HBO Goes VOD? Been There, Done That—The View from the Experimental Nordic Market
HBO is doing it. So is CBS. Even ESPN is getting in on the act. They're disrupting the cosy, established model that companies like Netflix and Amazon have pioneered for streaming entertainment content, and evolving it into something new.
In October, HBO announced it would launch a fresh type of business away from traditional cable connections. It means no more subscriptions to a cable provider, no more reliance on television and no snaking cables or clunky boxes tied to one room of your house. During 2015, HBO will debut a new streaming content service offering their premium shows and extensive back catalogue of classic shows to your laptop, tablet device or smart phone.
HBO already offers HBO Go, a TV Everywhere content service that streams shows over the internet - but it is only available for customers with a linear cable subscription. In future, you'll be able to watch HBO shows like The Sopranos, Game of Thrones, Boardwalk Empire and Veep wherever you go.
The current HBO network slogan "So Original" fits perfectly with their new, evolved business model.
In early November, CBS launched its new venture CBS All Access along the same lines as HBO, putting network content on your mobile device and making the video available on demand without the need for a traditional cable television subscription. The network's new streaming news service, CBSN, fits the next-generation concept of "content everywhere" and crucially—for any content owner, not just a big corporation—can be executed economically. CBS CEO Les Moonves described it as "plenty of content at not a great cost," which is surely the goal of many smaller channels too. ESPN is also dipping its toes in the water, announcing it will make some NBA games available, bundled as a TV Everywhere product. Other players like Hulu, BBC, and YouTube are already swimming in the OTT pool, but with such big names as HBO, CBS, and ESPN jumping in, everything changes.
They say a little competition is healthy, but Netflix might have mixed feelings about that. In late October the company's shares dropped more than 25% after it announced far fewer summer subscribers than forecast. The world's largest video streaming service had expected to add 3.69 million customers during the third quarter; instead it only signed up 3.02 million.
In a statement, Netflix didn't seem too worried about the new HBO competition, saying "it is likely we both prosper as consumers move to internet TV" but the truth is that Netflix has seen the threat from HBO coming for a long time, and prepared with a robust slate of on-demand shows which are critically acclaimed and commercially appealing, like House of Cards and Orange Is The New Black, as well as the upcoming Breaking Bad spin-off Better Call Saul and a number of Marvel adaptations in the pipeline.
Here in Finland, this is nothing new to us. As an experiment, HBO launched HBO Nordic almost two years ago, testing the concept of streaming VOD. Although HBO hasn't released any subscriber numbers, a Swedish market research firm estimated recently that HBO Nordic has less than 10% of Netflix's local user base, which our sources indicate being less than one million subscribers across all Nordic markets.
At the heart of all these new ventures is of course is the need to make money. In our recent Booxmedia white paper, we wrote about the emergence of more video content providers and aggregators who are selling content, creating new viewing habits and business models that are not yet fully mature, but will continue to disrupt the legacy pay-TV model.
In Europe especially, where Booxmedia is based, these OTT service providers are looking for new ways to monetize content, while the traditional TV ecosystem draws new rules and boundaries to divide up the $400 billion global Pay TV market.
The internet, combined with the penetration of new large-screen devices, at home and on the move, and the ubiquitous affordable access to fixed and mobile broadband, have created profound changes in the way consumers access and pay for video content.
In short, consumers have been given more choice in terms of when to access the content, as well as how to pay for it. Consumers now have more choice in terms of when they can watch a show, either time-shifted or on-demand. Fundamentally, the changes in viewing habit are having a disruptive effect on advertisement revenue. Not being able to predict who will watch what when is depressing the value of advertising at a given time spot. Redefining advertising value and revenue becomes crucial.
The OTT market is much smaller than Pay TV (only about $9.4 billion in 2013), but it is growing fast and threatens the Pay TV revenue model in the sense that in this model, revenues are split approximately 60/40 respectively between content owners and channels. This model was not overly threatening to multi-system operators until recently, because they commanded most of the investment for original content production, guaranteeing that, given exclusivity, a content would find viewership.
The new disruptive approach of OTT content providers—whether Hulu and YouTube or HBO and CBS—has spawned not only cord cutting, which refers to to consumers who decide to sever their relationship with cable or satellite subscriptions and who decide to access content exclusively online, but also "cord-shaving," where consumers reduce their traditional cable and satellite subscriptions to the basic package, while complementing their usage with online viewing.
All of this means that operators are no longer the sole or even the main source of content aggregation for viewers, who now have access to content through the web and apps that are embedded in their devices natively or downloaded dynamically.
Booxmedia has been running its OTT platform in the Finnish market since 2011, and currently has more than 100,000 active subscribers with the service. Booxmedia OTT solution is available on all modern mobile and computer platforms.
Tablets are clearly an increasingly popular platform for the consumption of TV and other premium content. On the other hand, it is interesting to note how little viewing takes place on PC and laptops, as you can see in the graph below. Despite the number of Android users far outweighing the number of iOS device users in general, iOS users dominate the usage of our cloud-TV services. This leads us to suggest (as many other sources have also found out) that iOS device owners are more likely to spend money for extra apps and content, such as premium TV shows or VoD items. It is worth noting that second screen usage is growing. Although it was only introduced to European markets recently, Chromecast is taking a meaningful and growing share of OTT content usage.
So 2015 is shaping up to be a crucial year in the evolution and monetisation of OTT and VoD products. With heavyweight names now throwing the full force of their content into the cloud, one of the few predictions we can make with any certainty is that cloud-based streaming video is the next big battleground for customers: whenever, and wherever they want to view the product.
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