Online video represents a small slice of APAC TV revenues today, especially outside China, yet it is already reshaping growth strategies and consumer expectations across the region, Vivek Couto – executive director for Media Partners Asia (MPA) – outlined in Bali, during his customary industry health check that starts MPA’s APOS conference.

Trials and tests around new kinds of content, services and partnerships – already prevalent in countries where most homes are plugged into high-speed fixed broadband – are becoming more common across the region, Couto noted.

This burgeoning activity is drawing incumbents, telcos and startups into a bigger, broader marketplace, where traditional revenue engines are slowing down and new ones are building up speed.

Online video will add US$22 billion in incremental revenue to APAC’s TV industry over the next five years, according to MPA, out of US$38 billion of new money projected to come into the market.

The OTT video segment in China alone, APAC's biggest online video market, will contribute US$17 billion in additional revenue over the same period.

Everyone is busy working out their next move. Broadband opens up new revenue opportunities for on-demand content and branded channels, together with new bundling options in distribution, as multiple services compete for consumer access in an increasingly crowded space.

“We’ve got three key themes that really inform our discussion,” Couto remarked, after presenting a round-up of the latest industry projections from MPA.

"The role of telecom players in video, how OTT and SVOD develops in this region, and how the whole industry comes together, in terms of investing more in content and finding more ways to monetize that content."

Two Tiers

Two broad market dynamics are taking shape. One is anchored around viewing among more affluent consumers, which in time will start to pose a direct challenge to premium pay-TV.

The other, at an earlier stage, is forming around mobile broadband, and is likely to compete for viewers traditionally served by free-to-air or low-Arpu pay-TV.

These trends are playing out at different speeds, with fiber and next-generation cable broadband networks ushering in the first wave of disruption.

Over the next five years, online video will capture the lion’s share of incremental industry revenue in China (80%) and Japan (70%), and a majority in Australia (55%), MPA analysts say.

Much of this growth will come from advertising, representing a long tail mostly served by native digital players, in addition to premium space in more direct competition with TV.

At the same time, sizable SVOD markets will also gain scale in these countries, especially in China and Japan.

The industry is following a different path in Korea, where telco pipes are already converging with cable and satellite TV, thanks to some large, sector-defining deals.

Here, pay-TV will claim a 68% share of incremental revenue from 2016 to 2021, according to MPA forecasts presented at APOS.

DIFFERENT DYNAMICS

Meanwhile, in large growth markets in South and Southeast Asia, online video is still building momentum off a small base.

Here, online viewing is held back by legacy infrastructure for fixed line networks, as well as the reach, capacity and price of mobile broadband for the majority of consumers.

Current impetus for online video largely comes from ad-supported services, YouTube and Facebook in particular, which are benefiting from high demand for ad space on free-to-air.

Between them, YouTube and Facebook could represent more than a third of online video revenue in APAC ex-China by 2021, intercepting a sizable chunk of ad spend growth that formerly went to incumbent broadcasters.

Pay-TV platforms are also charting possible outcomes for their businesses in this increasingly connected world.

Large-scale drives in mobile broadband, together with a bigger presence for next-generation cable broadband and fiber networks, will help fortify subscription-based models molded around new forms of video consumption.

These investments in infrastructure are mapping out tomorrow’s marketplace for rights, content and channels.

New bundles

In the near future for example, broadband bundles and OTT integration will form an important part of the pay-TV offer for premium customers, while operators look to defend the lower end of the market with a low-priced selection of some local and international channels.

In such a world however, there is little room for the middle tier. “Does it go OTT, like English general entertainment, does it go somewhere else, how do we focus on that?” Couto mused.

“A lot of operators that have a return path are also integrating all of this with broadband, integrating with SVOD companies,” he added.

“That’s definitely a trend that we will see take shape in the next few years.”

This development is being shaped by two, interrelated forces: on one hand by the range of SVOD and OTT partnerships on offer, from a wide spread of standalone services as well as emerging forays in aggregation, and on the other hand by inroads into OTT content.

“How do you capture millennial consumption?” Couto challenged the assembled delegates.

“Disney has invested a lot but how do you change your in-house strategy to monetize this and, more importantly, to create content that sticks and decide which platforms will drive it?”