Prospects for Premium OTT in Western Europe -...
Transcript of Prospects for Premium OTT in Western Europe -...
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Prospects for Premium OTT in
Western Europe
A research project
November 2014
Sponsored by:
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Executive Summary
As Netflix launches across Europe, how will the market and competitive environment evolve? How do
industry participants believe the market will develop through to 2017?
What are the prospects for premium OTT offerings – subscription OTT VOD services – in advanced
Western European markets? Key market enablers, such as high levels of broadband penetration,
access to connected devices, a willingness and ability to pay for content online, and supportive
regulatory environments, are largely in place across most of the region. Technology costs for OTT
providers have fallen significantly, enabling a wide range of providers to enter the market, although
delivering services in a fragmented device environment can still be challenging.
For content providers, premium OTT is only one of various options and windows for monetising video
content – along with transactional services, ad-supported content and bundled offerings such as TV
Everywhere, provided as part of a wider subscription or membership package. The attractiveness of
these business models varies widely for different categories of video content – from premium film and
TV content through to niche or hard-to-find specialist content, such as performing arts or children’s.
However, Netflix’s entry into European markets has stimulated a wave of investment and service
launches by other international OTT providers, pay-TV operators and broadcasters – encouraging
interest in premium OTT as a business model. Industry participants are spending growing sums on
marketing and promotion, driving consumer awareness and understanding. Premium OTT appears
poised for rapid growth across the region.
However, our research indicates that many leading industry participants are cautious about the growth
prospects for premium OTT providers targeting the mass market with film and TV content. Barriers to
entry remain high – content licensing costs are increasing fast and subscriber acquisition requires
significant investment. As a result, scale is crucial and incumbency is powerful – only large, established
enterprises, able to support sustained investment, will be able to launch and grow successful large-
scale services. Leading industry participants expect no more than a handful of major mass-market
premium OTT services to gain significant scale in each market.
By contrast, opportunities for specialist or niche premium offerings are becoming far more accessible,
especially to providers with low-cost access to high-quality, unique or exclusive video content and a
clearly defined, addressable customer base. OTT providers and suppliers believe that specialist
premium service providers, with the right mix of content, technology and marketing, should be able to
attract a reasonable number of subscribers, especially if services can grow internationally. Many of the
most successful subscription offerings are likely to be targeted at well-defined fan bases or bundled
with existing membership or loyalty programmes.
Away from the subscription space, there will be scope for a wide range of transactional, ad-supported
and subsidised offerings, many with mixed business models and multiple revenue streams. Many
industry participants acknowledge that the availability of free content will be an important limit factor
to the growth of premium OTT services – and that some types of high-value, low-volume premium
content, will be better suited to transactional services, adopting either rental or retail models.
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Going forwards, the prospects for premium OTT in key European markets will depend upon the
particular characteristics of each local market, notably including the size and wealth of the territory
and its ability to support strong domestic TV businesses capable of developing and delivering
competitive OTT offerings. European consumers have clearly demonstrated an appetite for premium
TV and film offerings, delivered on-demand to the device of their choice – and, in many markets,
European businesses are poised and well-positioned to respond.
MTM’s research programme – involving 30 leading OTT providers and suppliers in the UK, Dutch and
German markets – found that industry participants are strongly optimistic about the overall growth
prospects for the premium OTT market in key European territories. In the UK, providers expect the
market to be worth around £390m (€490m) in 2017, up from £110-130m (€150m) in 2013, while the Dutch
market is expected to grow even more strongly, from €15-20m in 2013 to €190m in 2017. In Germany,
however, industry participants anticipate slower growth, from€30-35m in 2013 to around €115m in 2017.
In all three markets, bundling and cross-subsidy models could grow penetration but reduce overall
levels of direct spending on premium OTT.
MTM‘s research study also found that:
Despite substantial investment, many OTT providers believe that broadband infrastructure remains a
substantial barrier, even in some developed countries. This is particularly the case in Germany,
where industry participants believe that poor broadband and a device ecosystem dominated by
Android will hold back take-up and monetisation during the next 3 years.
