CEE 2012 Special Report: OTT services
The OTT landgrab is on in central and eastern Europe, with broadcasters, device manufacturers and pay TV operators grappling to find the optimum business models.
In central and eastern Europe, as elsewhere, premium content providers are rushing to deliver TV Everywhere services while broadcasters are looking to establish a branded presence on connected platforms through the delivery of catch-up TV services. New internet-based players are also entering the market with a view of delivering premium and ad-funded services direct to consumers via the web, bypassing traditional distribution platforms.
While OTT services are still relatively new even in western European markets, some CEE countries have kept pace with innovations and various forms of internet-delivered services are available. Some key issues faced by western European pay TV markets – the threat from pure OTT players striking deals directly with owners and bypassing traditional operators, for example – are mirrored by eastern counterparts, but others, such as piracy problems and broadband penetration are quite unique to the region.
Poland, the most developed pay TV market in central and eastern Europe has unsurprisingly seen an explosion in OTT offerings over the last 12 months or so. Data from Informa Telecoms and Media shows that on average, just over half of all Polish residents visit an online-video site at least once a week, and according to IAB Poland, the digital advertising industry body, Poland was in first place across the whole of Europe in terms of growth in online-ad revenue last year.
Mirroring many western markets, Poland has seen an influx of homegrown OTT offerings, such as streaming sites Ipla and Onet.TV. These sites, and others, have seen a steady increase in users and are signing deals with various connected-TV device manufacturers to further extend their reach – something that has not gone unnoticed by established pay TV operators.
Several players, including Cyfrowy Polsat, Canal Plus and Toya, have invested in full multiscreen offerings, including online streaming services. Whether these moves are defensive or offensive remains to be seen but the OTT race is on in Poland.
From a business model point of view, however, things are much less clear cut. According to Mirek Smyk, managing director of the Mirek Smyk Consulting Group, pay TV operators have struggled to work out the most efficient revenue models. First, he says, they have to determine the willingness of customers to pay additional money on top of their existing subscription for OTT content. Second, they might have to negotiate with broadcasters that are not willing to share their content outside of their own, newly created standalone online services. Given these issues, they need to weigh up the cost of deploying OTT services. “OTT poses a threat to pay TV operators from multiple angles. However, across CEE we see examples of operators embracing OTT successfully by integrating the whole value chain: from content production to end-user devices,” he says.
Marcin Boroszko, managing director of Polish ad agency At Media, says that premium OTT video services are unlikely to achieve success in the country, where there is generally a strong resistance to pay for any internet content. “According to a study we recently conducted, 38% of internet users reject requests to pay for the content on VOD services. Only a tenth of users of such services actually pays for content,” he says.
To highlight the problems faced by premium services, he highlights the fact that TV Screen, an online platform offering paid content, went bankrupt several months ago. Iplex, a VOD site that started offering paid videos soon changed its business model to deliver ad-supported and has since performed well, according to Boroszko.
Looking long term, Boroszko believes a mixture of ads and very low cost charges could emerge as an optimum model: “For the time being, content owners apply strict cost strategies, making it difficult for [OTT] services to offer attractive rates and to popularise the model of micropayments. The mixed model may gain in popularity – advertising combined with a relatively low (for the user) charge for the content. This mixed model is applied by the top American market players like Hulu and Netflix that are the ones who set the standards for the internet video market.”
At Media puts the value of the online video ad market in Poland at around €15 million. “It is growing at a double-digit rate, exceeding considerably this year’s average for the entire internet market,” says Boroszko.
While the OTT video market has boomed in Poland, advertisers are still getting to grips with advertising across platforms. Online and TV advertising are still being planned and sold separately, and there is no single-source measurement of ad success across platforms. According to Boroszko, the key to integration is the way content is applied across platforms. “It should engage the audience, no matter where it is received, and it should allow for the display of the same video ad. Marketers implementing the on-line video campaigns are usually focused on the same goal as the broadcasters – to enhance the relation with the audience outside the traditional antenna, reach the light-users of traditional television and to extend the contact,” he says.
Outside Poland, CEE-focused broadcast group CME is rolling out its video-on-demand service, Voyo, across the various territories in which it operates.
It initially launched at the start of 2011 in the Czech Republic, where CME operates the Nova channel. Having offered free content at launch, Nova added paid-for programming with users paying via SMS messaging. There is also a premium service, Voyo Plus, that allows viewers to see programmes before they air on the TV channel. According to Robert Berza, the head of CME’s internet division, the launch of Voyo enabled the company to diversify its business model away from the under-pressure TV ad market. “We started out with transactional video-on-demand, testing the product and the way consumers responded to it and then rolled out subscription. It proved a good choice and by spring the results picked up immediately.”
However prepared local consumers are to pay for OTT content, Berza says that the limited payment methods available in some markets in central and eastern Europe, where direct debit and even credit card payments are unavailable, is a major issue. “We are confident that the habit of paying for online video content will grow substantially in the next years. What is more worrying is that our markets do not benefit from the same diversity of payment solutions as in the west,” he says. “Take recurrence, the key aspect for a subscription. It is still not available at all, as a service in the markets, in Bulgaria or Croatia, and for card payments we were the first project to test it in the rest of the countries, including the Czech Republic. Before getting the customer used to paying we need the tools and it’s not yet the case here.”
