Monetizing OTT Video

By: Mate Prgin

It is undeniable that over-the-top (OTT) video streaming has impacted mobile service providers in ways they could never have predicted. The Ericsson Mobility Report for June 2013 revealed that video accounts for more than 30 percent of all mobile-data traffic around the world today, and is on a trajectory to pass 45 percent in the next five years. And according to Sandvine, by April of last year YouTube alone was able to claim 27 percent of all downstream mobile-data traffic in North America.

While smartphone and tablet owners are taking advantage of the easy-to-stream videos provided by YouTube and other OTT providers such as Netflix and Hulu, mobile networks are struggling to deliver superior video quality in a cost-effective manner. Consumer frustration is growing as a result of constrained bandwidth, and since 78 percent of US mobile-video consumers have experienced issues relating to quality of experience (QoE), according to a survey conducted in October 2010 by market-research firm YouGov and mobile-messaging solution provider Acision, it’s no wonder that more than 60 percent have said they’re willing to pay to improve their viewing experience.

Although OTT video presents network providers with significant challenges, there are tantalizing monetization opportunities to be had via service-level guarantees, advertising, paid content, and download-only special offers—but only if the issue of customer QoE can be directly addressed. In the case of video, QoE concerns how streaming content is received by a user on his or her mobile devices. Failure to manage QoE for video can cause customers to churn, advertisers to lose interest and, ultimately, providers to reduce their R&D investment in future revenue opportunities. 

It’s a vicious cycle, but the most advanced providers are starting to deploy analytical systems that measure QoE at the point of use, and are moving in the direction of developing new service models. Equally important is the fact that by doing so, some are taking themselves out of the “dumb pipe” business and embarking on a path toward long-term, high-margin services.

A good question to ask is why mobile-broadband service providers have been so hesitant to implement point-of-use analytic services. Why not measure the quality of their service and their subscribers’ experience, thus giving themselves a competitive advantage? It’s worth pondering, especially in light of the difficulties mobile providers are having as they attempt to meet subscribers’ expectations for high-quality delivery while simultaneously managing the costs associated with the growing volume of video on their networks.

A recent study by eMarketer estimates that smartphone video viewers in the US will number close to 87 million by next year. That’s more than 25 percent of the country’s population, and it represents a significant opportunity for monetization. But because of the currently fragmented value chain, there is a substantial gap between the amount of resources spent on servicing mobile-video traffic—the Cisco Visual Networking Index’s recent “Global Mobile Data Traffic Forecast Update, 2012-2017” indicates that it made up 51 percent of providers’ total traffic by the start of this year—and the amount spent on mobile advertising—two years ago Gartner research director Stephanie Baghdassarian stated in a news release that mobile ads would increase “from 0.5 percent of the total advertising budget in 2010 to over 4 percent in 2015,” with video ads growing faster than any other kind. If network providers could resolve this particular disparity, they would be in a position to direct a significant portion of advertising dollars toward service-level agreements (SLAs) that ensure reliable viewing of mobile ads.