For the majority of premium OTT services, there is a widespread belief that technology will become
less of a barrier during the next few years, despite growing device fragmentation – however,
industry participants believe that the largest services will continue to invest heavily, attempting to
differentiate by offering customers more advanced product features and functionalities. This will
set high consumer expectations for user experience and quality of service, so niche providers will
need to find partners capable of keeping up with the pace of innovation.
OTT providers believe that the most important supply-side barrier is – and will remain – exclusive
access to high-quality, high-appeal video content. Exclusivity of content has become the primary
battleground for mass-market services, but rights costs will continue to inflate, as OTT businesses
such as Netflix and Amazon invest in long-term, exclusive licensing deals, as well as commissioning
their own productions. Aggregation will remain critical, with only a few individual studios able to
offer wide enough offerings to attract large numbers of subscribers. At the other end of the market,
supplies of high-value, high-volume specialist content are scarce, making it difficult to build
subscription businesses. Many content offerings are better suited to transactional or ad-supported
models.
Providers believe that consumer barriers to take up remain significant, even in advanced markets.
Awareness and understanding take a long time to build, and many consumers are satisfied with
substitute offerings such as free-to-air TV, PVRs, free VOD services (ad-supported and publically
funded) and pirated content.
Providers in every country believe that ‘buzz’ and word-of-mouth, driven by high levels of
marketing support from multiple providers, will have an important role to play in supporting growth.
Although premium OTT has become “a cultural phenomenon” in the UK, there is less ‘noise’ in the
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German market and, consequently, consumers seem less interested at present. However, this is
widely expected to change in 2015, as competition intensifies.
Beyond 2017, industry participants believe that premium OTT provision across Europe could grow even
further and faster, if pay TV bundles being to unravel. Already today, incumbent pay-TV providers are
looking to secure the rights they need to deliver premium OTT services across Europe, expanding into
new territories. The supply of premium offerings will be further stimulated if commercial broadcasters
can carve out OTT windows for their content, without jeopardising existing pay-TV revenue streams, or if
pay-TV providers begin to cut back on channel provision, freeing up content for direct-to-consumer
OTT offerings, offered either alone or in partnership with other broadcasters.
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Table of Contents
1 Introduction – exploring the prospects for premium OTT ................................................................................. 5
2 Prospects for premium OTT – a research framework ........................................................................................ 6
2.1 Market enablers ................................................................................................................................................. 7
2.2 Developing a premium OTT business – success factors .............................................................................. 9
2.3 Competitive dynamics ................................................................................................................................... 10
2.4 Demand-side barriers...................................................................................................................................... 11
3 Prospects for premium OTT – the framework in practice ............................................................................... 12
3.1 Common considerations ................................................................................................................................ 12
3.2 The UK ................................................................................................................................................................ 14
3.3 The Netherlands ............................................................................................................................................... 15
3.4 Germany ........................................................................................................................................................... 16
4 Conclusions – premium OTT in 2017 ................................................................................................................. 17
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1 Introduction – exploring the prospects for premium OTT
In September 2014, Ooyala and Vindicia commissioned MTM to explore the prospects for premium OTT
services – subscription video services, delivering to connected devices – in three advanced European
markets: the UK, Germany and the Netherlands.
The research programme explored industry perspectives on:
The key market enablers underpinning the prospects for premium OTT, such as broadband
connectivity and device penetration
The major success factors underpinning OTT businesses, including access to quality content and
technology and product development skills
Competitive dynamics for mass-market services and specialist offerings
The major demand-side barriers, such as awareness and willingness to pay.
The research was structured around a form of the Delphi technique – a widely-used approach for
developing forecasts and predictions about the future by stimulating a consensus of opinion across a
group of experienced industry participants. The technique is intended to facilitate access to the
positive attributes of interacting groups – for example, by sharing knowledge from a variety of sources
and industry perspectives.
