This document discusses the rise of over-the-top (OTT) TV services and their potential impact on the traditional pay TV model. Key points include: 1) Internet-connected devices are becoming more prevalent in homes and driving increased online viewing of TV shows and movies. This is challenging the pay TV industry's business model. 2) Major tech companies like Google, Apple, and Sony are pushing for cloud-based, multi-screen viewing experiences in order to own the consumer relationship. 3) Younger audiences in particular are more willing to watch TV content exclusively online, threatening cord-cutting. However, cord-shaving where consumers reduce services is more likely in the near term.

1. The Future of Pay TV
The impact of OTT TV services and the quest for a ‘better TV’ experience
Reference Code: BI00052-012
Publication Date: August 2011
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2. Keith Johnson
Keith Johnson uniquely fuses 25-years of blue chip FMCG marketing and brand building expertise across
three different market segments (food, drink and mobile phones) with a further 10 years pursuing a portfolio
career in the interactive TV business. Keith’s focus is on video content convergence from strategy to
execution and, with a special interest in interactive brand engagement, he is a strong advocate of strategic
‘over the top marketing’ for brands and content publishers.
Disclaimer
Copyright © 2011 Business Insights Ltd
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3. Table of Contents
Keith Johnson 2
Disclaimer 2
Executive summary 15
The Internet era of TV arrives 15
Existing Pay TV services 17
Towards a “better TV” experience 20
Chapter 1 Introduction 23
Background 23
Scope of the report 24
Chapter 2 The Internet era of TV arrives 26
Summary 26
Introduction 28
The rise of Internet video 28
Viewing Internet video hits the mainstream but traditional viewing holds firm too 30
Web-to-TV growth 31
Connected TVs - towards mass market penetration 31
OTT TV – quality of service 33
OTT can lead Pay TV into the cloud to extend reach 34
Connected devices and the OTT landscape 35
Connected TV set to have a big impact on viewing behavior 35
Issue of interoperability between various standards 36
Red button ‘enhanced’ TV still thriving 37
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4. Content convergence takes center stage 37
Multi-screen viewing experience and companion devices 38
Sony and the push for a cloud-based multi-screen experience 39
HBO and the developing battle to own the consumer 40
Google TV and the user experience 41
Need for compelling content will drive distribution co-operation 43
TV operators must be willing to cooperate and partner with OTT providers / CE manufacturers 43
Samsung and the ‘Smarter Life’ 44
Cord-cutting, cord-shaving and the consumer 45
Pay TV incumbents have the ball and it’s theirs to lose 45
Cord attachment not cord cutting in ‘Freeview’ markets 47
Netflix and Hulu making cord-cutting waves but content will cost them more 48
Cord ‘swapping’ more likely 50
Some younger age groups only watch TV online 51
Multi-screen content convergence 51
Drivers of multi-screen content convergence 52
Operational challenges still to be overcome 52
Confusing the consumer is a big risk – user experience the top priority 53
User experience is becoming the critical issue for service providers 53
Multi-room services start to utilize other CE screens in the home 54
Device control versus broadcaster control: Cablevision go with cloud-based “nDVR” 55
RVU Alliance and Remote User Interface solutions 56
Content discovery is a multi-screen experience for BSkyB 56
Consumers increasingly using tablets and mobiles as companion device 57
Telenet in Belgium also has early success with its Yelo platform 57
Impact on the Pay TV value chain 58
Roadblocks for Connected TV services may delay full impact in the near term 58
CE manufacturers lack of consumer marketing capability – a big barrier to market-making 59
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5. Product management ethos still prevails, consumer market insight missing 59
Retailers moving into video streaming: Tesco buys Blinkbox, Amazon buys LOVEFiLM 60
Tesco deploy Trove hybrid technology across range of Freeview devices 61
French broadcasters lay out key engagement principles for CE manufacturers 61
Statement lays out the requirements for CE manufacturer ‘compliance’ 62
Google and Apple and their “unique ability to scare broadcasters” 63
Channel brands and program brands... and second wave OTT 63
