Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
When Netflix launched in Latin America back in 2011, the legacy broadband infrastructure was a major concern. The regional operators feared the pressure of rising video streaming traffic on their networks, and questions were raised about the quality of experience that Netflix could offer its Latin American customers, given the state of broadband networks in the region.
Legacy is not a deterrent to OTT video
In fact, the legacy broadband infrastructure in Latin America is proving not to be a deterrent to over-the-top video. There is no doubt that by deploying FTTx, and especially FTTH, telcos are in a better position to compete against cable and satellite providers with triple and quadruple play offers. Nonetheless, there is evidence that FTTH is not a must-have to deploy a video service successfully over a broadband network. Within the current ecology of applications, a consistent single-digit megabit-per-second ADSL connection is enough for most advanced users and can support standard video streaming as well as compressed high-definition video streaming. The case of AT&T’s U-verse in the United States shows that ADSL2 can support a large-scale IPTV deployment, providing sufficient bandwidth and speed (up to 15 Mbps).
The additional bandwidth saving efficiencies that can be generated by content delivery networks (30% to 40% less bandwidth according to Pyramid Research partner firm Heavy Reading) and adaptive bit rate technology, are further helping the business case for IPTV and OTT video over existing legacy networks.
Obviously, this does not mean that operators should not upgrade their networks with fiber, especially considering the growing bandwidth demands that new applications such as HDTV, multiple viewing and simultaneous recording will bring. But the existing legacy operators are able to cope with the growth of OTTs and could consider launching their own OTT services to compete with third party providers.
Saturation in mature markets pushes content owners to seek new opportunities
A year and half after Netflix’s Latin American debut and with many other OTT services now available in the region, we can say that content, not technology, is the most critical factor to OTT success.
We have seen a growing interest among content owners to expand their presence between mature markets by offering their content to third-party OTT providers as well as for OTT services provided by telecom operators themselves. This is due to the fact that the increasing saturation and concentration of content rights in developed markets is pushing global content providers (such as studios and aggregators) to look for new opportunities to license their products on traditional as well as OTT platforms. At the same time, in the saturated U.S. and European markets, content providers are aware that embracing the OTT model directly puts them at risk of cannibalizing existing and highly profitable business with pay-TV providers.
On the other hand, the content rights markets are still fluid in Latin America. As a result, we are seeing many partnerships between content providers and the OTTs. Recent partnerships for OTT service provisioning include Telefónica’s deal with Sony to offer the studio’s content on its VOD, OTT and TV Everywhere platforms, and Netflix’s deal with Paramount Pictures studio for its Latin American operations.
Linear content will make the difference from niche to mainstream
Content preferences and consumption patterns vary from market to market, but across all Latin American markets, locally-relevant linear content, such as local TV channels and live sport events, is still the most sought after. In Argentina, for example, where household broadband penetration is comparatively high (45.4% in 2012) and where there is a strong pay-TV culture, selling VoD without a linear programming element will be a huge challenge.
Linear TV distributors clearly see the benefit of offering Internet TV, and linear TV is starting to be a key service proposition of several OTT services, as shown by the partnerships of Racsa in Costa Rica and Iusacell in Mexico with the OTT Totalmovie to add live TV channels from TV Azteca to its VoD service. We believe that to expand the addressable market, OTT providers, either telecom operators or third-party aggregators, will need to add a linear TV offering to their VoD services. The evolution from VoD library to a combination of live TV and VoD will transform OTT video providers from niche players to true competitors in the pay-TV market.
Daniele Tricarico is an analyst for Latin America at Pyramid Research. He conducts research for Pyramid on operator strategies and business models for online content, over-the-top (OTT) video and communication services. He also covers the Latin American region as part of Pyramid’s emerging market team.
