BSAC Business Briefing

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1 BSAC Business Briefing Video-on-Demand: UK Market Status Update January 2012 This paper reviews the status of both TV-based on demand services delivered to a set-top box and Internet-delivered video-on-demand (VoD) services. It was supported by an interpretive presentation at the January 2012 BSAC Council Meeting. TV-based VoD Market status By the end of this year, nearly three quarters of British TV households will be equipped to receive an on-demand video service of some kind via one of the TV platforms in this country. Over 4.5m are able to access a true VoD service via cable (Virgin Media) or IPTV (primarily BT Vision), while 6.6m can receive a near-vod offering mostly via BSkyB s satellite platform. BSkyB s push-vod service, Sky Anytime, is available to nearly 5.5m and its Internet delivered-vod service Sky Anytime+ to more than 3m. In total revenue terms, IHS Screen Digest estimates the UK TV platform video-on-demand market will be worth 201m this year. NVoD revenues peaked in 2005 as true on-demand services began to take off. The UK is in the top 5 pay TV on-demand markets in terms of revenue, alongside the US, Canada, France and Japan. However, to put this in context, the US market alone accounts for 51 per cent of the global on-demand video market, while the UK contributes just six per cent. Today, the UK on-demand market as a whole is still dominated by BSkyB and Virgin Media. These two generate just over 90 per cent of the nation s paid-for on demand revenues, with BT s Vision IPTV service accounting for most of the rest along with a modest contribution from TalkTalk TV. However, it is worth noting that the vast majority of content consumed via true VoD services is not directly paid-for by consumers. IHS Screen Digest estimates there will be close to 2bn views on TV VoD services this year. Of this total, just over 2.5 per cent will have generated a 1

2 direct consumer payment and close to 80 per cent will have been free to view. To date, very little of this free-to-view VoD content includes any adverts, so advertising revenues from VoD remain small. While movies and other paid-for content typically make up about 10 per cent of any UK ondemand catalogue, their share of overall views is relatively low. Indeed, TV programming, particularly catch-up TV, is now the main driver of UK on-demand consumption. Both Virgin Media and BT Vision offer catch-up TV content from the BBC, ITV, Channel 4 and Five. Catchup libraries are included with Virgin Media s basic digital TV package and in both BT Vision SVoD (subscription VoD) packages, so are available to a wide number of households. Older TV series are normally available in SVoD packages or bundled with higher tier linear subscriptions. Total movie transaction revenues (pay-per-view payments) from nvod and VoD will be 129m in As a point of comparison, this is about 60 per cent of the total that we expect British consumers to spend on rental of DVD and Blu-ray Discs this year ( 213m). Pay-per-view adult content and sports/events will contribute 59m to on-demand transactional revenues. Virgin Media Virgin Media was the first UK operator to launch VoD nationally, in All Virgin subscribers are able to access the VoD system. The company s on-demand service currently has roughly 8,000 titles at any given point, with music videos and TV series making up 90 per cent of the catalogue. VoD content from the catch-up TV library is accessible to all subscribers on the most basic tier. Customers on the highest subscription tier, TV XL, are able to access the TV Choice on Demand service, music videos and the recently launched Sky Anytime+ for free. A selection of TV Choice on Demand content is also available to subscribers of the lower cost TV L package. A subscription-vod package is available to Virgin subscribers from NBC Universal under the PictureBox brand for 4.99 per month. The service offers a selection of 28 films per month, including new releases, with seven titles added every month. Virgin Media outsources its other movie VoD operations to FilmFlex, a joint venture between Sony Pictures Television and Walt Disney that was until late 2007 one third owned by SeaChange subsidiary OnDemand Group. Through FilmFlex, Virgin can offer new releases and library movie catalogues from all Hollywood Studios and a number of independent producers. FilmFlex also powers the newly launched online movie service from retailer HMV, HMV On Demand. FilmFlex prices new release pay-per-view movies at 3.99 and library titles range from Bollywood movies are available from 2 each. Music videos are priced at 0.20 for customers on the M and L packages. Adult videos are priced at