MTM’s project team synthesised a range of industry data about each market, to provide a basis for
discussion, and developed a simple framework to structure a discussion about the prospects for
premium OTT. The framework was explored and refined through a programme of qualitative depth
interviews with 4-5 leading industry participants in each market and was then used to structure a
discussion at specially-convened seminars in each country. Unless otherwise attributed, all quotations
in this document come from the interviews and seminars. Overall, 30 experienced industry participants
took part in the research programme, providing a broad sample of industry perspectives and a
perspective on the prospects for premium OTT in each market.
Inevitably, given limited resources and a wide brief, this paper provides only a partial view of a highly
complex industry and a challenging set of issues. The views expressed within this paper are solely those
of the authors and do not necessarily represent the views of the interviewees and contributors. All
interviews were completed under the Chatham House Rule. Any errors or mistakes are entirely the
responsibility of the project team.
MTM, Ooyala and Vindicia would like to thank the contributing companies for their input and insights:
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2 Prospects for premium OTT – a research framework
MTM’s research was structured around a simple framework, designed to support analysis and
exploration of the various factors determining the prospects for premium OTT in a particular market.
Exhibit 1: Analytical framework
1
Market
enablers
Is the infrastructure in place for
delivering OTT services?
4
Demand-side
barriers
Does premium OTT appeal to
my target audience?
3
Competitive
dynamics
How many services can the
market support?
Developing an
OTT business
How high are the barriers to
entry in the market?
2
What is the level of broadband penetration of sufficient speed for
OTT streaming?
How well established are devices that enable OTT streaming – e.g.
tablets, Smart TVs and connected boxes?
Is there payment infrastructure in place
for online transactions – e.g. credit cards?
Do regulations or laws enable or hinder an OTT
service – e.g. net neutrality, copyright enforcement?
What is the level of upfront investment required to enter the
market?
How easy is it to acquire content rights to relevant content?
How difficult is it to build
or purchase the underlying technology platform and video
player – what features are required?
What level of spend or differentiation is required
to build a brand and be noticed by the market?
Which participants are likely to successfully run an OTT business – stand-
alone, pay TV, etc?
Which niche or specialist providers will be able to build an audience?
How many subscribers
does your service need to be sustainable?
How large is the target audience in the market?
How many entertainment and video subscriptions is
your target audience likely to have?
What is the level of awareness of premium OTT in the market?
What is the level of
penetration of substitute goods and services – e.g. PVRs, piracy, free
and pay TV?
How willing is the market to pay for entertainment content?
What level of digital sophistication has the
market attained?
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2.1 Market enablers
Market enablers comprise the underlying infrastructure required to support a premium OTT service.
Exhibit 2: Market enablers
Key factors Secondary factors Uncertainties
Broadband Speed
Coverage
Superfast roll-out
4G and mobile
broadband
Ability of infrastructure to
support reliable delivery of
high-quality OTT video, as
demand grows
Devices Tablet penetration
Smart TVs
Connected TV devices,
(e.g. dongles,
consoles)
Smartphone penetration Improved access and
ease-of-use for OTT
services on TV platforms
and Smart TVs
Payment Credit card / debit
card take-up
Bill integration (e.g.
through pay platforms)
Prospects in-app
subscription services on
Google Play store and
Android ecosystem
Regulation Local content
regulation
Strength of anti-piracy
measures
Application and
enforcement of VOD and
EU AVMS Directive for
overseas OTT providers
Change of direction in net
neutrality regulation
Within each category, industry participants identify a range of specific considerations with important
implications for premium OTT – for example:
Roll-out plans for superfast broadband are in place across Western Europe, but are at varying
stages and, in most markets, do not yet support coverage to all TV households – for example, there
are uncertainties about the progress of high-speed broadband in the UK, with large areas of the UK
unable to receive super-fast broadband, as defined by Ofcom, although it is claimed that 95% of
UK households should be passed by next generation access networks by 20171
Levels of TV connectivity are increasing as TV replacement cycles (typically 6-8 years) work through
and USB dongles such as Chromecast become more widespread2
Although penetration of tablets and smartphones is growing rapidly, iOS users continue to spend
more heavily on premium content – markets with high levels of Android penetration may deliver
lower average returns for OTT providers3
Online payment does not appear to be a significant issue in the UK, Germany and the Netherlands,
where debit and credit card penetration is around 95%4, but is still believed to be a major barrier in
some Central and Eastern Europe markets.
