Tomorrow s Multiscreen, Multirights World

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1 The New Reality: Tomorrow s Multiscreen, Multirights World A Parks Associates Whitepaper developed for

2 The New Reality: Tomorrow s Multiscreen, Multirights World Consumers are embracing today s multiscreen world; however, pay-tv providers have yet to take full advantage of this new market opportunity. Two-thirds of U.S. broadband households watch TV programs and movies using a connected device. Over one-half pay for an online video service. Less than one-quarter know that their current pay-tv operator offers an online video option. 70% 35% Awareness & Use of Online Video U.S. Broadband Households Since the introduction of multiscreen services, operators have faced significant questions regarding multiscreen/tv Everywhere. Initially, these questions dwelt on how to deal with OTT competition and potential cord cutting. These threats and the increasing consumer appetite for online video services pushed many operators to invest in multiscreen delivery solutions. 0% Watch TV/ Movies on a connected device * Among broadband households with a pay-tv service Parks Associates Pay for an online video service Aware of TV Everywhere services* Use a TV Everywhere service* As leading operators launched their own multiscreen service offerings, questions shifted. Attention focused on business models, quality of experience, and consumer demand for content on mobile platforms. Operators developed a better understanding of the value of multiscreen in revenues, costs, and impact on subscriber churn. Many are adding tools to better measure the experience encountered by subscribers on unmanaged devices. Most have launched apps that provide them a presence on mobile platforms. Still, despite current efforts, operator online video still lags the awareness, popularity, and acceptance of OTT alternatives. Looking to the future, operators face several new questions regarding the direction for multiscreen services and the role of the operator in video services overall. How operators address these challenges will determine their future competitiveness and success in the OTT marketplace.

3 External Challenges Many of the challenges facing operators arise from ongoing changes in the video marketplace and how those changes will impact multiscreen services. New Devices The consumer electronics industry thrives on product innovation and differentiation. For existing categories such as smartphones, tablets, and streaming media players, device makers are regularly changing their products in order to incent new purchases or replacement of older devices. Screen sizes of mobile devices, in particular, are in a regular state of flux as smartphone and tablet manufacturer seek to find the optimal blend of portability and viewing area. Smartphone & Tablet Adoption 80% 40% U.S. Broadband Households Smartphones Tablets Device operating systems also continue to evolve, requiring perpetual changes to and testing of multiscreen applications. New features are likely to be introduced in the near term, including voice and facial recognition, gesture controls, or authentication via a smartphone. Perhaps more concerning is the potential for entirely new platforms to emerge. Game changers such as the iphone and the ipad redefined the landscape for connected products. 0% Parks Associates The rapid adoption of smartphones and tablets and their subsequent impact on consumer expectations shows how quickly new connected devices can change the market. Over the next few years, another game-changing device is likely to emerge, introducing new features and functions that will have a similar impact. Because operators cannot foresee all potential changes or predict which ones will be relevant, they stay in a constant state of catch-up. They must remain on high alert for new products to be released and then assess the relevance of those new product versions and platforms before development and testing can begin. The current push to allow consumers to use their own CPE devices at work further complicates this picture as already thin budget, development, and testing resources are stretched even further. The New Reality: Tomorrow s Multiscreen, Multirights World 3

4 New Multiscreen Features Beyond devices, multiscreen apps and services themselves are changing. While original TV Everywhere apps provided a guide and access to linear or VOD content, consumers now expect more from a connected app or OTT service. Discovery features that quickly connect consumers to preferred content have become an important part of successful services. As operators add ever more content to their video libraries and new live channels to their services, consumers need a mechanism to pare decisions down to a reasonable set of options. Devices with smaller screen sizes have a particular need for optimized discovery tools since consumers cannot easily browse through multiple choices. Today, over 40% of U.S. broadband homes receive personalized video recommendations from at least one source. Parks Associates Frequency of Use: Personalized Viewing Recommendations U.S. Broadband Households Who Receive Personal Viewing Recommendations 100% All rights reserved Parks Associates Of those who use recommendations from an online video service, almost one-half use the recommendations at least weekly to choose content. Video has long been a social activity, and consumers seek social interaction even on small, private devices. Several companies are experimenting with various types of interaction such as second-screen features, group viewing of content, interactive games, and other types of cross-platform interaction. As a result, operators must change their multiscreen services and the supporting client applications often in order to remain relevant among a throng of aggressive competitors. 50% 0% Parks Associates Monthly Use Weekly Use Daily Use Content recommendations are popular features and can give providers a competitive edge by offering convenience to subscribers in content discovery. 4