3 Historically, some of the Channel 4 content available on Virgin s VoD service contained advertising, but the vast majority of free VoD content delivered by Virgin Media was not generating any advertising revenues. However, this is now beginning to change. From late- November 2009, Virgin started to roll out a dynamic advert insertion system across its VoD footprint. Initially available across 300,000 homes, it now reaches 3.7m. Contextual 30-second pre-roll, mid-roll and post-roll ads are now inserted into a widening selection of VoD assets. Currently, Virgin Media sells the advertising, with partner content owners gaining a share of revenues. Virgin Media sees ad-funding being an increasing part of its VoD business, and its partnership with TiVo, which powers Virgin s latest set-top box with DVR (Digital Video Recorder) iteration, will allow the company to deploy more sophisticated ad-solutions in the future. Although TiVo boxes were only deployed in 163,000 homes as of Q3 2011, the number is growing rapidly and is expected to have easily exceeded 200,000 at year end BSkyB Having enjoyed dominance in the PPV/NVoD market for the best part of a decade, BSkyB is now being challenged in the on-demand space by operators using digital cable and IPTV to offer true VoD. Lacking the ability to offer a true VoD experience via its core satellite platform, BSkyB launched a DVR-based so-called push-vod service in 2007 called Sky Anytime and more recently an Internet-delivered VoD service called Sky Anytime+ in Access to the push-vod service comes free for subscribers with one of the more recent Sky+ boxes that have larger built-in hard drives, although content is limited by the packages the subscriber takes and the limited storage capacity of the set-top box. The movies (and other selected TV programmes) are pushed to the box after their first transmission on Sky channels, creating a catch-up service. The capacity to watch the programmes and movies depends upon the subscriber s tier: for instance only Premium movie subscribers will be able to watch the films from Sky Movies pushed to their DVR box. The Anytime+ service is available to all subscribers who have a Sky+ HD set-top box with a broadband connection. Screen Digest estimates that more than 3m homes have access to the service. Sky Anytime+ uses a progressive download system providing a larger on-demand catalogue to the user. More than 1,000 hours of content was made available at launch alongside a catalogue of 600 movies (dependent on subscription pack). BSkyB also uses the open Internet to deliver VoD services and first introduced a PC-based VoD service as early as January Initially offering VoD downloads only, it was later expanded to include simulcasting of live Sky channels. A version for the Microsoft Xbox 360 games console was added to enable VoD viewing of Sky content on a TV. 3

4 Sky Player, as it was named then, was available for free for Sky customers as a value-add to their existing package, but only to those taking the Multiroom TV package ( 9.75 per month) or the top-tier broadband access subscription Sky Player was also available as a standalone subscription for customers opting not to have a dish/set-top box. The subscription for this started at 15 per month and BSkyB hoped to generate a meaningful incremental revenue stream from these non-dish subscribers as well as driving other subscribers towards Multiroom and higher value broadband packages. Sky Player was more recently rebranded as Sky Go, effectively consolidating Sky Player and the Sky Mobile TV offering that had been separately made available for smartphones and tablets. In July 2011, Sky Go was made available for free to all Sky TV subscribers as a more unified multiscreen proposition across PC, Xbox and Apple s ipad, iphone, and ipod Touch devices. The Fetch TV Freeview plus Internet set-top box can also be used as a registered device to access Sky GO. Sky Go allows up to two registered devices at any time. Movies and TV series are available on a VoD basis across the multiple platforms for free. Ondemand content and 40 live channels and can be viewed, mirroring the users Sky TV subscription pack. More than 600 movies are available on-demand for those subscribing to Sky Movies 1 & 2 package for no additional charge. A collection of PPV movies are also available to all users for per movie on a transactional basis. As mentioned above, the Xbox 360 games console can be used as an additional set-top box to access Sky TV. On-demand content and up to 32 live channels can be viewed, including premium channels Sky Sports and Sky Movies, depending on the TV subscription pack. To access the service, Xbox 360 owners must connect their consoles to broadband and subscribe to the Gold tier of Microsoft s Xbox Live online service ( per year) as well as meet the normal Sky eligibility rules. BT Vision The BT Vision platform was launched in November 2006 to subscribers of the BT Total Broadband service. It utilises a hybrid Freeview/IPTV set-top box that couples the standard Freeview digital terrestrial linear TV proposition with on-demand content delivered over BT s ADSL lines. The latest V+ box also includes a 160GB hard disk for DVR functionality and uses Microsoft s Mediaroom IPTV technology. Initially the service was offered to BT broadband customers free for a 30 connection fee and no annual fee. However, BT now charges a 40 activation fee and an additional 90 set-up charge for customers not subscribing to any SVoD packages and has attempted to get tougher by levying a 199 charge on new customers that churn during the contract period. As of end-september 2011, BT Vision had 639,000 subscribers. Approximately 41,000 new subscribers were added in Q Having originally positioned the consumer proposition as a 4