1 Digital Business First, The UK’s Enduring Broadband Deficit (March 2014) 2 NPD DisplaySearch, Global TV Replacement Study (2012) 3 Forbes Magazine (May 2014) 4 Eurostat (2012)
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Net neutrality regulation varies between European countries and remains an uncertainty that could
potentially lead to increased distribution costs for OTT services in the future, with industry
participants citing Netflix’s reported traffic deal with Comcast in the USA.
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2.2 Developing a premium OTT business – success factors
At a high level, industry participants distinguish between – and envisage – three major categories of
premium OTT service operating in European markets:
1. Mass-market aggregators: International businesses such as Netflix and Amazon, and domestic
businesses such as Now TV (UK) and Maxdome (Germany), typically backed by domestic pay-TV
providers and broadcasters. Mass market aggregators typically license the majority of their
content from studios and other rights holders, but original content commissioning – driven by the
major international businesses – is stimulating greater investment.
2. Studio broadcasters: Broadcasting groups, often international, with significant volumes of existing TV
content, launching standalone premium OTT services to extend their reach and grow beyond pay-
TV.
3. Niche services: Smaller services with niche content and well-defined target audiences, in areas
such as sport, music, children’s and performing arts.
Success factors for these different categories of provider vary significantly.
Exhibit 3: Success factors for premium OTT
Generalist aggregators International studio broadcasters Niche providers
Investment
Very high initial investment
required to license content, build
technology platform and brand
Lower levels of investment required to build/acquire player and
infrastructure – costs can be reduced by using third-party providers
Content
Premium film and TV with exclusive
and/or local content. Increasingly
looking to commission as well as
licence in order to secure
differentiating content
Primarily using owned libraries and
productions – but risk of
cannibalising existing business with
pay-TV affiliates by going OTT
Requires access to cheap content
at reasonable volume and
regularly refreshed – if not then a
transactional or ad-funded model
may be more suitable
Technology
Usually custom built and available
on all platforms. The biggest
services will use quality as a
differentiator
Technology unlikely to be a
differentiating factor – but may
have complex payment
infrastructure to allow
authentication by pay-TV
subscribers
May need to minimise cost by only
supporting a small number of
platforms. Some content niches
may lend themselves to specific
functionality – e.g. offline viewing
for children’s
Brand and
marketing
Significant above-the-line
marketing required to build brand
and audience. Subscription model
relies on retaining customer after
high initial spend on acquisition
Linear business allows for cross-
promotion of OTT service.
However, the challenge is using
OTT to extend reach without
cannibalising existing audience
Needs to have existing fan base or
well-defined target audience,
reducing the cost of marketing. In
many cases the most successful
services will be bundled with other
offerings such as membership
schemes
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2.3 Competitive dynamics
Given the success factors for different categories of offer, industry participants expect a distinctive
market structure to emerge by 2017.
Exhibit 4: Competitive dynamics
Generalist aggregators International studio broadcasters Niche providers
Investment requirements, benefits of
scale and limited consumer appetite for
subscribing to multiple generalist services
are likely to lead to a relatively
concentrated market, with only a small
number of mass-market aggregators
expected in any given territory.
Industry participants envisage three main
categories of competitor:
1. Major international OTT providers,
with scale and reach to invest
2. Pay-TV platforms extending into OTT
3. Major national broadcasters.
Other categories of industry participant –
telcos, device manufacturers, retailers –
are not expected to capture a large
share of the premium OTT market, but will
play an important role by supporting
bundling and co-marketing with leading
OTT providers.