So far, local content and sports content are driving subscriptions for Voyo, and its newly-launched Voyo Cinema online channel has done well across all markets. While much of the content available on the platform is produced by CME, it also offers titles from third parties. So far, negotiations have gone smoothly and Berza sees little difference between striking deals for online platforms and other media outlets. “There is not too much difference from classic media, such as TV or DVD. It still requires negotiation skills and focus. We have reached more than 1,000 titles in the Czech Republic [for the subscription service], so I would say we’re doing pretty well at convincing content partners to join Voyo.”
Looking forward, Berza says CME will continue to invest in more content for Voyo, to improve the user interface and increase the number of available payment options.
Pay TV operators
While online TV services continue to surface around central and eastern Europe, some pay TV operators have reacted early with the launch of their own OTT offerings.
TS Media, a media company owned by Telekom Slovenije, developed and operates the Slovenian telco’s OTT platform SiOL TVin, which is based primarily on the delivery of linear TV channels to existing TV subscribers. In addition, the company operates a standalone TVOD movie platform Dkino and adult SVOD site Dajmedol, both of which are open to all.
According to Tomaz Pernovsek, TS Media’s assistant managing director, pay TV operators need to prepare for a future where online delivery to multiple devices is not only expected but the norm: “The TV industry is moving towards exclusively OTT delivery of digital services, which are not hardware dependent and are available on every IP enabled device, including connected TVs, hybrid set-top boxes, mobile handsets, tablets and PCs.” Currently, says Pernovsek, TVin is a “service enhancer” that can be used to increase the uptake of triple-play services without any additional costs required from premium TV subscribers. TS Media is also backing transactional and subscription models with its DKino and Dajmedol services.
One advantage for pay TV operators launching OTT services early, says Pernovsek, is getting to grips with rights deals and technology choices ahead of their rivals. “Content owners are now willing to listen to operators and make offers for OTT delivery, which was almost impossible a few years ago. The deals are done in tight correlation with enabling security for the whole OTT ecosystem. When the whole thing is up and running it becomes more attractive to users and eventually it becomes profitable and harder for the competition to follow.”
According to Smyk, pay TV operators in the CEE region are generally struggling to comprehensively pin down all the rights required to offer a mirrored version of their full service on multiple devices. “Pay TV operators would love to launch multiscreen linear TV packages that correspond to their cable or satellite offer. However, they usually cannot do this because of a lack of multiscreen rights from every broadcaster. The services that are being launched are therefore limited. We believe that it’s a matter of 18-24 months before broadcasters will understand that the best option for them is to partner with integrated mobile and pay TV players to deliver a full multiscreen service,” he says.
As with most markets and OTT services, PCs and laptops remain the most popular platforms for watching the SiOL TVin service, no doubt due to a combination of the proliferation of those devices and the screen size. While it is available on Android and iOS devices, 70% of content is streamed to PCs, with sports and reality TV events the most popular genres. The service’s online EPG is also proving popular, says Pernovsek. “The second most-used service is the TV guide, which looks the same as it is does on the TV service. We see high demand for this service, which also enables the scheduled recording or setting of alerts for future shows.”
On this point, Pernovsek highlights the importance of keeping the user experience consistent across platforms, something that can prove difficult given the number of internet connected devices used by customers. “We prepare guidelines for user interfaces and every front end application needs to follow it,” he says. “Without that, users could end up dissatisfied with the service, which in their eyes is just TV, not TV on an Android-based handset.”
The number of connected devices, including connected TVs and hybrid set-top boxes, in central and eastern Europe is set to increase significantly over the next five years, according to Informa Telecoms and Media. The installed base of in-home connected devices is predicted to increase from about 6.1 million in 2011 to around 100 million by end-2016.
“With improving broadband penetration and infrastructure, it is a natural progression for users to view content on Smart TVs using the internet to get to view their favourite content when they want,” says Sidharth Jayant, content service manager, Europe at Samsung. “There’s a definite willingness to consume content on Smart TVs.”
Jayant believes that, unlike some other TV technologies and trends, the gap between western and eastern Europe is much less pronounced for connected TV services. Content providers in particular, he says, are keen to embrace Smart TV services in the CEE region. Last year, Samsung had deals in place with Ipla, Onet.TV, VOD.TVP.pl, WP.TV and YouTube for its Smart TVs. “We have acquired content from western Europe earlier [than eastern Europe] but that was like any other technology development and adaptation pattern. However, I don’t feel there was much delay between the two regions and content owners from eastern Europe have been quite quick to use the great opportunity that Smart TV provides. The market is ready now and has been for more than a year.”
The number of OTT services launched in the CEE region over the last 12 months is testament to the changing viewing habits of its inhabitants. According to Smyk there are some key lessons that operators in the CEE region can take from their western counterparts: “One thing that operators should have learned from US and western Europe deployments is that once you launch an OTT service, you need to continuously develop it and to communicate it extensively. When I go to London, Paris, Munich or Rome I see billboards and magazines advertising OTT services. Across CEE the mentality in the majority of cases has been to do it at a low cost and wait for the market to respond. OTT does not work that way. It has to be robust in the content it offers, engage with the end-users and continuously add relevant content,” he says.
The landgrab is on. While business models remain uncertain, there are likely to be casualties on the way, but for those who get it right, whether it’s a broadcaster, device manufacturer or pay TV operator, the rewards could be significant.