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Strategy seems so damned simple for Netflix, so why are OTT strategies so painful for everyone else?

Informa invited me to host an analyst breakfast briefing at 8AM this morning at the kick-off to TV Connect 2014.

After my spectacular failure to draw a crowd two years ago with a talk on “the death of IPTV”, I believe I learnt from my marketing mistakes. Today’s talk was about something people wanted to hear apparently because the table was packed.

Apart from friends Thierry Fautier from Harmonic, Tanja Huether from Siemens, Arman Aygen and Olivier Gravier from Mariner we had people from MBC, Telecom Italia, Citrix, IET, Mediamorph, Technisat and a few others whose names I didn’t catch.

The session was lively and always interactive.

Before looking at operators themselves it’s always healthy to concentrate first on the person that really matters. I therefore kicked off with a focus on the end-user: when she wants to watch something OTT what comes to her mind as possibilities:

1. Getting it from her provider – as part of her subscription

  • Incumbent pay TV examples include beIN, SKY Go, Canal Plus and soon we learnt MBC,
  • Some incumbent Telcos that usually force IPTV sales onto Internet access often also offer OTT exclusively to their subs, but because of the forced sale penetration may be high with very low usage.

2. From a pure OTT service

  • iTunes with dedicated country store
  • Netflix / Quickflix / iCflix / WhateverNextFlix

3. Workarounds, using semi-legal setups

  • i.e. VPN + Netflix, Sharing passwords amongst family members, …

4. Piracy

  • Torrents
  • Pirate device like “Magic Box”
  • Pirated DVDs
  • Illegal OTT streaming

This sparked a discussion on whether people would mix & match to get the best possible deal or if most of us are actually lazy buggers after all. The consensus was for the latter.

We then zoomed in to the different strategic intents different stake holders light have:

Objective Telco Pay TV Pure Difficulty
Innovation leadership ✔✔ ✔✔✔ easy
Cross/Up-selling easy
Extend footprint easy
Stickiness – lower churn ✔✔✔ moderate
Acquire new Subs ✔✔✔ hard
Grow ARPU ✔✔✔ very hard
Lower Capex ✔✔ moderate
Lower Opex it depends
Lower customer acquisition cost ✔✔✔ easy

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This table clearly shows that new-entrant, pure-players have a straightforward objective: they’re in the game to gain new clients, that’s it!

The pay TV operators have a much tougher situation with multiple objectives that are hard to align. Telco’s have it hardest an with yet wider spread of their strategic intent. There as some consensus that this is part of the reason why so many operators feel they are biting their leg off with OTT even if they know that it’s part of their future.

For some reason this got us talking about the value a brand adds to OTT content. Nobody in the group denied the fact that billions upon billions spent on content doesn’t make an operator brand into a content brand with two small exceptions being Belgacom and PCCW. BT spend spree on football left the group quite bemused. Switching over to why Apple seems to deliver a persistently better viewing experience over the Apple TV, we learned from someone in the know that their technology is pretty much all home-grown, from the encoders to the players including content security.

Someone mentioned the recent Comcast-Netflix deal, which got the group into a discussion on how Telcos will be able to deliver better QoS. This may make them feel better but don’t do much in the present.

Some metrics were shared within the group where is transpired that two major European pay TV platforms had achieved a take-up of their pure-play OTT offer that was smaller than 5% of their pay TV subscriber base. However take-up of “walled garden OTT” services within the subscriber base was much healthier with a German operator seeing up to 25% take-up in less than a year…

Everyone was so eager to participate that we couldn’t really conclude before Informa ushered us off to the main conference. I did leave the group with the open question of whether subscribers will accept to lower their expectations from DVB broadcast’s always-working, in exchange for lower cost, more content, personalisation etc.

There’s a candidate for next year analyst briefing.

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