Only a small number of major studio
broadcaster groups – mainly operating in
high-value premium content areas – are
expected to have the scale, content
and negotiating leverage to successfully
develop large-scale premium OTT
services in the UK, Netherlands and
Germany. Industry participants envisage
only 2-2 major groupings, at most.
Niche offerings may proliferate, but most
are likely to remain small-scale, gaining
only limited traction in each market:
“How many standalone packages are
consumers really going to subscribe to? I
don’t think it will be many. There’s a
benefit to bundling and aggregation.”
If content, technology and marketing
costs can be kept under control, various
specialist content niches could
potentially support SVOD businesses,
including:
Sports and pastimes
Performing arts
Specialist film and TV (e.g. Anime,
religious programming)
Music
Ex-pat services
Kids
Many services are expected to be
bundled with existing membership or
loyalty schemes, with video used as to
add value to a wider scheme.
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2.4 Demand-side barriers
Industry participants identify four major demand-side barriers impacting levels of take-up.
Exhibit 5: Demand-side factors and indicators
Key questions Indicators
Awareness How aware are consumers of OTT services and
their distinctive benefits?
Brand awareness
Usage of existing VOD services
Substitutes Are consumers well-served by alternative
sources of content or by similar products and
services? Do these act as substitutes for
premium OTT services?
Pay-TV penetration
Satisfaction with free-to-air TV
Penetration of PVRs
Level of piracy
Interest in local content vs. US imports
Willingness to pay Are consumers happy to pay for
entertainment content – or are free or pirated
offerings preferred?
Entertainment spend per capita – pay-TV, DVDs,
cinema box office
Level of public subsidy of TV
Digital sophistication How comfortable are consumers with online
services and technology? Are they happy to
use commercial online services?
Online shopping spend per capita
Device penetration
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3 Prospects for premium OTT – the framework in practice
The framework was used to explore the prospects for premium OTT, in three key markets – through a
programme of research and analysis, depth interviews with leading industry participants, and a
specially-convened group seminar in each territory, using a form of the Delphi technique to forecast
the value of the premium OTT market in 2017.
Industry participants in each market identified a range of common factors, but also referenced
country-specific factors in territory.
3.1 Common considerations
In general, industry participants are positive about the status of key enablers in the UK, Germany and
Netherlands:
Roll-out of broadband, especially next-generation access, will support OTT growth: “Broadband
infrastructure is still a bit of a problem in all markets, but should improve with next generation roll-
out”.
The majority of consumers are not able to access premium OTT services easily, through an intuitive
user interfaces, on their main household TV. USB dongles and smart TV roll-out which change
significantly over the next three years, and participants believe that consumer behaviour will
evolve as a result: “Connected TV will change people’s ways of watching. Once everyone has a
streaming device connected to their main TV then consumer behaviour will change”.
Intuitive connected TV interfaces will make OTT services more straightforward to access, and will
make payment more seamless: “The current user interface of Smart TVs is dreadful – it should be
simple and seamless to access the content that you want”.
Similarly, industry participants in each market have common views about the key factors underpinning
the success of premium OTT businesses:
Exclusive content will become more and more important, causing licensing costs for premium TV
and films to rise: “There are a number of players competing for the same content, and many of
them have very deep pockets – it will be good be a rights owner, but not a service provider”.
The product and technology costs of delivering a reliable and high quality service to a wide variety
of devices will fall: “the cost of a standard product will go down significantly – technology providers
will make their money on new features but the core platform will be cheap”.
However, generalist providers with deep pockets will continue to use product as a differentiator
where possible, with the most important and expensive areas being 4k and
personalisation/recommendation: “the major players are raising the barrier in functionality –
currently, the most important new feature is a good recommendation engine, and those are
incredibly expensive to build”.
Within each market, industry participants envisage broadly comparable competitive dynamics:
The number of generalist providers will reduce as competition intensifies and scale becomes vital in
securing desirable content: “There will only be two or three players left. For each market there will
be a big OTT player, and the pay TV guys will figure it out and respond, and there may be room for
one more”.
