BUSINESS STRATEGIES FOR CONVERGED VIDEO SERVICES
23.4.1 Bundling
From the beginning in the early 2000s telecommunication operators have provided IPTV services as part of a bundling strategy, often carried out as ‘triple play’, packaging voice (phone), video (IPTV) and data (broadband) services.
Bundles are typically offered at a lower price than the sum of the prices of the individual services. Telecommunication companies that also offer mobile services (or are able to contract them from other operators) may adopt a ‘quadruple play’ strategy by adding mobile phone service to the package. Most telecommunication companies pursue mixed bundling strategies, selling services as part of bundles and on a stand-alone basis. A successful example of bundled service is U-verse offered by AT&T in the USA. The company offers an integrated mobile and tablet app to allow consumers to download and watch TV episodes from anywhere. Recently, it also offers access to Amazon Prime on a trial basis as part of one of its bundles. Price bundling is not always a revenue-enhancing strategy but it typically works if consumer preferences and demand for the individual services are heterogeneous (Stremersch and Tellis, 2002). The profitability of bundling will be enhanced if marketing costs are only incremental and if churn can be reduced by bundling (Huang, 2012). This is illustrated in the cases of three Internet service providers in France (Free, Orange and Neuf Cegetel), which were able to increase the average revenue per user (ARPU) by offering bundled IPTV and broadband access services (Park et al., 2009).23.4.2 Compelling, Original and Exclusive Content
While branded content is available on traditional platforms such as terrestrial and cable television, compelling, original, and exclusive content helps attract viewers to OTT services. Although the strength of converged video services may not be original content, suppliers provide some original content in order to attract more viewers.
For instance, in Hong Kong, PCCW’s Now TV (an IPTV service) provides its own news and sports channels in addition to carrying other news channels and sports channels on its platform. It also competed with i-Cable for the right to broadcast the Barclays Premier League (one of the most prestigious soccer leagues in the world) live, which is considered to be compelling content for people in Hong Kong.In the USA and abroad Netflix is positioned as an OTT service. It is not anchored to any facility-based infrastructure. The production of original content helps distinguish Netflix in the competitive video market. For example, the original series House of Cards and Orange is the New Black are only available on Netflix. In terms of creating original content, Netflix’s main concern is to appeal to the audience. One of the key features of Netflix is that subscribers can view the video content any time they want and as many times as they like. As of September 2013, with 40.4 million subscribers each paying $7.99 per month, Netflix had invested about $100 million in the first two seasons (a total of 26 episodes) of the original series House of Cards. The show is an example of a successful business strategy since it was produced with a fairly low investment but with a massive return. This original series not only increased the popularity of Netflix, but it was also the first production by an online video distributor to ever receive an Emmy award, for Best Director (Sharma and Cheney, 2013).
23.4.3 Complete Release
Serial watching of one TV show or DVD after another over a weekend has been known for a long time and used to be called ‘marathon viewing’. Today, viewing multiple episodes of a TV show in one session online has been given a new name: ‘binge viewing’. On OTT platforms, binge viewing was first catered to by Netflix when it released all 15 episodes of Arrested Development, allowing viewers to watch the entire season at once if desired. The strategy of complete release further reinforces the behavior of binge viewing.
In a recent survey by Harris Interactive on behalf of Netflix, the results showed that, of those who stream at least one episode per week online, 61 percent reportedly binge view regularly. Described as ‘viewing 2-6 episodes of the same TV show in one sitting’ in the survey, Netflix has also declared that binge viewing has become a prevalent and normal behavior (PR Newswire, 2013).In the same survey, it was also revealed that binge viewing nowadays carries a different meaning. While negative connotations such as guilt are often associated with the traditional concept of binging, close to 73 percent of TV streamers reported positive feelings after binge watching. Over three-quarters claimed that viewing the episodes all at once in their own preferred time made the shows more enjoyable (ibid.). Online video distributors such as Hulu and Netflix offer the choice of binge viewing to attract more viewers and subscribes to the premium services (Fixmer, 2013).
23.4.4 Multi-screen Service
Technically speaking, multi-screen service can be provided by IPTV, cable TV, and OTT TV. It is a strategic decision contingent on holding all the relevant audiovisual broadcast rights. Multi-screen service emphasizes a seamless service, which allows users to view content on multiple devices such as TVs, mobile devices, and personal computers, preferably via just one account. The multi-screen feature allows great convenience for users to access content anytime, anywhere (Berman et al., 2011). According to estimates by the US research firm Parks Associates, in 2012 multi-screen services reached 66 percent of pay-TV subscribers in Western Europe, 21 percent in Eastern Europe, and 9 percent in Asia, compared to 90 percent in North America (Beach, 2012b).
