The Evolution of Big Video

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Telco Transformative Video Opportunities

Telco video transformation is already under way. In 2016, the vast majority of “traditional” pay-TV services are now supplemented by various IP-based enhancements. While adoption of traditional subscription TV services continues at a steady but relatively moderate pace globally, OTT and mobile video services are emerging as big growth areas for content providers and distributors alike.

In pay TV, telcos have made slow but steady progress, accounting for around a fifth of global subscriptions at the end of 2015. Telcos’ expansion beyond their IPTV networks into satellite, cable, and OTT distribution, is having a substantial impact on the video industry.

The key is to differentiate through UHD and take video quality to the next level. All TV service providers have to evaluate their positioning regarding the deployment of UHD linear TV and VoD services. Currently, UHD deployments are confined largely to IPTV and OTT services; however, soon there will be a significant proliferation of launches as European TV providers use the new English Premier League season as a driver for UHD service launches.

Operators face 2 challenges: the increased burden on their networks of third-party UHD distribution, and how they wish to incorporate UHD distribution into their own service offerings. UHD video and TV availability will have a major impact on the market: the emphasis on a differentiated level of video quality may enable higher prices.

In order for operators to manage the increased network burden, it is critical that they monetize this additional data burden, not just for day-to-day operations but also to ensure that funding is available to maintain network investments to keep pace with growing audience demand for UHD services.

4K UHD Forecasts
Despite some constraints (such as high prices for 4K UHD TV sets, limited availability of 4K-native content, and bandwidth limitations) pay-TV operators are demonstrating their commitment to launching 4K UHD services, and are promoting them along with set-top box upgrades. Penetration of 4K UHD is set to increase from just 2.5% in 2015 to 30% in 2020. Slow adoption of high-speed broadband services at a global level will present a significant obstacle to more rapid growth.

We estimate that in 2015 global sales of 4K UHD TVs reached 22.4 million units, an increase of 90% over the previous year. At the same time, 4K UHD TV sales exceeded 10% of total TV sales globally. Price decreases and the introduction of new 4K UHD pay-TV services will boost 4K UHD penetration to nearly half of total TV households by 2020. After China and the US, Germany and the UK will become the world’s third and fourth biggest 4K UHD markets, respectively. (See Figure 1.)

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Figure 1. Global UHD household forecast, 2015-20.

Telcos account for more than half of the 4K UHD implementations. This highlights telcos’ tendency to remain at the forefront of technical innovation.

While OTT players are also among the early movers in UHD subscription video-on-demand (SVoD) deployment (despite technological limitations), their 4K offers are limited by relatively small content libraries. The leading OTT operators, Netflix and Amazon, for example, have surprisingly scant 4K content offers compared to niche players such as M-Go and UltraFlix.

The relative dearth of desirable 4K content available on OTT platforms highlights a growing opportunity for network-based pay-TV operators to address latent demand for 4K adoption by stepping in to provide the required content services and customer premises equipment (CPE) as well as the supporting network infrastructure.

Managing Churn
Enabling high-quality video user experiences is important not only for driving video business growth but also for providing a key defensive position for operators: customers who receive a better video experience are less likely to change broadband providers.

In an Ovum survey, 28% of respondents stated that they had changed their broadband service provider within the past 12 months — 64% of them in order to gain a more reliable service or faster speed. Over 2016, 54% of respondents stated that they would consider churning — again, largely to get a faster connection or a cheaper deal (or both).

Figure 2 shows those respondents that are considering churning from their current service provider, based on the experience they received on certain media applications over the past 12 months. It is clear that those who currently receive a poor experience from their media applications are twice as likely to consider churning from their current broadband service provider.

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Figure 2. Customer desire to churn doubles with poor video experience.

Live Streaming
Mobile video traffic (excluding Wi-Fi) will increase tenfold during the 5 years to 2020; this is something network operators will need to address at both a business and technology level. (See Figure 3.)

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Figure 3. 4G video traffic forecast, 2015-20.