5 VoD-only service that did away with being tied to subscriptions, a large proportion of BT Vision customers now take out a subscription package. BT currently boasts the largest TV on-demand catalogue of any of the pay-tv operators in the UK. It has approaching 10,000 titles on the service (representing nearly 7,000 hours of content), of which roughly half are current or library TV series. Content is largely available through a series of SVoD packages, organised according to content type (Kids, TV, Music, etc). SVoD movies can be accessed through Vision FilmBox which includes more than 75 movies from Universal s Picturebox, WarnerFilms and Film4 every month. The majority of films on BT Vision are available on a PPV basis. Vision Box Office offers more than 600 movies ondemand including a range of blockbuster movies, with 10 HD films added every month. A selection of 3D movies are also available. High definition films are available, but due to network bandwidth constraints, can only be watched after being downloaded to the hard disk in the set-top box. Consequently, usage of HD on-demand videos remains low. HD new movies are available at 5.00, with library titles at New standard definition films come in at 4.00, with library titles typically BT Vision services generated nearly 157m on-demand views over the three months to end- September 2011, representing an average of 30 views per customer per month. TalkTalk TV Video Networks, UK pioneer of commercial VoD with the Homechoice service, was acquired by Internet Service Provider Tiscali in The UK operation of Tiscali was then itself acquired by The Carphone Warehouse (TCW) in Whilst retaining its own brand, Tiscali is now part of TCW s TalkTalk fixed communications division. Rebranded to TalkTalk TV, the IPTV service failed to take off, peaking at 79,000 subscribers in Q before facing a series of declines. Although it has maintained its existing subscriber base, TalkTalk stopped advertising the IPTV service in Internet-based VoD The device traditionally used to access open Internet content is the PC, but a rapidly expanding number of other consumer devices are now broadband-connectable and therefore able to receive Internet video. These include all three current generation games consoles (Nintendo s Wii, Microsoft s Xbox 360 and Sony s PlayStation 3), connectable TV sets, set-top boxes dedicated to delivering Internet video to the TV (e.g. Apple TV, Roku, Boxee), hybrid set-top boxes that are able to receive traditional digital TV and the Internet (Freesat satellite TV set-top boxes have this capability specified and a growing range of Freeview digital terrestrial receivers also do and of course the much-discussed YouView proposition originated by the BBC has this functionality at its core), and a variety of portable/hand-held gadgets including portable video players (notably ipods), handheld games consoles, smartphones, and tablets such as Apple s ipad. 5

6 Paid-for Online Video Services Movies first began to be offered on a commercial pay-per-view ( digital rental ) basis over the Internet for viewing on PCs in the late 1990s. CinemaNow, one of the pioneers and longest survivors, began in The now defunct Movielink service, set up by five of the Hollywood majors, followed in However, the market did not show signs of significant life until Apple began offering video via its itunes application in the US in October In September 2006, Disney became the first major Hollywood studio to offer new release movies on a download-to-own basis through itunes and sold 500,000 in the first eight weeks. itunes quickly became the dominant US store for Internet-delivered movies and TV shows, despite initially only having support from two major US studios (Disney plus a more limited selection from Paramount). The only other service to gain significant commercial traction was the Xbox Live Video Marketplace, launched by Microsoft in late and in 2009 rebranded as the Zune Video Marketplace. This enabled owners of a broadband-connected Xbox 360 games console to digitally rent movies or purchase TV shows on a download-to-own basis. All the major studios finally came on board itunes in January 2008, making new release movies available in the US initially only for digital rental. A deal to offer new release movies for download-to-own on the same day as their US DVD release followed in May 2008 and by June 2008 Apple was able to report a run-rate of 50,000 itunes movie transactions per day. Apple began offering movies for rental and retail via the UK itunes store in June 2008 and IHS Screen Digest estimates that it commanded almost 70 per cent of the transactional digital movie market in the UK in In second place is Microsoft (19 per cent of the market), which has made movies available to UK customers through Xbox Live since December British consumers have been able to purchase TV shows via itunes for a longer period of time since August Apple enjoys an even higher share of the UK download-to-own market for TV programming, accounting for 93 per cent of the market in itunes, Xbox Live and the PlayStation Network share one notable characteristic. They are massmarket device-based services from very deep pocketed companies with interests in other markets. itunes is designed primarily to integrate into the ecosystem of Apple s ipad/iphone products as well as Mac computers and the Apple TV set-top box, while the Xbox and PS3 games consoles have no PC component at all, and are designed to directly plug broadband-delivery into the living room TV screen. A key lesson from the relative success of these services is that consumers tend to buy devices and screens, and then buy digital content from services serving those devices/screens. This device-driven phenomenon is the primary reason why virtually all pure stand-alone PC/web-based services have struggled and remain trapped in what we have termed the digital ghetto. Part of the explanation for the dominance of Apple and Microsoft in the paid-for market for online movies and TV shows is that their core business interests lie elsewhere. In other words, 6