In the UK, cable company Virgin Media launched its Virgin TV Anywhere platform in November 2012, offering 30 live channels and over 2000 hours of on-demand content to its subscribers on tablets, mobile devices and computers at no extra charge.
It offers OTT services via adaptive streaming for multi-screen purposes. By doing so, it can better accommodate a viewer’s circumstances and ensure a smoother transition from screen to screen (Wright, 2013).Netflix claimed that its content can be accessed via up to 900 different devices. For instance, smartphones with either iOS or Android systems, tablets, gaming consoles, digital television and Smart TV are all devices through which users can gain access to Netflix’s content. Dailymotion, the world’s second largest video-sharing website, also pursues a multi-device approach.
24.4.5 Strategic Co-opetition
In the highly interconnected Internet ecosystem, players in different segments in the value network are often in ambiguous competitive relationships. Whereas they may be competitors in one geographic market or one point in time they may offer complementary services in others and might benefit from cooperating (Brandenburger and Nalebuff, 1996). Companies will need to choose when and where to compete and when and where to cooperate. If the elements of cooperation and competition are both visible, then the relationship between the competitors is referred to as co-opetition (Bengtsson and Kock, 2000).
For instance, Verizon cooperates with DirecTV (DBS service) in areas where its FiOS video service is not available by splitting revenue with it. Another example of co- opetition can be found in the case of YouView in the UK. Formed by four broadcasters and three telecommunication carriers, YouView provides free access to a total of 70 channels offered by digital terrestrial television (DTT) and TV on-demand (‘catch-up TV’) channels as well as access to pay channels.3 Although the service providers involved are also competing with each other, they have agreed to make their content available on the same YouView platform since it is a way of reaching a larger audience base. A third example is the co-opetitive relationship between KT and Samsung in South Korea.
KT laments that Samsung’s Smart TV takes up bandwidth without any compensatory payment. However, despite this dispute, the two companies also cooperate in some areas, such as the incorporation of KT’s set-top box in Samsung’s Smart TV.24.4.6 Differentiation
Where convergence leads to an intensification of competition (e.g., by making available new platforms for the delivery of content), firms will seek to reduce that pressure by differentiating their offerings (Greenstein and Khanna, 1997). Differentiation strategies may be implemented by varying prices, service quality, by adding features, and so on. Not surprisingly, differentiation is a strategy often used by converged video services, especially for content aimed at different platforms, such as mobile devices or personal computers. For example, for mobile devices, short-form content (such as news updates) would probably be more appealing, since users are often on the go with a mobile device. This suggests that it is advantageous to create and design content specifically for the intended device. There are many examples of differentiation strategies employed by players offering converged services, especially OTT video services. For instance, in terms of the revenue models, YouTube and Dailymotion adopted an advertisement model, Netflix adopted a subscription model, and YouView adopted a freemium model. Speaking of content, YouTube and Dailymotion focus on user-generated content, Netflix focuses on original content, and Lovefilm focuses on premium content. With regard to programming, three OTT players in Taiwan emphasize different genres, with Elta focusing on sports, UDN TV on news, and Catchplay on movies.
23.4.7 Disruptive Innovation
According to Christensen (1997), disruptive innovation occurs when the design of new products or services takes place at a lower price, and only marginal customer segments are attracted at first. However, as time goes by, the new product or service has the potential to displace the incumbent service or product providers.
Examples of market disruptors can be found in OTT video services as well. For instance, in China, many online video services have started to provide all content for free.4 There is no requirement for a password or monthly subscription. Service quality was not stable in the very beginning and there was also pirated content. In the course of time, the online video platforms improved download quality, avoided pirated content, and provided some premium content at a cheaper rate than IPTV and cable TV Online video services have consequently had an impact on both cable TV and IPTV.The complete release of all programs and providing users with the opportunity to view all content without limitation is also a means of disruptive innovation. It is different from traditional TV, which usually airs the program based on a schedule, often only once a day or once a week. In addition, the way in which the OTT video services carry the advertisements also disrupts the TV market. In many OTT video services, the advertisement can be skipped by the users after it is shown for a few seconds. This disruptive strategy is widely welcomed by the users.
