January 25, 2018

How Can Telecom Operators Monetize Videos

Over the years, video content has been a source of headaches for telecoms operators: the costs of its transmission grew faster than any revenues from it, and the viewer remained dissatisfied. However, as the technology improves and the behaviors of the viewer change, there are good prospects in this sector.

Online video streaming and viewing is far from a novelty. However, increasing the quality and quantity of video content available on via a network will become an additional incentive for the development of business in the telecoms industry in the coming years.

This online video boom has become a worldwide trend. In the United States, video-on-demand (VOD) services revenue is one and a half times higher than movie theaters around the world, and the average ARPU (revenue from one user) in the VOD sector is the US $118 (compared to $50 in the sector services of broadband access). In the countries of the Asia-Pacific region, the number of subscribers to IPTV services grew by 71% between 2015 and 2016, and in China, the number of subscribers to IPTV services last year increased by 40 million. In Europe, there has also been an increase: in Spain, for example, the penetration of kvod-play packages (four services in one bundle) reached 50%.

Some operators tend to believe that it is too early to invest in expanding broadband networks. In particular, they are concerned about the lack of demand and the insufficient number of channels and content offered. This is a delusion on their part. In particular, do not forget that the number of live TV channels broadcasting in the 4K standard is growing. In 2015, there were 50 similar TV channels around the world. In 2016 the number increased to 95, and by next year, according to forecasts, there will be 170 4K channels around the world.

The number of devices that allow the viewer to watch all this content is also growing. The number of 4K-TVs in operation in the past year doubled – from 40 million as of 2015, to 80 million last year. 4G capable televisions are also becoming more affordable, while the average cost of such a device last year fluctuated around $400. As for the set-top boxes for access to IPTV, in 2015 there were 15 million sold globally. Thus, the total number in the hands of the audience reached a total of 44 million in 2016.

In addition to increasing the number of available channels and devices for their reception, viewers are increasingly expressing the desire to pay for a higher quality video experience. To China in the period from 2014 to 2017, the number of subscribers and the amount of income from providing pay-TV services increased eight-fold. In the US, Europe, the Middle East, Africa and the Asia-Pacific region, more than 80% of viewers are willing to pay an additional 10 to 30% for HD content.

But how can this growth in the amount of available video content and devices for viewing it help telecom companies monetize video traffic? Three options seem quite possible.

  1. The first is to monetize the greater broadband traffic volumes generated from it. If telecommunications companies cannot yet charge for video content, they may well charge a fee for the channel. The transfer of films and other video content in HD resolution requires broader channels, which means an increase in the revenues of telecoms. For example, in the period from 2014 to 2017, China Telecom, from the Chinese province of Hebei, located near Beijing, actively invested in the development of its network, laying out many additional fiber-to-house (FTTH) lines. The result was a notable growth among the company’s subscribers in those opting into IPTV services – from almost zero as of 2014 to 2.7 million in 2016. Between 2014 and 2017, the number of FTTH users increased by 34% – from 3.5 million to 5.3 million.
    And after the operator combined mobile communications, broadband internet access and video services in its total package of services, the percentage of outflow of its subscribers fell 12 times – from 2.5% to only 0.2%, which is the lowest percentage outflow of subscribers for China.
  2. Telecommunication operators can also monetize the provision of additional conveniences to users. Offering the possibility of high-speed broadband internet access, operators steadily increase their subscriber base. They can also develop their own production of premium HD video content and other special services for the end user. For example, one operator in Germany found that initially, the video service offered by them began to lose appeal to its users. In response, the operator developed a number of innovative solutions designed to optimize user interaction with the service. In particular, the list of functions included a “zero-wait” function that eliminated video buffering and a time-shifted browsing function that allows users to pause a live broadcast (for example, a football match) and then go back to rewind and review missed moments. The service also offered an intelligent search function that would help the user access all available movies, games, VOD content, live broadcasts of TV programs, plus a feature that allows for re-viewing for seven days, allowing the viewer to browse the program guide for the past week and catch up on any missed programs.
    The results were stunning. Since the launch of the new service in May 2016 and before the end of the year, the number of new subscribers for the German operator was 500,000 – twice as much as expected. At present, about 5,000 newcomers become subscribers of the operator’s services daily, while 83% of subscribers claim their readiness to switch to a new television service.
  3. Finally, telecommunications companies can monetize video and a whole digital ecosystem that was originally created by the field of home video and entertainment. Advertising, games, purchases, education, e-health, home security systems, and other services will allow telecommunications companies to use their huge subscriber base, charging them for access to these premium services.
    For example, one large telecommunications company from South Korea currently operates a platform that collects content relevant to the topic of cooking, e-health, and other services, for which the operator charges users. Despite the tough competition in the South Korean telecommunications market, the monetization of the digital ecosystem has helped this operator to increase its ARPUs by a factor of 1.5 – from $21 to $31. The operator’s share in the market also increased by 3%, from 19% to 22%. The average volume of data consumption by one user increased 2.5 times, but the percentage of outflow of customers decreased by 89%: previously it was 3.6%, and now – 1.9%.

Currently, the video for telecom operators is a key service – a service that acts as a platform for a variety of premium offers in the areas of health protection, education, home entertainment, citizen security and much more. Smart operators will soon invest in infrastructure development, which will enable them to monetize video in different sectors of broadband internet, user services, and digital ecosystems.

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