirates, could represent for Netflix a good opportunity, given the relatively high level of broadband penetration and purchasing power of the population. South Africa could also become a new territory because of the improving broadband infrastructure, demand for content on more screens, as well as the operational advantages enabled there by the Amazon Web Services development center, Netflix’s IT infrastructure and storage provider. In all these markets, Netflix may also find operators keen on establishing partnerships to optimize their costs associated with content rights. Such a go-to-market approach would help it overcome some of the challenges that it has faced in its Latin American markets, primary the billing issues, and lower its service launch costs.
Central and Eastern Europe offer upside potential to OTTs
The Central and Eastern European region shows best the full potential of OTT video services for emerging markets, to the extent that there is stronger OTT activity there than in some developed markets. For 2014, CEE is set to reach a pay-TV penetration of 61% of households, one of the highest regional rates in the world. In CEE, fiber broadband connections will expand in 2014 by 20% over 2013 to 27 million, with fiber broadband penetration standing at 37% of households, higher than in any other region globally. These positive infrastructural conditions, in conjunction with comparatively higher income and the proliferation of connected devices, will continue to translate into a lot of potential upside for OTTs.
In the largest CEE market of Russia, where in 2014 approximately 30% of all broadband connections will have speeds in excess of 30 megabits per second, there is already a vibrant OTT video ecosystem. Since 2006, the offer in Russia has evolved from a handful of services with small content libraries to over 40 services, each one with its own peculiarities. Russia’s leading OTT video service Ivi.ru features as one of the OTTs worldwide with the largest customer base, with a monthly audience of 12 million to 16 million unique users, equivalent to 25% of all Internet users in Russia. The country is unsurprisingly one of the prospects for a Netflix launch.
Brazil’s World Cup to boost video streaming, mobile will be a driving force
The host of the 2014 FIFA World Cup, the first global sporting event where live streamed video will take a significant share of total viewing, Brazil will represent another emerging market hot spot. The Latin American country is one of the ten largest video markets in the world with 43 million video viewers. It has shown substantial OTT growth, reaching in 2013 2.5 million online video streaming users, not including download-to-own content. This represents approximately 50% of the total base of streaming users in Latin America. The World Cup in just over four months should bring a new wave of OTT/multi-screen services.
The mobile screen will be a driving force this year for the growth of OTT video in Brazil. Only taking into consideration the usage of video services on a wireless device over a cellular network, therefore excluding the significant impact of Wi-Fi, in 2014 10% of all Brazilian mobile users are also video streaming users. Latin American content providers ESPN, Fox Sports and Globo have prepared for this opportunity, offering World Cup content across different platforms, including mobile. Pyramid Research predicts that during the 30-day event, mobile data usage will increase three-fold in the country, which will give a 15% boost to 2014 mobile data service revenue. Likewise, we expect nearly four million new pay-TV subscriptions in Brazil during 2014, most of which will take place in the first half of the year.
Daniele Tricarico is a senior analyst in Pyramid’s strategy and innovation practice and the lead analyst for OTT services. His areas of focus are the convergence of media and broadband, and operator strategies and business models for digital services. He brings to the role extensive experience in emerging markets, having covered as an analyst the Latin America telecom industry for four years. Tricarico holds an MSc in new media and information systems from the London School of Economics and an MA from the University of Bologna.
