The soaring popularity of Over-the-Top video (OTTv), driven by a proliferation of high-speed broadband, has the potential to truly reinvent the TV experience. OTTv services leverage the internet to deliver content directly to devices such as laptops, tablets, game consoles, set-top boxes, and connected TVs.
Currently, they comprise around 30 per cent of global consumer broadband traffic. But that number is growing fast, and some estimates project that it will represent more than half of global and regional internet traffic by 2014.
Consumers in the Middle East and North Africa (Mena) region demonstrate a particular appeal to digital video consumption, making OTTv offerings particularly attractive. Broadband subscribers in the region average 6.1 YouTube playbacks, compared to 4.9 worldwide.
Some surveys indicate that watching online video in the region is becoming as common as sending emails. The popularity and growth of connected devices such as tablets and smart TVs will further contribute to the uptake of OTTv. A recent IDC survey found that roughly half of all internet users said they plan on buying a tablet in the near future.
This growing preference for OTTv has not reduced the amount of time that residents spend watching TV. It's just that they are now multi-tasking as well.
Despite the surge in demand, there are a number of challenges that could prevent digital media ventures from making a profit, in the short term, on OTTv offerings. As with much internet content, consumers expect OTTv to be cheap (or even free), which may not justify the heavy investment needed to offer premium content, particularly given the abundance of free-to-air TV channels.
Piracy is another major concern for content suppliers, and relatively low credit-card penetration in the region limits the ability of operators to monetise content. Finally, while high-speed broadband is increasingly available, it still does not offer complete coverage throughout the region.
Given these challenges, any business with an OTTv strategy must define a creative and clear value proposition. Their goal must be to attract users in the entry market to build scale and ultimately begin to monetise their customer base.
This value proposition includes five main dimensions.
First is audience. Companies must target select segments or communities with targeted, relevant content.
Second is the platform. Companies must define the platform, such as linear video, on-demand, or a hybrid model combining both.
Third is the choice of device that consumers can use to access the content.
Fourth, companies must identify the relevant content and genres.
In the fifth, operators must determine the business model that fits best with their capabilities: ad-sponsored, pay per view, subscription, or hybrid models.
Hulu is a good example. The company created an extremely popular value proposition for US users by offering high quality HD movies and TV series with targeted advertising of only two minutes per show compared to eight minutes on linear TV. It has been profitable since late 2009.
In sum, OTTv is increasingly attractive to viewers and will become a larger factor in the media landscape. The digital media opportunity offers clear advantages as well, provided they develop the right strategy for how to leverage it.
The writers are with Booz & Co., the specialist management consultancy.