23.4.8 Flexible Pricing
A flexible pricing strategy allows consumers to choose and select what is suitable for them. According to Cryan (2012), video streaming online exceeded physical video sales such as DVD and Blu-ray discs beginning in 2012. Although a direct comparison is difficult, US audiences watched 3.4 billion movies online and spent US$2.4 billion to purchase physical hardcopies. Market intelligence firm ABI Research (2013) reported that companies like Netflix and Hulu helped expand the global OTT video market past the $8 billion mark in 2012 and revenues are predicted to exceed $20 billion by 2015. Two likely reasons why online video services have become so popular are their convenience and the flexible pricing strategies adopted by providers. For instance, subscribers of Netflix and Amazon Prime may opt to pay a monthly flat fee to enjoy ‘all-you-can-watch’ services and video content (Oppenheim, 2012). On the other hand, consumers may also choose to pay a la carte according to their usage and downloads. In addition to gaining unlimited access to content available on the newly converged platforms, consumers can also pay for the particular movie or episode they watch. On mobile platforms, some network operators have begun to collaborate with content providers to offer sponsored data (‘zero rating’), a model in which data related to content from partners or certain applications is not deducted from a user’s data allowance.
23.4.9 SoLoMo, O2O, and SoMoCloGlo
Several other models - including SoLoMo (social, local, and mobile), O2O (online to offline), and SoMoCloGlo (social, mobile, cloud, and global) - are emerging and promise interesting innovation opportunities in OTT. SoLoMo, a term coined by John Doerr in 2011, is a useful strategy for converged services. Examples of SoLoMo can be found in popular social networking apps like WeChat and Line. The apps exemplify its sociability, locality and mobility by connecting users in proximate locations through the ‘shake’ function on their mobile handsets. Users can also use the ‘look around’ function to search for their friends and acquaintances. Once connected, users can send texts, voice messages and images to communicate and socialize.
By utilizing the features of SoLoMo, service providers can bring more interactivity to the users. For instance, iPartment (Love Apartment) is a popular sitcom on Mainland China. It was first aired by Jiangxi TV in August 2009. Later, it was adopted by other TV channels and two online video websites (iQIYI and PPS). In the beginning, iPart- ment was only a social network focusing on dating and chatting. The founders borrowed the theme of the social network and made dramas based on love stories they collected on the Internet. They utilized SoLoMo features and became well received by the audience.
SoLoMo also enables key concepts such as O2O activities to be prevalent. O2O refers to how online activities of users can lead to offline activities at the store front (Xia and Zhu, 2014). For instance, viewers who watch OTT video content may watch the same program again offline. Online viewing can sometimes boost the rating of offline media, because it can increase the visibility of the program and the awareness of the audience.
SoMoCloGlo is another strategy coined by Fred Wilson, a venture capitalist and co-founder of Union Square Ventures. SoMoCloGlo evolved from SoLoMo. In the acronym, Clo stands for the cloud, and Glo for global. Global OTT players such as Netflix, YouTube, and Dailymotion are good examples of companies utilizing the SoMoCloGlo strategy.
23.4.10 Big Data Analysis and Applications
With the growth of connected devices such as smartphones, tablets, and smart TV, media platforms can use the detailed data collected to analyze viewers’ use of their services. Over time, the collection will amount to a tremendous volume of data, often referred to somewhat sloppily as ‘big data’. What is most significant about big data is not the quantity of data, the storage capacity, or processing capability of computers. It is the fact that statistical and computational methods are improved with better algorithms, in which specialists are now able to link the datasets and see patterns in the data.
Unlocking the value of big data has become an efficient way to optimize the media platforms’ position and investments. By analyzing the rich data in the service and spotting the patterns of user behavior, media platforms will be able to drive profitability, meet customer needs, and grow market share. For instance, companies such as Netflix and Amazon have ‘recommendation engines’ to make purchase suggestions to the users. They are doing so based on the prior interests of not just one individual, but of large numbers, often millions, of customers (Shaw, 2014), enabling them to leverage rich information to their competitive advantage.
Big data analysis is now being frequently used by Internet service providers (ISPs) and Internet content providers (ICPs) to refine their customer service and new platform strategies (Gao, 2013, p. 26). Thanks to big data, House of Cards produced by Netflix was a huge success. Netflix can track when viewers pause, rewind, and fast forward. It also tracks the day, time, and location of viewing and the used devices. Furthermore, it collects information about ratings, searches, browsing and scrolling behavior and even looks at data within movies (Bulygo, 2013). Viewer data helps the company to learn about viewer preferences and behavior including the appeal of directors, stars, and genres. House of Cards successfully demonstrates how Netflix uses data and analytics to select movies, create content, and make investment decisions to produce attractive original content and thus offers exactly what viewers want (Carr, 2013).
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