Reinventing TV

Telcos should keep abreast of changing patterns of TV consumption
Hadi Raad is principal at Booz & Co.
Hadi Raad is principal at Booz & Co.


Gulf residents are pioneers of an important change in television watching, one that could redefine the medium and pose tremendous challenges to communications and entertainment companies.

Instead of settling for what TV has to offer, Gulf residents are demanding more and getting it through Over-the-Top video (OTTv), which involves using the internet to stream content directly to handheld devices, game consoles, and TVs connected to broadband. For consumers in the region, this means options are almost unlimited. For companies, this requires new ways of looking at how content is packaged, delivered and profited from.

Internet subscribers in the Middle East rank number one when it comes to digital video consumption, based on YouTube viewings. Improving connection speeds and the ability to pull content directly onto devices has fueled this. Indeed, recent surveys indicate that watching online video in the region is becoming as common as sending email. Saudi Arabia famously has the world’s largest amount of YouTube downloads onto mobile devices. IDC, the ICT market research firm, has found that roughly half of all internet users worldwide have plans to buy a tablet in the near-future, further contributing the popularity of over-the-top video.

Overall, OTTv could grow from using around 30% of global consumer broadband traffic to over 50% by 2014, with the ratio in the Gulf even exceeding 60%. This doesn’t mean that television is dead. What consumers want is interaction, not a replacement for existing TV services. Thanks to the culture of multi-tasking, consumers are supplementing their current viewing. Most OTTv consumers still spend the bulk of their media time in front of the TV. However, according to a recent survey, more than 30% of them go online while watching, whether to access on-demand content, to search for their favorite titles, write recommendations, comment on live TV shows with their friends on social networks, or to upload their own content to the internet.

With all these choices at their fingertips, Gulf consumers are challenging content and service providers in five key ways. First, selected audience segments and communities need targeted, relevant content. Second, consumers need defined platforms, such as scheduled video playback, on-demand, or a combination. Third, consumers want content they can access across their range of devices, including gaming consoles, Internet-connected TVs, smart phones, and tablets. Fourth, spoilt for choice, consumers need companies to identify the relevant content and genres—such as premium, back catalogue, or niche. Fifth, given how easily consumers can access content, operators will have to carefully pick the business model that fits best with market demand: ad-sponsored, pay-per-view, subscription, or hybrid.

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Companies that meet these challenges will have something to offer Gulf consumers. Already Hulu in the U.S. provides an example of how to play in the OTTv market. Hulu has a value proposition that offers HD movies and TV series with targeted advertising of only two minutes per show—compared to eight minutes on traditional TV channels. The company supplies content mainly through PCs and laptops. It offers a hybrid “freemium” model of advertisement-based access and an upgrade subscription model. Hulu had 31 million unique viewers per month by February 2012, each consuming an average of 227 minutes of content, and has been profitable since late 2009.

Gulf consumers, however, will not make it easy for providers. Many consumers want OTTv cheap or even free, especially as they can get rich content from piracy or from the region’s “free to air” TV channels that are easily accessible. On the other hand, while high-speed broadband availability remains limited, most operators are quickly deploying next generation networks that will boost broadband penetration. As broadband is the backbone for Internet TV and OTTv, these investments will lay the ground for further OTTv growth. Similarly the use of credit cards is still relatively low in the region, as is spending on ads, which combined can make it difficult for providers to generate ROI.

Companies can surmount these challenges and can turn content hungry consumers into paying customers. To succeed, they will have to attract traffic in entry market and build scale with free content before they can generate profits through innovative business models.

In the meantime, between broadcast television and broadband streaming, there’s a lot to keep viewers happy.

By Hadi Raad, principal, Booz & Co, and Mahmoud Makki, senior associate, Booz & Co.

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