By Guy Bisson
The majority of UK television channels could save money on their standard-definition broadcast costs by using Over-The-Top (OTT) Unicast to fulfil their actual viewing demand rather than the most cost effective broadcast technology. That was a key finding in a recent report we produced as a follow up to our earlier analysis that showed scaling OTT delivery to platform levels was not cost effective at current cost levels.
These two findings place the cable industry in an interesting position. On the one hand cable (and other multichannel broadcast platforms of scale), can remain confident that in the near-term, OTT-only competitors will face rapidly scaling costs when trying to replicate a full-service pay TV offer (and even more so when HD is considered). On the other hand, low-consumption channels may soon be considering whether a switch to OTT distribution as primary means of reaching the end consumer is starting to make sense.
As with many things in business, threat is opportunity and opportunity, threat. The threat: longer term, OTT distribution will begin to provide an alternative to closed network multichannel for individual channels wishing to reach a mass audience. But if the threat is clear, the opportunity is three fold. Opportunity lies in the positioning of cable as a platform for distributing OTT content, both to the end consumer, but also in the business-to-business segment of the TV distribution value chain, working with channels to distribute their signal as a CDN and last mile channel.
And what makes the situation so interesting today is through the miracle of happenstance, cable finds itself in an ideal position to fulfil these roles. Happenstance because the infrastructure investments made by cable operators in fibre and DOCSIS 3.0 where not done to facilitate OTT delivery but to diversify revenue streams when the core business of television was under increasing competitive and price pressure. And just how far cable has come from its days as a distributor of television only is evidenced in the fact that as of 2012, nine of the 27 markets in the European Union derive more cable revenue from telecoms services than from television.
For channels themselves, the reality of the business is that a switch today to only OTT Unicast delivery would be commercial suicide for all but the most niche of channels. Success in the TV channel business still requires reach. And the other factors that go into the reach equation, notably consumer behaviour and service availability, are still lacking.
OTT costs today are not substitutive and will remain incremental on broadcast for the near to medium term. The burden placed by the need to meet increasing OTT demand on larger-consumption channels, which must maintain fixed broadcast costs, is thus potentially onerous.
For business, that means there will be increasing demand for a solution to these costs as OTT consumption continues to scale. The larger the channel, the bigger the problem. The future of broadcast infrastructure provision will thus rely on finding a way to bundle flat-rate OTT delivery with some form of broadcast distribution for the scheduled feed.
For cable finding a way to capitalise on that long-term future will pay dividends. With a wired network, consumer-facing ISPs and an increasingly strong stake in the distribution of multiscreen content around the home, cable is a long, long way down that path already. The rationale for major take-overs that bolster pan-European footprints like the recent proposed take-over of Virgin Media by Liberty Global, start to take on a whole new perspective beyond the usual analysis of free cash flow and business synergies when this future is considered.