Companion device + app is building an interesting ‘second OTT wave’ 64
ITV to wean itself away from reliance on “hideously cyclical” 30 second ads 65
ITV need a hybrid TV proposition full of compelling content and interactive formats 65
Sky, YouView and BBC iPlayer frame the issues for aggregated catch-up TV on the TV 66
Lack of consumer marketing input on YouView 67
Multiple versions of the BBC iPlayer could have been avoided 67
Channel 4 distributed on YouTube 68
Broadcaster ad-funded models are not sustainable in this new fragmented world 69
Interruptive ad-funded model cannot support channel fragmentation 69
New micropayment systems may help broadcasters 70
TAS provides the ‘plumbing’ for broadcasters to monetize 2-screen 71
Netflix moves into the premium TV business with original content 71
Netflix positioning itself to Hollywood 72
Facebook and Warner Bros. stir things too 73
Facebook streams The Dark Knight 73
Warner Bros. very active in multi-platform engagement 74
Niche content publishers and brands can take full control of their OTT distribution 75
OTT opportunity for special interest content owners 75
Cable operators go on the front-foot 76
Consumers still need a cord to get OTT content 77
Increasingly faster broadband speeds drive both cable and OTT models 77
Potential for Pay TV content value chain disruption 78
Content management issues facing Pay TV in multi-screen video delivery 80
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6. Aspera offers a new standard for moving large video files 82
The CDN is a vital component of future hybrid networks 82
Scope for Pay TV operators to become successful CDN providers 83
Potential for migration of existing Pay TV services to OTT (CDN) delivery 83
Changing world for set-top box manufacturers 84
Common Interface Plus (CI+) allows TVs to bypass set-top boxes – a temporary solution? 85
Social media infusion into online and TV 87
Social media is viewed as entertainment, content needs to reflect this 87
Social gaming 88
Virtual goods are the most important revenue generator for social gaming 92
Netflix working with Facebook on deeper online integration 92
Integration of Facebook in the TV environment 93
Social network driven search and recommendation – will it work on TV? 94
Advertising spend 95
US advertising spend not (yet) following online video consumption 95
Growth in online video and mobile advertising 98
Branded content ‘engagement’ adds pressure to traditional advertising thinking 99
New pay models evolve for newspaper publishers 102
Apple enables iPad subscriptions 102
Publishers are getting more generous terms from Google 103
Chapter 3 Existing Pay TV services 105
Summary 105
Introduction 108
Pay TV revenues flat-lining in Western Europe 108
Content owners and original (premium) content 112
Entertainment companies still vulnerable to disruptive force of OTT 113
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7. Importance of watermarking for ‘early-window’ VOD 114
Netflix creates OTT dilemma for Showtime, Starz and others 114
Netflix showing the power of the ‘content-2-me’ model for OTT engagement with consumers 115
Time Warner Cable and Cablevision go OTT with TV channels direct to iPad 115
TWC / Cablevision maintain streaming iPad app is within existing carriage deals 116
“Oscar Backstage Pass” Companion App debuts 117
Meta-data creation / management can unlock new value: CBSSports and MLB.com 117
Live sports content and ‘cable lite’ bundles 118
Regulator intervenes in UK Pay TV market, takes on Sky re. premium content 120
Sky forced to wholesale premium sports channels to rivals 120
The Kokott Ruling: challenging the lucrative rights model in the EU 121
Exclusivity rights are ‘contrary to EU law’ 121
Kokott’s ruling not yet legally binding; will have significant effect if accepted 121
Premium formats 123
CE giants push 3D products 123
3D TV channels set to increase in Europe, but original content lacking 123
3D TVs forecast to reach 91 million global shipments in 2014 124
Format war in 3D glasses will only further stall the consumer market 126
360 degree video 127
World’s first 360-degree view music video 127
BSkyB 128
BSkyB “build your own” Pay TV bundles, pay-per-view and other pricing 128
Virgin Media also segmenting packages 131
Sky launches Sky Mobile TV app for iPad 131
BSkyB product bundling will be further stimulated by hybrid VOD service 132
Sky Atlantic / HBO premium content deal 132
Part of Sky’s investment in a broader range of entertainment content 133
Sky will strategically cover multiple platforms 133
“Multiplatform future is paid content” 133
