The burgeoning interest in on-demand streaming video, driven by OTT service offerings such as Netflix and Amazon Prime Instant Video, together with the rapid proliferation of Internetenabled devices, is one of the major market trends at the moment.
The broadband internet and myriad connected devices are changing the rulers of the game in TV-content development, production, licensing, delivery and viewing. By 2012, search engine giant Google, which owns the video-hosting YouTube platform, had already recognised that traditional TV was no longer dominating viewers’ attention. From the days when the key players were terrestrial broadcasters and the upstarts were the cable and satellite services, we are now approaching the next generation of audiovisual content operations.
The latest catch is to use the internet to deliver live and on-demand TV that mirrors the linear broadcast channels. These Over-The-Top (OTT) subscription-funded and/or free ondemand streaming services include Netflix, Hulu, Amazon Instant Video, Canal+’s subsidiary Canalplay and a host of Asian OTTs that have emerged over the last 8 months. Asia is the last frontier for some of these big OTT networks that have monopolised the globe over the last five years.
Netflix got a head start, going ‘live’ in Japan on 2 September after opening an office in Tokyo earlier this year. The Japanese launch marks Netflix’s first foray into Asia. Netflix’s service launched in the country with a selection of Japanese TV series and films, as well as Netflix originals and global hits such as Marco Polo, Sense8, Daredevil and documentary Virunga. Meanwhile, Amazon recently confirmed plans to launch its Prime Instant Video service in the country later last month with a range of content, including U.S. and Japanese movies and TV programmes.
Jim O’Neill, principal analyst at Ooyala, said Amazon enjoys brand recognition in Japan that could make it a serious threat to Netflix as both U.S. companies roll out video offerings almost simultaneously in the country.
Further, with the arrival of the two biggest global OTT players, Japan’s streaming market is entering a new level of competition. “Netflix and Amazon brings more to the fight: deep, deep pockets; experience in expanding to and adapting to new international markets,” O’Neill told SNL Kagan.
U.S.-based Hulu LLC already operates in the country, having launched in Japan in September 2011, and Malaysia-based OTT platform iflix, which mainly caters to Southeast Asia, is rumoured to be looking at a Japanese launch by year’s end.
That leaves Netflix as one of the companies with the most brandbuilding ahead of it as it fights to capture the interest of Japanese consumers. Netflix has already started to reach out to local players, forming partnerships with a diverse range of companies. In August, it inked a deal under which SoftBank Corp. will exclusively offer a fully integrated Netflix experience, for instance. SoftBank customers can sign up for Netflix at SoftBank shops, major electronics retailers and through SoftBank’s website and call centers, and Netflix’s monthly fee will be added to their SoftBank bill.
Nicole McCormick, a principal analyst at Ovum, stressed that paid products have struggled to gain traction in Japan as there is a huge amount of free content available in the country. “The question is, what content has Amazon got that does not already exist in Japan,” McCormick told SNL Kagan. “Western content does not fare well in Japan,” she added.
Netflix appears to be aware of this dilemma. It recently confirmed that Hibana, the company’s first original Japanese series, based on a novel by Naoki Matayoshi, will premiere globally in 2016. Earlier, Japanese broadcaster Fuji Television Network Inc. announced that it had teamed up with Netflix to create original content. Netflix is also rumoured to be working with several Japanese production companies to push out content in Japanese language. Japanese talent agency Yoshimoto Kogyo has agreed to produce a variety of shows and dramas for Netflix, which is also negotiating partnerships with TV channels, movie companies and publishers to provide original programming.
Netflix is moving aggressively to push into other markets in Asia. The company confirmed on 8 September that it will launch in South Korea, Singapore, Hong Kong and Taiwan in early 2016. The Asian expansion is part of an ambitious global rollout that Netflix expects to complete by the end of 2016.
Clement Teo, a senior analyst at Forrester Research in Singapore, said the timing is right for OTT players to consider Asia, especially in countries with solid, reasonably priced mobile broadband and wired infrastructure and a high penetration of PCs, smart TVs and mobile devices.
O’Neill agreed that where Netflix goes, many may soon follow. “The rest of Asia… it’s potentially a treasure trove for any VOD player, [as] there are lots of mobile devices, tremendous connectivity and a broad acceptance of technological change,” he said.
Global OTT TV revenues slated to hit $51b in 2020 Global OTT TV and video revenues covering 64 countries are expected to reach $51.1 billion in 2020, jumping from $4.2 billion in 2010 and an expected $26 billion this year, according to Digital TV Research.
The U.S. will remain the dominant territory, with revenues rising by $16.6 billion between 2010 and 2020 to $19.1 billion. China’s OTT TV and video revenues will rocket from just $40 million in 2010 to $2.8 billion in 2020, pushing China up to fourth place in the world rankings.
SVoD (subscription video on demand) will become the largest revenue source in 2020, overtaking OTT advertising and adding $14 billion between 2014 and 2020, going from $7.6 billion to $21.6 billion. By 2020, there will be some 249 million SVoD homes, up from 20 million in 2010 and an expected 117 million by end-2015, according to Digital TV Research.
The U.S. will contribute 70 million SVoD homes to the 2020 total. In 2010, the U.S. generated SVoD revenues of $753 million, a figure that is expected to climb by 765% to reach $6.5 billion in 2020.
“SVoD has developed even faster than we expected in our last edition a year ago,” said Simon Murray, principal analyst at Digital TV Research. “Some of this growth was spurred by Netflix’s aim to establish operations in 200 countries by end-2016.”