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There will be opportunities for specialists with low cost access both to pipelines of desirable content
and also to captive audiences. However, to be sustainable, the majority of these services will need
to have international reach: “For niche services, the trick is to have international appeal – you will
be big enough if you are present in multiple regions. You can start a broadcasting company for
Portuguese church music – worldwide you will find enough subscribers”.
Specialists will also need to find niches that are far enough away from the mass market providers to
ensure that they can continue to differentiate on content, not just by being lower cost: “Lots of
niches may not be sustainable in the long-term. At some point the big guys will evolve into these
areas, for example Netflix and Amazon going aggressively after kids. As the big guys grow they will
look for more points of distinction. Once they have front-leading exclusive stuff, and libraries for
bulk, they may look at these niches for differentiation”.
Finally, industry participants have general expectations about the major demand-side barriers across
the three markets:
Willingness to pay for entertainment content will increase in line with awareness as OTT services
become more mainstream: “people are becoming used to the idea of paying for entertainment
content – as long as it is an attractive proposition and a good user experience people are
generally happy to pay for it – you just have to show them why they want it”.
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3.2 The UK
The UK is distinctive in being a mature pay-TV market and also the most advanced market for premium
OTT in Europe, with Netflix estimated to be present in 16% of online homes and Amazon Prime in 7%.5
There is also a vibrant and growing ecosystem of specialist premium OTT business such as Chelsea TV
(football), Hopster (kids), be-at.tv (dance music) and Iroko TV (Nigerian cinema). Certain UK-specific
factors are therefore important in assessing the prospects for premium OTT:
There is also a vibrant and growing ecosystem of specialist premium OTT business such as Chelsea
TV (football), Hopster (kids), be-at.tv (dance music) and Iroko TV (Nigerian cinema). However, the
prospects for many specialist offerings remain highly uncertain: “The biggest challenge for smaller
providers is being unique and competitive, given all of the free content and existing pay-TV. The
economics only work if you scale internationally and are producing a good volume of content and
as a result I don’t think we’ll see lots of long-tail providers”.
Standalone generalist services have grown rapidly but continued growth may be dependent on a
higher degree of cord cutting and cord shaving. However, willingness to pay for entertainment
content in the UK is high: “UK consumers are hungry for entertainment and have really adopted OTT
– it’s been pushed heavily by big industry participants and has really been adopted by younger
consumers. It’s become a cultural phenomenon”.
Some participants believe that an important inflection point may be when OTT providers begin to
compete for sports rights, a key pillar of traditional pay-TV. However, it is clearly unclear whether this
will take place and what effect it would have on market structure: “The big driver will be the major
digital businesses investing in rights and live content that’s traditionally been TV. At the some point
the big digital businesses will start acquiring sports rights – but will it happen outside the USA?”
UK consumers show higher willingness to pay for entertainment content than their European
counterparts, and there is room for growth as awareness of premium OTT increases: “I think there’s
still quite a way for them to go in terms of growth”.
5 Decipher, Mediabug Wave 5
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3.3 The Netherlands
Pay-TV is ubiquitous in the Netherlands, making the competitive dynamics quite different from the UK
and Germany. As a small and digitally sophisticated country, industry participants are extremely
positive about the growth prospects for premium OTT, with only a few reservations:
The small market size and language barriers make it unlikely that more than a few niche providers
will be able to sustain SVOD businesses. As a result, TVOD and advertising-funded business models
may be more successful: “It’s much harder for smaller markets, and there’s not much international
content that drives such passionate niche audiences… No more than a small handful of niche
players will accumulate a sustainable number of subscribers in the Dutch market – and those will
probably all be sport”.
The telecoms market is already highly converged and quad-play is becoming a more important
dynamic. The effect of this on OTT services is unpredictable: “More players entering this area from
an infrastructure point of view. All going towards a quad-play market”.
Industry participants believe that roll-out of 4G and rising data caps will be a driver of OTT growth
particularly in the Netherlands: “Mobile will get better and will change things if you can take
unlimited data bundles. It’s all about carefree usage – 4G could make a difference if it comes
down in price and if data usage is not capped”.
