The recent boom in SVoD services, driven by the launch of Netflix, Stan and Presto in Australia has been accompanied by a sharp rise in network data traffic according to a report prepared for Australia’s national broadband network (nbn) by consultancy firm Ovum.
Average monthly download usage on the nbn network was 73GB in March 2015 but was 110GB by September, a rise of 51 per cent in just six months. Some capacity problems arose this sudden increase in demand.
According to Ovum, video use in Australia is set to grow even further in the coming years, so further new capacity will be required as time passes. Ovum estimates that the number of SVoD subscribers in Australia will grow by a factor of 17 between the end of 2014 and the end of 2019. By that time, Ovum forecasts that there will be 4.707 million OTT SVoD subscriptions in Australia.
Other forms of OTT video delivery such as downloaded video-on-demand (VoD) will also grow significantly. Many users of these services will be individuals rather than households, with the number of screens per household proliferating; already, there are 2.3 TV sets per household, and 1.6 tablets, not to mention smartphones. Video traffic is already the driver of overall household traffic.
The capacity problems that were caused by SVoD video traffic in 2015 were addressed fairly quickly as telecommunications operators moved to add broadband capacity to cope with the increased data traffic. Ovum notes that the event raised questions about over-the-top (OTT) video, particularly where the responsibility rests for OTT service quality. There was also some confusion about the origin of the problems, which were not related to basic access speeds in the last mile, but to capacity in local and long-distance transmission that link up the last-mile networks.
According to Ovum, these questions will only become more pressing as more OTT service providers and new video business models emerge over the coming years. The Australian video services market will look very different in 2019 compared to 2014. The main difference will be the new variety of services available. In 2012, Australia was still in the throes of the analogue FTA switch off, and traditional FTA and pay-TV were completely dominant. In 2019, they will share the market with IPTV and a dramatically expanded OTT video industry.
Ovum suggests that OTT video is qualitatively different from more traditional video services such as free-to-air (FTA), pay-TV and IPTV. FTA TV, pay-TV and IPTV are all delivered by a single integrated service provider that can perform end-to-end management of service quality (or something very close).
In contrast, OTT video is delivered by multiple service providers across a value chain that is only loosely coordinated. No single provider is ultimately responsible for service quality and stability. This arrangement has the undoubted advantage that it is low cost, and this makes OTT video services cheap to buy. It will allow the delivery of a ‘long tail’ of niche content that would otherwise be uneconomic, and this will greatly increase viewer choice.
According to Ovum, there is a price to pay for this. Service guarantees are limited, and service quality cannot reach the same levels as pay-TV and IPTV unless OTT providers convert themselves into IPTV providers which would require major investment in new infrastructure. But investment on this scale is not going to happen, because it would undermine the prime attraction of OTT video to customers – its low cost and growing variety.
The purpose of the Ovum report is to explain the origin of the trade-off between cost and quality that customers will need to understand to get the best out of OTT video. Customers need to understand the strengths and weaknesses of each mode of video delivery – pay-TV, IPTV and OTT video – and what are reasonable expectations of the newly-minted OTT services.
“OTT video can deliver great customer benefits, but it also creates tensions between different players in the value chain that have erupted into open conflict in some markets,” notes Ovum. “In the USA, this has manifested itself in a battle over net neutrality. In South Korea, it led to Korea Telecom briefly blocking video services to Samsung Smart TVs to relieve capacity problems in 2012, prompting intervention by the regulator. More recently in Spain, Netflix and rival Totalchannel have complained that their OTT video offer is being constrained by incumbent Telefonica’s network policies, reducing picture quality and lowering streaming rates,” it advises.
Ovum suggests that fortunately, these tensions are somewhat mitigated in Australia because of the country’s (almost) unique tiered data allowances which sees data usage roughly aligned with prices. There is profit in traffic growth that network providers can reinvest to address customer demand.
These tensions can be further mitigated, to the benefit of customers, if telecommunications retail service providers (RSPs) and OTT video players can cooperate to fund some focused infrastructure investment to manage the delivery of digital video content.
“This creates a better experience for OTT video customers, and also creates a wholesale revenue opportunity for telecommunications service providers. This is the strategy now being adopted in advanced video markets, and it can deliver benefits in Australia too,” Ovum concludes.