7 these companies have developed their digital content strategies primarily as a means of driving some other mainstay profit centre in Apple s case, to drive the sales of high-margin products like ipads, iphones, and ipods, and in Microsoft s case to boost the sale of games consoles, which in turn bring profits from the sale of games. By approaching the online video service as a valueadd to other businesses, they can justify selling content to the consumer at close to break-even or even sometimes at a loss. This is in stark contrast to stand-alone services that are faced with the same high wholesale prices and minimum guarantees for content deals plus significant distribution costs, but have no other means of generating a profit. These difficult commercial parameters have resulted in no less than 42 different online movie stores going out of business in 2009 alone. In the US, more and more service providers have tied up with a growing list of consumer electronics manufacturers to deliver their content directly to the living room TV. This follows from the combined success of Apple, Microsoft and Sony s platforms in driving consumption by offering digital movies in a compelling hardware-plus-content ecosystem environment, making it easier for consumers to view downloaded or streamed movies directly on the living room TV, or to be able to move content onto portable devices. As more connected TV models appear on the UK market, a similar pattern is emerging, with services being pre-loaded and ready to run from the main screen. IHS Screen Digest estimates that the market for Internet-delivered movies was worth 52.5m in the UK last year 20 per cent of the total UK internet-delivered video market in the same year. Of this total consumer spend, around 64 per cent was generated via download-to-own retail transactions, with the balance coming from VoD rentals. However, growth in the movie download-to-own (DTO) market (known as Electronic Sell Thru or EST in the US) has slowed markedly as consumers have increasingly opted for the streamed rental proposition. This stalling of the DTO retail market has been a key reason why a number of industry players are hoping that inter-operable digital locker schemes, such as UltraViolet, will make the digital retail proposition more attractive to consumers (see below). Online sales and rentals of TV content as distinct from movies generated 62.7m last year. With much lower consumer pricing per show than for movies, this market is almost 90 per cent download-to-own. Again, the market is dominated by Apple, with neither Microsoft or Sony yet offering TV shows on a transactional basis outside the US. Growth in the paid-for online TV market has certainly slowed with the proliferation of free catch-up online TV services (see below). A clear sign of how tough the online video sector is for new entrants to the market is exemplified by the case of media services company Arqiva, which surprised many observers by purchasing the content management platform developed for the stillborn Kangaroo joint venture and using it to launch a consumer online TV service called SeeSaw. Arqiva, despite striking deals to offer catch-up programming from Channel 4 and Five plus older content from BBC Worldwide, sold the SeeSaw service in 2011 after uptake failed to meet expectations, and the service was closed shortly afterwards. 7