The bulk of traffic carried over telco networks is generated by third parties. If telcos cannot fully monetize this huge growth in external traffic, they must at least take measures to optimize their networks, enabling more efficient and cost-effective distribution of video.

What’s more, video-calling — for which volumes across consumer and business segments are projected to grow at a CAGR of 10% between 2015 and 2025 — has the opportunity to go more mainstream if pushed by the communications service providers (CSPs). The current most popular video-calling services across desktop PC or laptop and mobile are Skype, FaceTime, and Facebook Messenger, but other new players will enter the market in the future. Telcos will inevitably need to respond to this and add video into their converged communications services in order to remain relevant to the end user.

One operator, T-Mobile (US), is already addressing this challenge with its Rich Communications Services (RCS)-supported Advanced Messaging product, to which it added video-calling capability in September 2015. The service had gained more than 5.5 million users, who were sending an estimated 40 million messages daily by the end of February 2016.

According to Ovum’s internal forecasts, video calling will account for 6% of the world’s fixed calling traffic by 2020, by which time the global fixed voice service market will be worth a projected $134.7bn. (See Figure 4.)

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Figure 4. Global video-calling traffic forecast, 2015-25.

There is also a growing opportunity for video applications being used by enterprises across the full spectrum of industry verticals. While communications remain the primary use for video in the enterprise, a number of additional functions are gaining traction among businesses of all sizes.

Once the preserve of only the most senior levels of enterprise executives, video communications has effectively broadened its usage from the boardroom to the entire office. By far, the longest-established, most widely used video application among enterprises is videoconferencing.

Video Opportunities for Network Operators
Currently, the greater part of video data is attributable to third-party or non-operator–provided video services. As video distribution increasingly shifts to IP — across both managed and unmanaged IP networks — network operators have an opportunity to grow their proprietary video operations. Given the current period of evolution and the unique qualities of network operators, we believe that network operators must act quickly and aggressively to assert themselves in fast-changing video value chains. Of course, that process has already started with many operators.

Managed delivery of linear broadcasts and video-on-demand services to a set-top box at a fixed location via a private or closed (fixed) broadband network is the distribution method underpinning the vast majority of telco-initiated pay-TV operations over DSL and fiber access networks. IPTV services have been deployed by more than 50 telcos worldwide with several, including Belgacom, China Telecom, Orange (France), PCCW, Portugal Telecom, and Singtel, having achieved leadership positions in their respective pay-TV subscriber markets.

As an extension and value-add to the core broadband access business, IPTV is a central pillar of the classic telco multiplay expansion strategy. On average, the world’s IPTV operators are servicing 2.1 revenue-generating units (RGUs) per individual customer.

More than 90% of the 70 operators included in Ovum’s 2H15 Telco TV Benchmark are delivering some form of streaming video. At least two-thirds provide multiscreen access to pay-TV content, while a further third offer a Netflix-type SVoD option, and almost a quarter distribute third-party OTT video services to their subscribers.

Apart from the now almost ubiquitous proprietary multiscreen/TV Everywhere enhancements and a handful of standalone OTT SVoD products, telcos’ much larger roles in video streaming is that of an enabler to third-party content service providers, whose video services are delivered via network operators’ wireline and cellular broadband data infrastructures.

Although RCS is one option for telcos exploring provision of video calling, another has emerged: WebRTC. An open source project, WebRTC seeks to create a framework, protocols, and an API for real-time voice, video, and data communications, delivered through a WebRTC-enabled browser via multiple device types and multiple network technologies. It is viewed by mobile operators and the wider industry as being far more accessible than RCS, evident in the number of trials and deployments of the technology.

Deployments include Telenor’s Appear.in service, which is being used by consumers and enterprises; and Telefonica’s TokBox, which has a number of enterprise users. Also, many enterprises are working with vendors or independently to deploy WebRTC-based services within their companies, mostly in the customer-care function because the typical use case is videoconferencing or video chat.