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8. 10 million Freeview homes a prime target for a ‘lite Pay TV’ proposition 134
Virgin Media 135
Backwards-facing EPG for ‘missed TV’ will drive TV consumption 135
Integration with TiVo 135
Virgin embraces OTT by going ‘through the middle’ with managed OTT 136
Segmenting the pipe for managed OTT 136
ComCast Xfinity TV 137
Re-launched with 2-screen companion app 137
Comcast (and Time Warner) partners with Samsung 138
Key moment for Comcast Xfinity multi-screen evolution 138
Verizon FiOS TV 139
iPad app does not support streaming, even in the home 139
FiOS add options to personalize service bundles 140
Liberty Global UPC Horizon: “wonder box” 141
User can move content around the home 141
Prisa TV Digital+ a la carta 142
TF1 143
TF1 have developed 5 apps for Samsung Smart TV, but not VOD (yet) 143
TF1 launches social media VOD trial with Facebook 143
Orange 145
Challenge of service rationalization across multiple access networks and screens 146
ONO 147
Apple TV 148
Apple AirPlay: wireless streaming in the home 148
Apple partners with Netflix 149
Apple TV adds live streaming apps 149
Apple launches iCloud 150
Hulu Plus 151
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9. Netflix 152
Netflix is a destination 152
LOVEFiLM / Amazon 154
Amazon observes that customers will pay extra to stream a movie immediately 154
Chapter 4 Towards a “better TV” experience 156
Summary 156
Introduction 158
Content discovery in OTT TV: moving beyond the Internet search experience brought to the TV
159
Control of user interface and revenues that go with it 159
NDS create a content marketplace for OTT channel EPG integration 160
The NDS interface covers the most important parameters for any content deal 161
Hitting the mass-market in the living room 161
Multi-room and in-home multi-screen 162
DLNA could play a key role in multi-room 162
Content discovery and the user experience 163
Content discovery and metadata take center stage 163
“Metadata” not a consumer-friendly concept to communicate, but is key to differentiation 164
Integration of broadcast and VOD metadata so viewer can stay within the broadcaster service
164
TalkTalk trial Technicolor MediaNavi 164
Rovi Media Cloud 165
Ability to duplicate program listings on companion screen 166
The EPG and content discovery 166
Search, recommendation and ‘enabled’ serendipity 168
Viewers want to discover new programs from a list filtered for relevance 169
The ‘shoppable’ EPG and contextual commerce 170
TV apps and the evolving hybrid TV experience 170
Unifying the consumer experience across multi-screen subscription packages 171
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10. Suggested discovery and recommendation 172
Companion devices open the 2-screen engagement door 173
Personalized, real-time, synchronized TV viewing on the companion screen 173
Channel 4 drives participation levels and formats 173
PlayToTV for Germany’s Next Top Model 174
Junaio mobile ‘augmented reality’ browser driving participative TV in Germany 175
Aurasma ‘augmented reality’ app links up with Super 8 movie 176
Screach real-time engagement ‘experiences’ target interactive TV 177
Screentoo powered with real-time metadata from Snell broadcast automation system 178
Digital fingerprinting 178
iPad pushes 2-screen with audio triggering 179
Audio watermarking for real time 2-screen synchronization being widely evaluated 180
Socially augmented TV 181
Couch Crew in Germany develop advanced social TV app 181
zeebox augmented TV 182
Use of contextual metadata from a variety of sources 182
Opt-ins will enable the ability to see what friends are watching and interact 183
NDS Hoovu 183
Yahoo! moves into TV sharing with IntoNow 184
Content convergence 185
Multi-source strategies are essential to TV curation 185
Content overload increasingly a problem 185
Real-time, 2-screen content engagement will transform ‘transmedia storytelling’ 186
Alert to the opportunity of connecting real-time, one-to-one 186
Brands as media – Red Bull in pole position on OTT 187
Content commoditization and the growing opportunity for OTT niche and local content 188
YouTube to seed-fund up to 20 ‘premium’ YouTube channels 188
Pay Per View can work for long tail: niche audiences will pay for scarcity 189
1.5 million people watch live video coverage of the Murdoch Phone Hacking Parliamentary Hearing
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11. 189
The future of TV advertising 190
Yahoo! “joining the dots” with multi-platform ‘smart’ ads, in context and interactive 190
