The emerging online video sector in Asia-Pacific, a US$4.7 billion market in 2014, will represent a US$12.4 billion revenue opportunity by 2020, growing by 21% on average each year, according to a new report from industry analysts Media Partners Asia (MPA).

The report, published January 12 and called ASIA PACIFIC ONLINE VIDEO DISTRIBUTION 2015, tracks the commercial distribution of legal over-the-top (OTT) video services in 13 markets, including historical data and forecasts.

Despite its growth, Asia’s online video market has a long way to go before overtaking traditional TV. The incumbent TV ecosystem will experience a gentler but steady 5% average annual growth rate from a far higher base to generate more than US$120 billion in advertising and subscription revenue across Asia-Pacific by 2020, almost ten times the size of online video.

“Business models for online video are not always scalable and issues such as piracy, content and platform operation remain problematic,” notes MPA executive director Vivek Couto. “This is especially true in a number of Asian markets where piracy is significant and the limited scale of OTT video revenues are not commensurate with content costs.”

Nonetheless, online video offers plenty of prospects to play for.

YouTube maintains a significant chunk of online ad revenues outside China, and is actively growing in key emerging markets in South and Southeast Asia.

At the same time, Netflix is developing the subscription video-on-demand (SVOD) opportunity, first in Australia and New Zealand where it will launch in March this year, and potentially in Japan and Korea thereafter.

Additionally, some major local and regional TV companies are in the early stages of developing their own large-scale OTT platforms, anchored to local, Asian and Hollywood content. Launches are expected in Hong Kong, India, Indonesia, Malaysia and Taiwan, with expansion already underway in Korea and Japan.

Finally, and crucially, telecom operators are also moving upstream into content and OTT services, helping provide a vital link for an emerging ecosystem in a number of markets.

EVOLUTION OF INFRASTRUCTURE

The growth of mobile broadband and smartphones is helping boost online video consumption in Southeast Asia and India, but limited deployment of fixed broadband networks in these markets is holding back uptake.

“Wireless broadband is growing in most of these countries but network speeds and quality are poor,” notes Aravind Venugopal, vice president at MPA. “This is limiting long-form video content consumption and customer willingness to pay for OTT services.”

There were 494 million active OTT video viewers in Asia-Pacific in 2014, according to MPA analysts. MPA defines active viewers as people that have watched online video content in the preceding thirty days.

China accounted for more than 85% of the online video audience in 2014, and will still represent 80% of a 977 million viewing base by 2020. Ex-China, the largest markets in 2014 were: Korea, India, Japan and Hong Kong. By 2020, India will emerge as the second-largest market for online video viewers, followed by Korea, Japan and Hong Kong.

In Southeast Asia, Malaysia will be joined by Indonesia and the Philippines as markets with the most viewers.

SVOD POTENTIAL

The market for subscription-based OTT video services reached 75.3 million active subs in 2014, and could grow to 225 million by 2020. China will be the largest contributor, driven by internet-enabled TV and set-top box platforms, as well as online video companies offering premium services.

Japan, Korea, India and Australia will also emerge as large SVOD opportunities, although India will trend more towards a freemium-oriented model.

Consumer payments for video services in the traditional TV ecosystem, anchored to the pay-TV model, are at their highest in Australia, Japan and New Zealand, according to MPA. These markets will also lead in terms of SVOD-based revenues per user.

Overall, SVOD-based OTT revenues in Asia-Pacific will grow at a 16% CAGR between 2014 and 2020, rising from US$953 million in 2014 to reach more than US$2.3 billion by 2020, according to MPA projections.

“The market for SVOD-based OTT services will remain somewhat limited in much of Southeast Asia and in India,” says MPA’s Venugopal. “But large volumes will help drive SVOD revenues in both China and Korea.”

ADVERTISING

Asia-Pacific online video ad revenues exceeded US$3.7 billion in net terms in 2014, up 35% year-on-year. says MPA.

With the big exception of China, YouTube (and in certain instances, Facebook) typically accounts for 50-80% of online video advertising spend in most markets, ensuring a challenging time for independent OTT platforms.

At the same time, the success of YouTube in particular has prompted TV players in India, Indonesia and Korea to develop online video destinations of their own.

The largest markets for online video advertising in 2014 were China and Japan, by a wide margin, followed by Australia, India and Korea, notes MPA.

By 2020, the Asia-Pacific online video advertising pie is expected to grow to US$10 billion, a CAGR of 18% from 2014, with China dominant, followed by Japan and Australia. India is expected to gain scale and overtake Korea while Indonesia will be the clear leader in Southeast Asia.

OTT video advertising revenue reached US$2.1 billion in 2014, up 43% year-on-year from a low base, and almost entirely driven by China. This pie, which is a subset of total online video advertising, will expand to US$5.5 billion by 2020, rising at a ~18% CAGR.

China will remain the largest contributor with India, Korea and Indonesia becoming slowly significant, as various telcos, large-scale TV players and independents start generating material advertising dollars on their ad-based OTT platforms.

For more information on this report, please contact
Lavina Bhojwani, [email protected]