Cable Congress: advertising-based VoD driving OTT growth

Joachim Stephan

Advertising-based OTT video-on-demand is seeing significant growth and attracting more attention than subscription OTT video, according to Joachim Stephan, senior partner and managing director, The Boston Consulting Group.

Speaking at the Cable Congress in Warsaw yesterday, Stephan said that all of the increase in video consumption by consumers is going to non-linear online and mobile platforms.

“Traditional pay TV is going down,” he said. “Europe is not as extreme [as the US] but is also going in the same direction. But what is more interesting is how the economics are flowing to the OTT world. A couple of months ago the general industry assumption was that the model would be subscription. But increasingly advertising is going to the OTT world and funding advertising VoD.”

Stephan also said there was an ongoing collapse in the value of “filler content”, meaning content that is “caught between hit content and exclusive sports on one side, and niche content” on the other side. “The [value of] content in the middle is going to collapse,” he said.

Disruption of the current video business could take the form of gradual evolution, said Stephan. Pay TV providers believe that online video is just another technical development and operators need to work out how to deal with it. On the other hand cable MSOs and DTH providers could “basically decide that the future is the combination and curation of the consumer video experience within or beyond a walled garden.” Operators would provide value through a compelling user experience and search features, and focus on making money from broadband.

A third scenario would see big content providers could invest in exclusive content and market it direct-to-consumers. “I don’t think this will be the predominant strategy.” he said.

Finally, it is possible that big internet companies can act as digital aggregators and compete with infrastructure-based players.

“The outcome is likely to be a blend of two or three of these scenarios,” said Stephan. “But if only a [few] people adopt one of these the industry is going to change.”

The pay TV industry was not massively disruptive when it appeared by comparison with the coming wave of direct-to-consumer online video, said Stephan. “the online video value chain is the trigger for much more disruptive change,” he said, “The question is whether this is value creating or value destructive.”

Video-ready broadband infrastructure is already around, with most European homes likely to have video-ready broadband by 2017, he said. Changes in consumer behaviour include more video viewing, a shift in viewing habits to on-demand and cord-cutting of traditional services.

The content production business is also changing, said Stephan, with costs relatively low for mobile content and short-form content.

Stephan said that US$531 billion “is at stake” in the content business, which is at the centre of changes taking place across multiple “value chains”.