Sequential advertising to improve effectiveness 191
Microsoft unveil NUads ad platform for Kinect 191
BlackArrow creates a unified multi-platform approach to ad management 192
Ability to cost-effectively swap-out ad copy across multiple screens 192
AAMP, CEE MEE, BARB and the urgent need for ad measurement systems 193
Canoe Ventures ‘CEE MEE’ study planned 193
BARB takes first small step on audience measurement for online TV viewing 194
Addressable advertising will create niche advertising opportunities 194
Sky AdSmart to extend to Sky+ 195
YuMe Relevance Engine’s ‘content awareness capability’ 196
Apple iAds drive improved engagement and ‘tap through’, but take up is slow 196
Apple cuts minimum spend demands on iAds 197
SkyLife and Kudelski JV to deploy advanced advertising solutions in Korea 197
Addressable advertising will challenge brands and their agencies 198
Reality is that most brands do not sufficiently understand addressability: new thinking is needed
198
Ad agencies need to re-engage with TV reality or get OTT’d themselves 199
Lack of thought-leadership and know-how will need to be addressed 199
If data is the new oil, applied data skills and affinity for the technology will differentiate 200
ROI is the driver of engagement activities 201
Freedom to innovate will challenge the old ad model 201
As media and creative converge, need for greater understanding of creative methods in media
201
Renewed creativity around contextual advertising 202
OTT technology funnel for intelligent content and ad creation – the personal media moment
203
Longevity of content / ads will be inbuilt from conception 204
New type of ‘agency’, new type of client… 204
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12. Clear tension between ad agencies and tech companies 205
Appendix 206
Glossary / Abbreviations 206
10-foot viewing experience 206
Converged or blended content 206
DTO – download to own 206
Hybrid TV 206
Managed OTT 206
OTT / Over–the–top 206
VOD – video on demand 207
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13. Table of figures
Figure 1: Internet video users by region (m), 2009-14 29
Figure 2: % of consumers watching OTT TV on a PC or TV, April 2011 30
Figure 3: Connected TV shipments by region (m), 2009–13 32
Figure 4: How consumers view their TV paid services, April 2011 46
Figure 5: Apple, Netflix and TV access provider content costs as a % of revenues, 2009-11 49
Figure 6: The Pay TV content value chain 78
Figure 7: The OTT disrupted Pay TV content value chain 79
Figure 8: Pay TV content creation and management chain 81
Figure 9: Social gaming users by country (m), 2010–15 89
Figure 10: Global number of online gamers by gender, 2010 91
Figure 11: US major media ad spending, by media ($bn), 2009–15 96
Figure 12: US media ad spending share, by media (%), 2009–15 97
Figure 13: Branded ad spending share of total marketing for US companies ($m), 2001–2010100
Figure 14: Branded content spending for US companies by media ($, 000), 2000–2010 101
Figure 15: Western European Pay TV revenues by segment ($m), 2006-16 109
Figure 16: Western European Pay TV households (m), 2010-16 111
Figure 17: 3D TV unit shipments by region (m), 2009–14 125
Figure 18: BSkyB “Entertainment pack” 129
Figure 19: BSkyB Pay TV bundles 130
Figure 20: Influences on what viewers watch (% of respondents), by age-group 168
Figure 21: OTT technology funnel for intelligent content and ad creation 203
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14. Table of tables
Table 1: Internet video users by region (m), 2009-14 29
Table 2: Connected TV shipments by region (m), 2009–13 33
Table 3: Hulu Plus and Netflix US online movie / TV rental subscription subscribers, revenues
and ARPU, 2010–13 48
Table 4: Social gaming users by country (m), 2010–15 90
Table 5: Global number of online gamers by gender, 2010 91
Table 6: US major media ad spending, by media ($bn), 2009–15 97
Table 7: US media ad spending share, by media (%), 2009–15 98
Table 8: Branded ad spending share of total marketing for US companies ($m), 2001–2010100
Table 9: Branded content spending for US companies by media ($, 000), 2000–2010 101
Table 10: Western European Pay TV revenues by segment ($m), 2006-16 110
Table 11: Western European Pay TV households (m), 2010-16 111
Table 12: 3D TV unit shipments by region (m), 2009–14 126
Table 13: Verizon FiOS service bundles, 2011 140
Table 14: BSkyB EPG changes, 2011 167
Table 15: Influences on what viewers watch (% of respondents), by age-group 169
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