Telco and enterprise interest in and use of WebRTC-based videoconferencing and chat services will persist, with the number of deployed use cases growing. Meanwhile, the WebRTC standard will stabilize to the point that it starts to satisfy telco requirements for carrier-grade infrastructure.

Hosted or cloud-based videoconferencing services are now offered by a wide range of providers. These include a number of telco operators, such as AT&T, BT, Orange Business, Telefonica, T-Systems, and many others. AT&T also includes fixed, desktop, and mobile videoconferencing endpoints as part of its Virtual Care tele-health solution.

Besides dedicated online video platform (OVP) providers such as Brightcove, Kaltura, and Ooyala, a number of telcos have entered the corporate video space, including AT&T, whose Video Management Services portfolio provides an end-to-end enterprise video platform solution that encompasses video capture, transcoding, content management, and delivery. Among the enterprise functions supported are employee training; company-wide town hall meetings; external live webcasts; corporate social video; video blogging; employee video uploading / sharing; customer interaction, advertising, and feedback; and investor relations updates and addresses.

Video currently accounts for just over three-quarters of all global unmanaged video traffic, and will continue to do so for decades to come. Global unmanaged video traffic is set to grow at a CAGR of 25%, tripling in the 5 years to 2020 to just over 800,000 petabytes per year. The fastest-growing video traffic category will be cellular, which will grow at a 65% CAGR to exceed 142,000 petabytes, with its share of the global total rising from 5% in 2015 to 18% in 2020. Wi-Fi will continue to underpin the largest share of traffic, accounting for around half of the total throughout the forecast period and growing at a CAGR of 24%. (See Figure 5.)

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Figure 5. Global video traffic forecast over unmanaged IP networks, 2013-20.

Big Video, Big Impact
Video is fueling the telecoms value chain, pushing operator investments into more capacity (and other QoE elements), while also bringing those operators new data subscribers and propelling vendors to improve equipment, devices, and network performance. Ovum’s forecast illustrates that video in 4G cellular networks accounted for 89% of total video traffic across all cellular networks during 2015.

The 2 main technical challenges operators face is the sheer amount of video that is going through their networks, and the fact that this is now beginning to be encrypted. Operators have traditionally managed video through optimization, transcoding, caching, and making sure that bandwidth was not wasted in their networks. Encryption limits their ability to manage video, as traffic passes through their networks in tunnels, on which they have no visibility.

Regardless of these challenges, operators are now transforming to become more agile players, evolving into experienced enablers rather than simple access providers.

For more information about the White Paper “The Evolution of Big Video”, please visit http://www.huawei.com/en/news/2016/8/HW-and-OVUM-Jointly-Release-The-Evolution-of-Big-Video.

About the Authors:
Ed Barton heads up the industry-leading TV Practice at Ovum where his primary responsibilities include setting the research agenda and ensuring the requirements of Ovum’s extensive client base are continually fulfilled. In addition to analyzing how traditional TV will evolve, he focuses on disruptive viewing paradigms enabled by IP distribution and the ever-growing availability of connectable devices. Ed also contributes to adjacent Ovum research programs on issues related to media and entertainment. For more information, please visit www.ovum.com.

Jonathan Doran is a principal analyst within Ovum’s TV team. His key areas of coverage include product strategies, business models and end user demand for broadband-delivered content and entertainment, primarily from a network operator/service provider perspective. Jonathan is Ovum’s lead analyst in the area of television, including cable, satellite, digital terrestrial broadband-delivered TV, with an emphasis on the development of value-added services such as HDTV, video-on-demand time/ place-shifting and multi-screen video. For more information, please visit www.ovum.com.

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About Author

Ed Barton heads up the industry-leading TV Practice at Ovum where his primary responsibilities include setting the research agenda and ensuring the requirements of Ovum’s extensive client base are continually fulfilled. In addition to analyzing how traditional TV will evolve, he focuses on disruptive viewing paradigms enabled by IP distribution and the ever-growing availability of connectable devices. Ed also contributes to adjacent Ovum research programs on issues related to media and entertainment. For more information, please visit www.ovum.com.

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