There's an OTT battle brewing in the Asia-Pacific region, with successful regional players flexing their local muscles as the global giants such as Netflix and Amazon expand into new markets.
Viu, an Asian OTT service offered by Hong Kong incumbent PCCW Ltd. (NYSE: PCW; Hong Kong: 0008), announced Tuesday that it had gained 4 million users one year after its launch. It also expanded into the Philippines today, where its "freemium" offer will target the fast-growing video advertising market.
Video advertising revenue in the Philippines is expected to grow at a CAGR of 32% from 2016 to 2021, according to statistics compiled by PCCW. (See PCCW's Lee Discusses OTT Service Viu.)
The operator also quoted research predicting OTT revenue in emerging markets will grow to US$19 billion by 2019. Viu also offers a premium subscription tier, with high-value content, at rates ranging from approximately $3 to $5 per month depending on the territory and partner.
According to reports, nearly 70 million homes in Asia will be signed up to subscription VoD services by 2020, generating revenues of nearly $5 billion.
Viu is not the only local player targeting this market. HOOQ, an OTT service launched by Singapore incumbent Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY), was launched in January 2005. It is a joint-venture between Singtel (which owns 65%), Sony Pictures Television and Warner Bros. Entertainment Inc. (owning 17.5% each) with a total investment of $22 million. (See Singtel Uses 4G to Launch Streaming Video Service.)
The service launched in Singapore, Singtel's home market, only last week. It will be bundled with a selection of the operator's prepaid, postpaid and broadband packages. Singtel has not disclosed HOOQ subscriber numbers, but did announce it had crossed the 100,000 subscriber mark in the Philippines (its first market) in March 2016. It is also adding some free content, probably to help drive new service adoption, but the free selection is limited and HOOQ is an ad-free service.
It costs about the same as Viu's premium service and offers 35,000 hours of movies and TV shows from its partners. It is also building a growing stable of local Asian content from China, Korea, Japan, Indonesia, the Philippines and India. Like Viu, it is also available on a variety of devices for streaming and downloading. It is currently offered in Singapore, Indonesia, the Philippines, Thailand and India.
Another interesting Asian OTT provider is iflix , which gained international attention in March 2016 when it's Series B funding attracted $45 million, led by European pay-TV heavyweight, Sky (NYSE, London: SKY). (See Is Sky Eyeing a Global OTT Empire?)
The company offers 20,000 hours of content, including a broad slate of Hollywood content, boasting 60 content partners including Warner Bros., Disney and Fox -- but also a sizeable library of local content from Hong Kong, India, Japan, Korea, Malaysia and Philippines. It is also trying to differentiate itself by highlighting its 2,000 hours of children's content.
Much like the others, iflix users are able to stream of download content onto a variety of devices, and the service costs about $3 per month. It is available in Malaysia, Thailand, Indonesia and the Philippines, and has more than 2 million subscribers.
Amazon announced last week that it would be extending its video services to 200 markets, which brings it into competition with these players. And of course, Netflix Inc. (Nasdaq: NFLX) is already in several of these markets. (See Amazon Announces Grand Tour of 200 Countries .)
How significant a threat are the global players? I believe it will come down to three factors: content, video quality and pricing.
Amazon's pricing is not known yet for these markets, and is tied to Amazon Prime membership, which further complicates comparisons. But if we just look at Netflix, it starts in the $8 per month range, while these are all approximately $3-$5 per month. That's not much difference in US dollars, but the difference could add up in local currencies in each of these countries.
PCCW also points out that piracy is rampant in Asia and discretionary incomes are low, so a free, ad-sponsored service is very advantageous. That could pose a problem for Netflix' subscription-only model.
Local content is also important. A major driver for Viu is its selection of Korean dramas -- "killer" content for Asian audiences. The other providers are also blending pan-Asian content with Hollywood hits. Netflix' library is hampered on two counts: one, many of the titles it offers in the US are not licensed for other regions, so itís library is much smaller in these markets. And it also doesn't have much local Asian content to offer.
But both these issues can be addressed with time and money. Netflix is planning to spend $5 billion on original programming, and some of it will be local Asian content. The company has also demonstrated it has the midas touch when it comes to producing hit content. So even though libraries will be small to start with, they will have excellent content and will grow rapidly.
Netflix will also bid aggressively for local content such as Korean dramas. This will drive up prices, and affect the pricing strategy for the local players -- if they have to spend more to get these shows, they will need to charge more for them. It may not be possible to maintain the price advantage they can offer today.
Lastly, Netflix has developed in-house technology to optimize the quality of experience (QoE) for its customers. Will these providers be able to match that quality? It's difficult to say, but we should point out that these providers are not small, fly-by-night operations. They are owned by PCCW, Singtel and (part-owned by) Sky. These are sizeable organizations, each with insight into video delivery and network traffic management. And the development of cloud storage and streaming, coupled with falling CDN costs means that online video QoE continues to improve in general.
So what's the prognosis for these providers? It's going to depend on how fast they can grow their subscriber bases and how well they manage churn. Netflix is new, and still finding its feet in Asia. These are the companies that have the local content and the price advantage -- can they build enough scale before Netflix catches up?
Local content will be the key to success, but quality will trump quantity. It's not how many hours of content (though that still matters) but how many hours of hit content in each territory. Scale and long-term licensing deals will be the key, and that's what I would advise these companies to prioritize today.
Either way, the big winner will probably be the Asian consumer, with high-quality content being delivered at comparatively low prices as a result of intense competition.
ó Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation