subscribe: Daily Newsletter

 

How carriers can monetise video

0 comments

For years, video has caused headaches for telecom carriers, driving costs up faster than revenue and leaving consumers dissatisfied. But as technology improves, and consumer viewing habits change, the future presents increasingly better prospects.
By Ryan Ding, president of products and solutions at Huawei Technologies
Online video isn’t new. But the large quantity and high quality of video that’s available will drive telcos’ video business in the coming years.
This video boom is a global trend. In the US, revenue from video on demand (VOD) is equal to 1,5 times worldwide movie box office revenue, while average revenue per user (ARPU) is $118 for VOD versus only $50 for broadband service. Asia Pacific saw a 71% increase in IPTV subscribers from 2015 to 2016, while those in China grew by 40-million last year. There is growth in Europe as well: in Spain, penetration of a quad-play subscriber package stands at 50%.
Some carriers believe it is still too early to invest in expanding broadband networks. They are concerned that there’s insufficient demand, and not enough channels or content.
This is a misconception. In particular, the number of live channels broadcasting in 4K is growing. In 2015, there were 50 such channels worldwide. Last year, the number rose to 95, and by next year there are projected to be 170 4K channels worldwide.
In addition, more providers are creating 4K content. In 2015, there were 190 4K content providers, rising to 430 last year and an estimated 810 next year. Again, this trend holds across different regions. In the UK, Premier League football broadcast just 15 matches in 4K last year, but is expected to broadcast 124 by the end of this year. China, meanwhile, has already produced more than 1 500 hours of 4K content.
More devices are allowing more people to watch all this content. The number of 4K TVs has doubled from 40-million installed sets in 2015 to 80-million last year. TVs are also getting more affordable, with the average price of a set hovering around $400 last year. As for the set-top boxes (STBs) that provide access to IPTV, 15-million were shipped in 2015, rising to 44-million last year.
In addition to having more channels and more devices, users are increasingly willing to pay for a better video experience. In China, both the number of subscribers and the revenue from paid video users grew eight-fold between 2014 and 2016. In the US, Europe, Middle East, African, and Asia Pacific markets, more than 80% of users are willing to pay an extra 10% to 30% for HD content.
So with the growth of video content, channels, and devices, how can telcos actually make money from video traffic? We believe there are three ways.
The first is to monetize broadband. While telcos may not yet be able to charge for video content, they can charge for bandwidth. HD movies and other HD video content consume plenty of bandwidth, and that means more telco revenue.
For example, from 2014 to 2016, China Telecom in Hebei Province, near Beijing, invested heavily in its network, building out more fiber to the home (FTTH). As a result, its IPTV users rose from almost nothing in 2014 to 2.7m in 2016. FTTH subscribers rose 34% from 3,5-million in 2014 to 5,3-million in 2016.
When the carrier bundled mobile, broadband, and video service together, its churn rate plunged 12-fold, dropping from 2,5% to just 0,2%, the lowest churn rate in China.
Telcos can also monetize user experience. By offering high-speed broadband, they will steadily enlarge their subscriber base, developing their own premium HD video content and other differentiated services for end users.
For example, an operator in Germany found that its original video service had become less appealing to customers. In response, the operator designed a series of innovative features designed to optimize user experience. These included a “zero-waiting” feature that eliminated video buffering, and time shifting, a service that let users pause a live event, such as a football game, then come back and quickly watch the bits they missed.
The service also featured an intelligent search function to help subscribers access all available films, games, VOD broadcasts, and live TV, plus a seven-day replay function that allowed users to go back through the program guide by up to one week and watch programs they had missed.
The results were dramatic. From the launch of the new service in May 2016 through the end of the year, the German carrier added 500 000 new users, twice as many as expected. The service is now adding about 5 000 new users a day, with 83% of subscribers saying they plan to shift to the new TV service.
Finally, telcos can monetize the entire digital ecosystem that is initially created by home video entertainment. Ads, gaming, shopping, education, e-health, home security, and other services will allow telcos to leverage their large subscriber base and charge for access to these premium services.
For example, a large telco in South Korea currently runs a platform that aggregates content related to cooking, e-health, other services and information, for which the telco charges its subscribers.
Despite the fierce competition in South Korea’s telco market, monetizing the digital ecosystem has helped this carrier increase its ARPU 1,5 times, from $21 to $31. Its market share rose three percentage points, from 19% to 22%. Data used by the average user rose 2,5 times, while the operator’s churn rate fell 89%, from 3,6% to 1,9%.
Video is now a core service for telecom operators, one that serves as a platform for a panoply of premium offerings in health, education, home entertainment, public safety and more. Smart carriers will act now to make the necessary investments in infrastructure, allowing them to monetize video across the dimensions of broadband, user experience, and digital ecosystems.