5 New Methods for Moving Content Because consumers want access to content at the times and in places of their own choosing, new technologies are emerging that allow consumers to move content in ways that the content industry did not originally anticipate. Google s Chromecast is a prime example, but Chromecast is just one of many similar content-portability technologies. At 2014 International CES, several companies displayed products and features for moving content between devices, ranging from multinational system integrators like Huawei to small startups such as Airtame. Pay-TV operators, CE makers, and other technology companies in the Digital Living Network Alliance (DLNA) introduced a new extension of the DLNA standard, CVP-2, that allows pay-tv providers to deliver premium video from the set-top box to other connected devices in the home through the home network. Several of the largest U.S. cable operators as well as CE manufacturers are adding support for this new multiscreen aspect of the DLNA standard. New Security Requirements & Challenges As multiscreen content rights evolve, security requirements continue to change. Studios today require different levels and types of security for different players in the market. Pay-TV providers, which offer content over both managed and unmanaged networks, have a greater set of security requirements than pure OTT players. Technology providers continue to develop new security technologies to address new consumer use cases and delivery mechanisms. While consumers seek to circumvent barriers to content access for personal use, professional pirates are a much greater threat as they use the latest technologies to foil content security solutions. Operators and security partners must constantly monitor and adapt security-related software in order to honor license agreements and protect their content investments. However, innovation is bringing some simplification to security. For example, the previously mentioned CVP-2 leverages DTCP-IP for secure connections, a technology that is already accepted by major U.S. studios. So, whether to defeat content piracy or to leverage beneficial innovations, operators are under pressure to remain aware of the constantly changing security landscape. The New Reality: Tomorrow s Multiscreen, Multirights World 5

6 Internal Challenges Challenges in Multiscreen Services While some challenges arise from the industry, operators face several internal challenges as they grapple with delivery multiscreen services for consumers, both today and in the future. EXTERNAL CHALLENGES New Devices New Multiscreen Features New Methods for Moving Content New Security Challenges Managing Separate Delivery Solutions Building a Cohesive Service Managing Content Rights Predicting Business Models INTERNAL CHALLENGES Managing Separate Delivery Solutions Parks Associates For operators that deployed a TV Everywhere service prior to 2012, the original delivery system was likely designed to provide content to a computer. When multiscreen priorities shifted to mobile devices, many operators found that these original solutions could not be scaled to support mobile platforms. As a result, many were forced to add separate, standalone systems to enable TV Everywhere on smartphones and tablets. In some cases, the offerings were provided by separate vendors, making integration problematic. Perhaps more importantly, many of these systems run separately from the operator s existing broadcast systems. As a result, some operators are running three separate content delivery systems. All rights reserved Parks Associates 6 As TV Everywhere services mature, the demand for new features is causing some operators to reassess their initial multiscreen investments. Though tempting, wholesale replacement of existing multiscreen solutions with new, feature-rich, integrated delivery systems is costly; the replacement forces a write-off of previous multiscreen solution expenditures after only a few short years. The alternative taken by many operators is to execute a best-of-breed approach, adding new features via integration of offerings from selected vendors. Some have made moves to integrate their delivery systems, but many continue to operate them as separate systems. Building a Cohesive Service Providing a cohesive branded experience across platforms is difficult because each CE platform is unique. Operators quickly found that simply offering the EPG grid or VOD menu on non-tv devices produced a poor experience. The interface has to be optimized to leverage the strengths and mitigate the weaknesses of each type of device.

7 The interface for each type of screen, when optimized for that particular connected device, is inherently different from all other device interfaces. The content available on each platform can also differ, making it difficult for consumers to anticipate whether the content that they want is actually available on the platform that they want to use. Managing Content Rights The growth of multidevice families has begged the question: what is a subscriber? Is it a household, a location, an individual, or a family? Should the operator limit the number devices within the home that can access content at the same time? Portable devices and remote access to content add another layer of complexity, forcing operators to make policy decisions that balance between facilitating customer convenience and limiting potential misuse of services. The nature of content licensing provides a further complication. Each video asset has a unique set of rights and obligations associated with it, including specified business models, market availability, security requirements, delivery mechanisms, and devices upon which the content can be viewed. Operators must code each of these detailed requirements into content management systems to ensure that license agreements are met, a task made more difficult when operators have separate systems for different types of multiscreen services (computers and mobile platforms). Predicting Changing Business Models While high use of online video suggests great promise for multiscreen services, operators struggle to find optimal business models that will unlock TV Everywhere s revenue potential. In North America, most of these services are free to subscribers and are offered to minimize churn and foster retention. Outside of North America, a variety of business models apply, including free, free for particular subscription tiers, subscriptions, transactional, and advertising-based services, among others.