According to Digital TV Research’s Global OTT TV & Video Forecasts report, Netflix is estimated to have 69.90 million paying subscribers by end-2015, up by 28 per cent from 54.48 million at end-2014. International paying subscribers will reach 26.36 million by end-2015 – up by 9.58 million (or by 57 per cent) at end-2014. While the service’s home U.S. market will provide the majority, with 43.5 million, other international markets are set to boost numbers significantly, including the UK with 4.9 million, Canada with 3.9 million and Brazil with 3.4 million.
A new brand study of streaming providers seeking to understand how consumers perceive each brand has revealed that some consumers believe Netflix can wholly replace other entertainment options, Hulu is irritating users with its mandatory commercials and Amazon Prime Instant Video isn’t differentiated from Amazon Prime shipping.
The research, carried out by consumer insights firm iModerate, and backed by social data from Luminoso, looked past the numbers to understand how consumers perceive each brand, including where they’re excelling and falling short, and how each is being used.
“Nearly 40 per cent of households now subscribe to a video streaming service, and while the industry has closely tracked their gains and losses, no one has really looked at consumer perceptions of these brands until now,” said iModerate partner Adam Rossow.
iModerate’s study of 2,500 consumers nationwide found that Netflix is the resounding favourite out of the three dominant streaming services. The form says this popularity is not surprising, as it’s also reflected in market share, with Nielsen reporting that 36% of U.S. households subscribes to its service, far more than its nearest competitor.
What may come as a surprise is that Netflix was the sole service called out for its potential to supplant cable and satellite TV, and even unseat networks. In fact, 20% of participants said they’re confident Netflix can replace other video entertainment options altogether. Many respondents also predicted that Netflix will force the hand of cable providers by setting a new standard for quality entertainment that’s affordable and on-demand.
The iModerate study reveals that variety is the No. 1 factor, with participants citing it more than any other benefit. Not only does Netflix offer an array of well-loved TV shows and movies, but also a number of newer original series.
Netflix is also known for being addictive and a binger’s delight. Numerous respondents said they like to convene with friends and watch entire seasons of TV shows, and some even referred to having a “Netflix day” or “Netflix binge” when they’re sick, lazy or want to reward themselves.
Overall, consumers are only vaguely familiar with the Hulu brand, and study participants view it primarily as a novel way to stream TV shows, not necessarily movies. The ability to watch a favourite TV show after it airs was cited as a main benefit of Hulu’s service. That said, Hulu seems to be suffering from either a lack of awareness or benefits-oriented positioning, as 14% of participants couldn’t name a single benefit when asked.
Although many indicate they’re eager to try out Hulu, they tend to be most interested in watching a specific show, rather than seeking out content once they’ve arrived. This suggests that Hulu should institute more original programming and a friendlier interface to retain first-time viewers.
Study participants overwhelmingly called out one big downside of Hulu’s service – the compulsory commercials. A large number view the ads with irritation and disdain, and contend that, “once you start paying for Hulu, there really shouldn’t be commercials.” Nielsen suggests that Amazon Prime Instant Video is gaining ground against its rivals with 13% of household penetration, yet iModerate’s research paints a different picture of the brand’s stickiness in the marketplace.
Many iModerate study participants believe Amazon Prime Instant Video lacks defining characteristics or value. Even more grave for the brand is that consumers aren’t differentiating between Amazon’s Prime streaming service and its two-day shipping service. When pressed about the benefits of Amazon Prime Instant Video, 23% of the responses referred to shipping instead.
Those who are familiar with Prime Instant Video described it as slow, annoying, and short on value – something they wouldn’t pay for if it weren’t free. Additionally, many who have the service said they weren’t sure how it works.
“While Netflix is the strongest contender to replace or supplement traditional TV, Hulu and Amazon could threaten its dominance by making a few tweaks, such as communicating a stronger benefits message, offering more original programming and building friendlier interfaces,” said Rossow. “There’s no doubt that cable and satellite companies are planning their counter-moves, so the battle isn’t decided yet.”
Among the key study highlights:
• 20 per cent are confident Netflix can replace other entertainment platforms
• Users talk about “watching Netflix,” rather than watching shows on Netflix, indicating a strong platform brand identity
• Hulu is synonymous with TV, whereas Netflix is known equally for its TV and movie selection
• Hulu lacks brand awareness and is failing to communicate a strong benefits message
• Consumers tend to choose Hulu because they’re interested in certain shows, rather than the platform as a whole
• The Amazon Prime Instant Video brand is oddly entangled with Amazon’s Prime shipping service, and could become even more muddled with the company’s push around Fire TV
• Those with Amazon’s video streaming service don’t know how they have it or how to use it
Even before it was confirmed that Netflix would arrive to this part of the world, incumbent services had already launched in other countries in Southeast Asia. Malaysia’s iflix is currently available in Malaysia and the Philippines, while Singapore’s telco, Singtel-owned Hooq is streaming in Thailand and India. None of these countries are immediate Netflix destinations, but a lot of them will be by the end of 2016, the company says – at which point, it will have to fight them for air time and content licenses.
Everywhere Netflix has gone, there have always been either incumbents who are trying to protect their turf or new people coming in who would like to try a subscription-based streaming business.
As streaming video is not a zero-sum game, it’s not necessary for just one service to rule them all. As TV moves from the traditional linear formats to the web and apps, some sort of consolidation into bundles might not be the craziest thing after all. Think of a possible bundle deal giving you access to Netflix, HOOQ and HBO for example.
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