Guest column by Dr Jörn Krieger
The sudden growth of OTT services like Netflix and Hulu has sparked fears that the new transmission method of reaching consumers directly through the internet could pose a threat to traditional broadcast infrastructures. But is this really the case? A new study takes a closer look and comes up with some interesting figures.
Connected TV opens the door
The technical foundation for over-the-top TV services (OTT) to reach a mass market audience is formed by the strongly growing number of the modern flat-screen TV sets which can be connected to the internet. According to the latest figures (http://www.rapidtvnews.com/index.php/24832/3dtv-and-connected-tv-popularity-grows-in-europe.html) compiled by market research institute GfK, more than 13 million connected TV sets will be sold in the ten largest European TV markets (including the UK, Germany, France, Italy and Spain) this year - an increase by 30% compared with 2011. In 2013, GfK expects an increase by 22% to over 16 million. Along with other popular devices like tablet-PCs, smartphones and games consoles, connected TV sets enable broadcasters to stream their programmes directly to the consumers using the open internet - both traditional linear TV channels and on-demand services.
A promising proposition
At the first glimpse, OTT resembles an attractive new gateway to reach TV viewers. By circumventing the conventional broadcast infrastructures cable, satellite and DTT, it could be used by new market players to quickly penetrate the market. No capacity on satellite needs to be rented, no carriage deals with cable companies have to be worked out and no revenue sharing agreements with platform operators are required. It all sounds pretty promising and might even become a temptation for established broadcasters - but how does OTT stand a more close inspection?
The downside of OTT
In its report "Scaling OTT: Do the economics stack up?" (http://www.isuppli.com/Media-Research/News/Pages/OTT-Providers-Must-Address-Delivery-Network-Access-to-Remain-Competitive.aspx), market research institute IHS Screen Digest analysed the prospects of OTT. The study takes into account one crucial fact which differentiates OTT from traditional broadcast infrastructures: Cable, satellite and DTT have specifically been designed to reach an unlimited number of viewers with a single signal at a fixed cost while internet-based media delivery builds up a single stream for each recipient. OTT broadcasters have to pay for bandwidth consumption created by each stream, thus, the costs rise with the number of viewers. Could OTT players become victims of their own success? The risk is quite real, as the study reveals.
Comparison of cost
To serve the viewing needs of a mass-market audience, the content delivery network costs (CDN) for OTT streaming services would have to fall by a factor of as much as 25,000 just to reach parity with conventional broadcast technologies, according to the calculation. "At current prices, it would cost 1.2 billion euros in CDN costs alone for OTT unicast streaming to serve the population of the United Kingdom with the kind of high-definition (HD) viewing they are accustomed to," said Guy Bisson, research director for television at IHS. "When OTT unicast streaming services like Netflix are scaled up to suit the mass-audience television market, their advantages in cost, flexibility and technology turn into disadvantages."
The pendulum turns
When comparing distribution costs, the study found out that the CDN cost per hour to provide OTT streaming in standard definition exceeds the costs of renting satellite capacity when the audience reaches 8,000. At this tipping point, satellite would be cheaper than internet streaming for a broadcaster - and the cost wouldn't rise with increasing viewer figures. "Even at just 8,000 simultaneous views, unicast streaming becomes less cost effective than broadcast - and this is a tiny amount compared to a typical primetime audience for linear TV," Bisson concluded.
A look into the future
Despite the likelihood of increasing data rates and falling CDN costs, conventional broadcast infrastructures have the strongest potential to remain the most efficient distribution method for mass market linear television as future technologies such as 4K - offering a resolution four times higher than current HDTV - require even more bandwidth. OTT may provide a smart delivery method for niche channels and on-demand services, but it's rather a companion than a competitor for traditional broadcast infrastructures.
The future of the media and broadcast industry is also the topic of the new book "Even Higher" to which Jörn Krieger contributed the article "The Media World in 2037: Back from the Future!" (http://www.ses.com/even-higher) which takes a light-hearted look at the developments we might face in the next 25 years - from the perspective of 2037.
About the author:
Dr Jörn Krieger is a freelance journalist based in Bavaria, Germany. He has been covering developments in the media industry since 1990 for a wide range of German and English-language trade publications including Rapid TV News, TV Digital, Infosat, Cable!vision Europe and Sat-Report. The media expert's emphasis is on cable, satellite, IPTV, DTT, pay-TV and new markets such as OTT and hybrid broadcast networks.