8 Among paid options, subscription models are the most popular with consumers. However, consumers now expect online content services to match the pricing of low-cost OTT services. Transactional options are straightforward from a cost and content rights perspective but are poorly received by consumers. Perhaps the most successful TV Everywhere business model to date is the incentive model; that is, using multiscreen services as an incentive for subscribers to select higher tiers of services, producing higher ARPUs. In 2009, Swisscom re-introduced its previously unsuccessful free multiscreen offering as an incentive for the telco s highest service tier. It quickly became a popular feature. Today, several operators use this approach, including CanalSat (France), Free (France), Sky Deutschland (Germany), and Ziggo (Netherlands). Advertising could ultimately be the key to future multiscreen monetization. The advertising model is one of the few that is both popular with consumers (as part of free services) and that causes revenues to scale proportionally with use. However, few current multiscreen systems provide ad insertion or ad targeting options that can potentially unlock the revenue potential of multiscreen service advertising. Because no single model has proven to be successful across services and markets, operators must prepare to shift business models quickly in order to maintain parity with competitors. Preparing for the Future All rights reserved Parks Associates 8 While several challenges remain, operators can learn several lessons from these challenges and from their experiences in multiscreen services and solutions up to this time. Flexibility is a Critical Advantage The lack of flexibility and scalability of early multiscreen systems proved the necessity for companies and their infrastructure systems to be adaptable to changes in the marketplace. The ongoing uncertainty in devices, security, features, rights, and business models suggests that future changes to interfaces, delivery systems, management systems, and CPE software will ultimately be necessary, regardless of the approach taken. The use of open standards is an important step, but adaptability goes well beyond standards adoption. Flexibility needs to be an important consideration in software design, vendor requirements, and future planning in order to remain adaptable. Those operators that have great flexibility to adapt services and systems to meet the changing needs of the market are more likely to remain relevant to online video viewers.

9 Content is King, but Convenience is Prime Minister Clearly, consumers have proven willing to spend time and money on preferred content. However, in the multiscreen world where similar content may be available from multiple sources, convenience is a key differentiator. OTT services like Netflix have used content recommendations and easy access on a wide variety of connected devices to gain a mindshare and market share (and revenues) from consumers. New discovery tools quickly match consumers to what they want to watch, simplifying decisions and minimizing the time spent searching. Software Design Impacts the Whole Organization Software is no longer a technical factor that is relegated to engineering teams. Today, software and the development process impact all aspects of the operator s business, affecting time to market, operator flexibility, and ultimately the final service that is experienced by consumers. Operators are spending more resources on software development than ever before, including both internal development and development by vendors or contractors. The key functional areas of multiscreen services are increasingly defined by software: Software defines the differentiating features of multiscreen services. Not only are advanced features such as discovery and user interfaces defined in software, but delivery itself cannot occur without the back-end and client-side software that makes everything work. Apps are often uniquely developed for each mobile platform. These specialized software components provide the interface and client-side interaction with back-end authentication, business model, and delivery systems. Operator security software must support multiple security approaches and standards in order to meet all of the terms of their content license agreements. Operator s content management software must allow various types of business models as well as tracking and validation of rights for each asset and subscriber. Improved quality of experience and targeted online advertising are only possible based on the data collected about the network, including details from the delivery of the content and consumption by subscribers. Software-based analytical tools collect, process, and report these metrics and analytics. The New Reality: Tomorrow s Multiscreen, Multirights World 9

10 Thus, the new world of multiscreen services has forced operators to become, to some degree, software companies. Managers now must understand the entire software development process, from initial requirements through final testing, in order to efficiently and cost-effectively bring service features to market. The software mindset affects other departments as well. Participation in the design process can allow marketing teams to implement new promotional features, support teams to better prepare agents, and advertising teams to offer new online ad inventory or more granular metrics. As the organization better understands the impact of the software design process on their aspect of the operator service, they are better able to leverage the benefits that software improvements will provide. Looking to Tomorrow s Multiscreen, Multirights World As the industry moves forward, an operator s ability to compete successfully in the multiscreen world will depend upon its ability to meet these challenges. All rights reserved Parks Associates Ultimately, a plan is needed. For several years, due to the disruptive nature of OTT video and new device platforms such as the tablet, operators have been simply reacting to changes in the OTT space. The result was companies with decades of experience in telecommunication and entertainment having to play catch up as the video landscape shifted. In some cases, this process has led to network redundancies and cost inefficiencies. Instead, operators need a strategic, planned design approach to multiscreen that allows them to get out in front. Key Areas TO Address: A New Approach to Multiscreen Rights OTT players offer viewers the same content across all viewing platforms. As a result, consumers can rely on the fact that the content from that service can truly be accessed anywhere and at anytime. Because of content costs, operators cannot feasibly offer all content to consumers on-demand and on all platforms. It also varies for each operator. This result minimizes convenience, forcing consumers to search for content on each platform even though it may not be available. 10 Although operators cannot offer all content on all platforms, an approach that provides greater predictability is more likely to gain regular use among consumers.