Pay-TV providers will consider OTT offshoots to leverage their investments in content rights and
extend their reach into homes that are not passed by their own network: “pay TV platform OTT
services will be big. Their current relationship with customers, existing rights deals, dominant position
in market at the moment – will all help them to establish their position in OTT”.
Participants expect to see the unbundling of pay-TV packages into specialist OTT services:
“Bundled services will have to get more unbundled over time, as people keep their broadband
and add OTT services on top. We will see the decline of second tier pay TV – people cancelling all
the extra channels that they get with their pay TV package, taking basic pay TV plus OTT”.
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3.4 Germany
Premium OTT in Germany remains nascent and fragmented, with a larger number of generalist
providers than either the UK or the Netherlands. Participants agreed that it is the least digitally
sophisticated of the three countries and that willingness to pay for entertainment content is low,
meaning that the prospects for premium OTT are uncertain:
Broadband is weaker than either of the other two markets, both in terms of penetration and speed.
The rate at which it will improve is uncertain: “The absence of fast broadband coverage is a real
problem for German OTT providers – but we expect this to improve over the next few years”.
The device ecosystem is also less developed, with a higher proportion of Android devices and with
a population of smart TVs that are less likely to be connected: “Germany is a large market for TVs
and there are lots of smart TVs out there but in terms of usage and connection rates it is a very
immature market”.
Participants believe that the idea of content ownership is more embedded and as a result DTO
may be more attractive than SVOD to many German households: “Germans like to own physical
products – in the USA and UK, the days of owning large DVD collections are ending, but it’s not the
case in Germany. SVOD doesn’t substitute for DVD in Germany. 90% of transactional VOD is film
related, mostly new release titles. SVOD will never replace new release films, it’ll replace back-
catalogue”.
Local content will remain important, making it harder for international players to cut-through: “the
German market is very local and specific. In Netherlands everyone speaks English, you can just
deploy an English service and people will go to it”.
The market is currently fragmented, meaning that individual players do not have content offerings
that are broad enough to drive mainstream take-up. Consolidation is inevitable, but may be
painful in the short-term: “the German market will need to consolidate. The domestic incumbents
will do OK in the short to medium term but the challenge for them is when all their output deals
come up for renewal and the studios may look to break up those SVOD rights”.
Pay-TV penetration is low and the free-to-air TV offering is strong, reducing willingness to pay: “in
Germany the challenge is how you get people to pay for anything! They’ve been used to quality
content as a utility”.
Digital sophistication also remains lower than the other markets in question, and participants
expect that changing consumer behaviour will take time: “If it maybe takes two years in the UK,
you need to double the time and the investment in Germany”.
17
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4 Conclusions – premium OTT in 2017
During the next three years, industry participants anticipate significant growth in premium OTT
revenues in all markets:
In the UK, premium OTT is already relatively well-established – however, providers believe
that there is significant headroom left for growth, both with existing pay-TV subscribers
looking for additional content, and with free-to-air households. The market is highly
competitive, with major US businesses competing with domestic TV businesses to drive
awareness and take-up. Many industry participants are also optimistic about the
prospects for niche services, in areas such as children’s and sport.
By contrast, industry participants in the Netherlands believe that the market is still very
early stage and that its attractiveness for premium OTT will lead to rapid growth in the
coming years. Most consumers speak English and have access to good broadband.
Netflix has recently launched and the major Dutch broadcasters and pay-TV businesses
are expanding into OTT, helping to drive growth. However, there appears to be limited
scope for domestic niche providers: “Our market just isn’t big enough to support many of
these offerings”.
In Germany, research participants believe that the market is significantly less mature –
and that growth will be much slower. Domestic businesses have successfully launched
premium OTT offerings, but progress has been relatively slow. Although the market is
expected to grow more quickly in the coming years, industry participants believe that
there are still significant barriers – mainly, the availability of free-to-air content and a
general reluctance to pay for content.
Exhibit 6: Market size forecasts for premium OTT in 2017