Recognising the huge potential of OTT (over-the-top) video in emerging markets, various players have made their forays in recent years — most notably with Netflix’s 2016 entry. While there are no clear signs of a winner yet, we have compiled the top four insights that traditional TV players, OTT players and telcos must bear in mind when catering to emerging markets.
1. TV screens to remain dominant
Although the prevalence of apps and smartphones has exploded in recent years, consumers are holding on to their time spent with a TV screen — even in developed markets. The time spent on mobile devices is observed to be accretive and often a secondary screen while watching TV, with some watching it even passively.
Large screens remain important for watching long-form video, while small screens are used to access short-form content. Unlike the rapid disruption of the internet on print media, traditional TV appears more resilient to its OTT alternative.
The main reasons for this are that there are restrictive mobile data pricing for long-form streaming. What’s more TV is a family entertainment medium in regions with large household sizes. So it stands to reason that as a social activity that brings people together, TV remains very popular. Finally, TV penetration is still exceeding smartphone penetration.
As such, TV is expected to continue to command a dominant share in ad spend, as well as remain a key lever in telecommunication companies quad-play strategies for the next few years.
2. Local/regional content is king
Despite the popularity of global hits such as “House of Cards”, audiences in the Middle East still demand localised content that they can relate to (or even understand — in the case of some countries with low levels of English proficiency).
This is the case especially in emerging markets, which tends to have a strong local culture and a strong local/regional celebrity following. Going a little further afield, 80 per cent of video preference is for Bollywood and regional content in India. Indeed, we also see this in this region also, with a series of dedicated TV channels and programming to service the populations love for Bollywood content.
On a wider note, another example is Indonesia which has a large Bahasa-speaking Muslim population. Local acts such as K-pop and the Thai celebrity craze have had a profound impact in demand for content. In its video app rankings, eight out of ten top apps are focused on such local and regional content.
Netflix has also been broadening its localised offering, for instance with Spanish-language “Ingobernable” and multinational game shows such as “Ultimate Beastmaster”.
It will be interesting to see how OTT players balance the mix between a globalised and localised offering. The more localised and authentic the content is, the narrower its potential audience base will likely be — hence compromising the business case for such productions or rights purchases. OTT players must carefully model out different scenarios and place selective bets.
3. Advertising models rank ahead of subscription models
Streaming or subscription video on demand (SVOD) models have yet to demonstrate long term financial sustainability. There are a number of reasons for this. Firstly, they represent poor affordability, after factoring in data cost.
On top of monthly content fees, consumers must also pay for hefty mobile data charges — given that many people in emerging markets may not necessarily have a fixed broadband line at home. This often results in the total cost of consumption for OTT video being even higher than Pay TV.
What’s more, there are high piracy rates. Due to insufficient copyright law enforcement as well as inadequate IP rights education, piracy is especially widespread in emerging markets. With consumers used to getting content for free, there is a long way to go before convincing consumers to pay for SVOD price plans.
TV advertising is still the predominant revenue engine for media companies today and the immediate future. Feedback from advertisers is that TV advertising is to stay, since it is the only truly mass market medium with “proven” performance ratings.
Additionally, free/ad-supported (advertising video on demand) models such as YouTube have also thrived. It is projected that this will be where the bulk of the money lies.
4. Millennials are different from Gen X
Generational differences between millennials and the older generation are crucial to understand — especially in emerging markets, which often have youth-centric populations.
Millennials are undoubtedly the most tech-savvy group, with the highest smartphone and YouTube penetration rates. In terms of TV behaviour, they are the quickest to catch on to alternative forms of TV consumption (recorded, catch-up / on-demand, and online-streamed TV).
As such, millennials are often naturally the first adopters of any OTT video proposition launched, making them a crucial segment to get right.
In terms of content preferences, user-generated videos are particularly popular among millennials. Today, there are almost one billion Pro-Am and amateur content creators — including big YouTube stars like PewDiePie (who has more than 55 million followers), Raditya Dika and Kanan Gill — as well as a long-tail of amateur content producers.
OTT players can hence consider strengthening their content propositions with user-generated content — which could potentially attract youths more effectively (and more affordably) than expensive professionally-produced content.
In summary, OTT video in emerging markets requires a deep understanding of such‘rules of the game and consumer preferences. Getting this right and acquiring this level of understanding is the first step towards capturing this dynamic and promising opportunity.
Vincent Stevens is Senior Principal at Delta Partners. Michelle Gwee, is Senior Business Analyst at the telecom, media and digital investment and advisory firm.