How do you plan to spend your evening most times when you order a pizza? You’re very likely to watch a video. In the U.K., Domino’s Pizza Group saw the value of over-the-top (OTT) online video to boost customer loyalty and, last month, it launched the Domino’s Pizza Box Office video-streaming offer. Customers order a pizza and get a download code to stream a movie at home. This is just another example of how OTT is revolutionizing the way video content is delivered to consumers.

Today almost anyone can become a content provider.

Figure 1: Evolving video delivery environment and video platforms

Source: Pyramid Research

Many operators see the proliferation of OTT as a threat to their established IPTV business models. They fear OTT will subvert their roles in the pay-TV value chain and will cannibalize revenue. We’ve found, however, that the opposite is just as likely to be true. In our new report, OTT Growth Sparks Innovation Multiscreen Video Business Models, we argue that OTT is serving as an innovation stimulus for the pay-TV market, pushing telcos to enhance their IPTV services with more screens. We also find that an increasing number of operators, alongside their managed IPTV services, are directly entering into non-managed OTT environments. This means that more operators are using the open Internet to offer video services to potentially any consumer with a broadband connectivity, being their existing customers or not.

Operators are warming up to the idea of launching their own OTT services, especially in emerging markets. While IPTV remains a premium service, which requires subscribers to purchase more expensive bundles, OTT is more flexible and only requires a good broadband connection. This means that, in the more price-sensitive markets where there is still strong demand for online video, OTT is becoming an attractive option for users. Besides, OTT services are typically delivered over a wide range of screens and at different price points, including smartphones, tablets and gaming consoles, making them more accessible to different consumer profiles. The outlook is positive.

In the near future, we expect to see significant revenue-generating opportunities associated with video on demand (VoD), catch-up TV and targeted advertising, especially when telcos can integrate their OTT and IPTV offerings with interactive and social media functions.

Using the open Internet for content delivery, however, has its downsides. The main shortcoming with OTT is that the operator is not in control of quality of service. Especially in emerging markets, quality of service and network speeds vary wildly from country to country, making it challenging to ensure the same quality of experience that can be guaranteed through a managed IPTV network.

Another challenge for operators is securing in-demand content for OTT platforms. Without doubt, content is king, but content also is costly. Unless they are backed by multimedia and broadcasting groups, operators tend to be the weak link in the content production and delivery value chain. But that is a challenge with IPTV, too.

All in all, if telcos are serious about developing a pay-TV offering that can resonate with the demand for multiple viewing platforms at different price levels, they need to seriously consider the opportunity of complementing IPTV platforms with OTT.

Daniele Tricarico, Pyramid Research

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