11 A new approach to monetization In many cases, TV Everywhere is treated as a standalone service. While most operators work to create interfaces that are consistent with the look and feel of the EPG or the company website, the business models and strategic approach to the service are largely independent of the operator s core services. The future approach to monetization will be planned in tandem with core services. So, free access to content online or on mobile platforms will be designed to not only reduce churn but also to drive higher tier subscriptions and paid OTT and VOD use. In addition, the technologies that drive TV Everywhere, including HTML5, are increasingly being used in the pay-tv experience, providing additional opportunities for the services to be complementary and to drive new monetization options. A new approach to technology and software The pace of technology change in tomorrow s connected world will be shockingly quick, occurring even more rapidly than it does today. For operators, keeping pace with this level of change will require a radically different approach to technology and to software. Development, testing, and release cycles must run in waves, with regular, ongoing updates and feature enhancements. As a result, planning technology adoption, new features, and new services will be dramatically different as well. For many operators that have for years thrived on maintaining stability in their CPE and networks, the reality of a fast-paced world with rapidly changing technologies is a scary one. However, it is also a world with significant opportunities. Consumers and businesses will continue to need connectivity, content, and providers that can deliver both. Those companies that have the flexibility to adapt to the new reality that tomorrow offers will be in a position to delight customers and lead the industry. Tomorrow s competitors will react at Internet speeds, and operators will need to be prepared to respond in kind. The New Reality: Tomorrow s Multiscreen, Multirights World 11

12 About ACCESS The ACCESS Multiscreen TV Package provides secure, seamless delivery as well as support for new TV standards such as DLNA CVP-2, HbbTV, Ginga, Hybridcast, etc. The solution is based on the experience ACCESS has gained from shipping embedded software for over one billion CE devices. This solution enables operators to offer streaming on all Internet-enabled devices through the home network or the cloud. ACCESS has developed the ACCESS Multiscreen TV Package to provide the studio confident security that s vital before TV operators can launch media sharing. The ACCESS Multiscreen TV Package includes NetFrontTM Living Connect, ACCESS DLNA Technology Component for secure media delivery; and NetFrontTM Browser NX, an HTML5 WebKit-based browser to offer a seamless user experience on all devices. By leveraging these two complementary technologies, operators can ensure they deliver high quality multi-screen services which allow consumers to access content via the set-top box, share and stream it to any mobile devices and even enable access to PVR content on a second screen. The solution is integrated with world-leading chipsets manufacturers, including Broadcom, Entropic, Intel and ST Microelectronics. The ACCESS Multiscreen TV package has also been integrated with leading third-party CA and DRM solutions to ensure that through providing studio confident media sharing, ACCESS removes the greatest hurdle to TV operators launching media sharing services to previously uncontrolled devices. For more information, visit About The Author Brett Sappington, Director, Research, Parks Associates All rights reserved Parks Associates As a director of research at Parks Associates, Brett Sappington leads Parks Associates services research team, including access and entertainment services, digital media, OTT, cloud media, video gaming, and technical support services. Brett is an expert in worldwide television and broadband services. His personal research focuses on the activities and trends among operators and the market forces affecting their businesses. Brett is a regular speaker and moderator at international industry events. About Parks Associates Parks Associates is an internationally recognized market research and consulting company specializing in emerging consumer technology products and services. Founded in 1986, Parks Associates creates research capital for companies ranging from Fortune 500 to small start-ups through market reports, primary studies, consumer research, custom research, workshops, executive conferences, and annual service subscriptions. The company s expertise includes new media, digital entertainment and gaming, home networks, Internet and television services, digital health, mobile applications and services, consumer electronics, energy management, and home control systems and security. 12 For more information, visit or contact us at info@parksassociates.com

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