8 By our estimations, subscriptions to online sports TV services (mainly football) generated another 19.9m in However, there is also a growing trend for pay TV operators to extend their footprint over-the-top by using online TV as a distribution platform to bolster their core subscription business. BSkyB has employed the open Internet to deliver VoD services for some time, first introducing a PC-based VoD service as early as January Initially offering VoD downloads only, it was later expanded (and re-branded as Sky Player, and later as Sky Go) to include simulcast streaming of live Sky channels in addition to VoD. All the features of Sky Go including the simulcast streaming of channels is available free for Sky customers as a value-add to their existing package. Subscribers have on-demand access to programming consistent with eligible channel bouquets. Sky Go is also available as a standalone subscription for customers opting not to have a dish/settop box. BSkyB hopes to generate a meaningful incremental revenue stream from these nondish subscribers by offering a range of monthly tickets from 15 per month to 40. Sky is not the only provider offering online video subscriptions disc-by-mail provider Lovefilm (owned by Amazon) has long offered an online video option bundled with its physical product and recently launched a streaming-only option. Nonetheless, competition in the market is increasing following the UK launch of Netflix (Lovefilm s US equivalent), and has seen both Lovefilm and Netflix make a flurry of deals with broadcasters and studios in a bid to take control of the premium online video landscape. Netflix is facing a particularly tough uphill struggle with no existing disc-renting customer base to fall back on, and a relatively weak set of rights with which to gain a foothold. Netflix costs 5.99 per month to subscribe to, with Lovefilm s equivalent streaming offer starting at Microsoft also recently bolstered its video offering available to paying subscribers of the Xbox Live service. Content from the BBC, Blinkbox, Channel 4, Channel 5, Crackle, LoveFilm, MSN with MSNBC.com, Muzu.tv, and Vevo are now available to UK-based subscribers. Another long-surviving player in the UK online VoD market is Blinkbox, an 80 per cent stake in which was acquired by supermarket giant Tesco in April The move echoed the comparable acquisition of US online video platform Vudu by retail giant Walmart a year earlier. Founded in 2008, Blinkbox has around 9000 movie and TV titles offered on a transactional and ad-supported basis. The Blinkbox service is also on PCs and Samsung connected TV and BD Players and is anticipated to launch on the YouView digital platform. Another retailer, HMV, recently entered the UK online movie market via a deal with VoD aggregator Filmflex, the joint venture of Disney and Sony Picture TV. Leveraging the existing relationships FilmFlex holds with film-makers, HMV On Demand service will provide movies from Sony Pictures, Twentieth Century Fox, Walt Disney, Warner Bros., Entertainment One and Momentum Pictures. Digital lockers and Ultra-Violet 8

9 Tesco and Blinkbox launched the UK's first digital locker scheme, pre-empting the UK launch of the broad-based UltraViolet (UV) inter-operable digital locker initiative by three weeks. From 2 December 2011, members of Tesco's Clubcard loyalty scheme who purchased DVD or BD copies of participating titles automatically had a digital copy of the title added to a Blinkbox digital locker linked to their Clubcard account. A key feature of the scheme is that regular Tesco customers do not have to do anything to set up their Blinkbox account - each time they purchase a participating film on DVD or BD in a Tesco store or from Tesco.com and use their Clubcard, a digital version of the film will automatically appear in a Blinkbox digital movie library linked to their Clubcard account, ready for when they decide to view it. Digital films may be accessed through the Blinkbox website using computers, tablets, connected devices such as LG and Samsung smart TVs, Sony PlayStation3 game console and - soon - Xbox 360s. Tesco has stated that although specific details vary by studio, movies in the Blinkbox digital library will not carry an expiry date but are meant to be there 'in perpetuity'. The only restriction is that any movie may only be streamed to a single device at any one time. Warner released the UK s first UltraViolet-enabled title, Final Destination 5, on 26 December and has stated that in future all Warner theatrical new releases will be compatible with UltraViolet (UV). As in the US, where Warner was also first to market with a UV-enabled movie (Horrible Bosses on 11 October), the studio is using online rating service Flixster, which it acquired in May 2011, as its UV portal in the UK. The Digital Entertainment Content Ecosystem (DECE) consortium, which backs UV, comprises more than 75 companies, including five major studios (all but Disney), leading consumer electronics companies and major bricks-and-mortar, e-commerce and digital retailers (all but Apple s itunes Store). Its role will be limited to licensing the technology and operating the digital-rights electronic clearing house that will authorise users devices and authenticate their requests for streams, downloads and inter-device copying. So far 21 companies from across the entertainment industry have signed up as UV licensees for the UK; between them they cover 55 key roles in the UV ecosystem, including provision of content, streaming and downloading services, apps and devices as well as retailing. As in the US, the roll-out of UV is expected to gather pace in 2012, with UV releases initially being made available via BDs and DVDs but later directly through online retailers and/or via apps for streaming and downloading. Users must sign up for an UltraViolet account and link this to their account with their chosen portal(s). At launch, Warner s Flixster was the only UV portal site unveiled in the UK, but both Sony and Universal had launched their own UV sites, alongside their first UV-enabled discs, in the US. Once registered, users may extend account access to up to five additional people. In future, they will also be able to register up to 12 different apps or devices to which content may be streamed or downloaded. Up to three steams will be allowed at any one time although, in accordance with industry agreements on territory-based rights, UV accounts will be subject to geoblocking so consumers travelling outside their home country will not be able to stream content but will have to download it in advance. 9

10 Free Online Video Services In the last few years there has been an explosion in the volume of free-to-the-viewer video content made available online, mostly with the hope of generating revenues from advertising. Online video traffic of all kinds in the UK (and most other markets) is still dominated by Google s YouTube, which has effectively seen off the competition from most other rival usergenerated content services. When it comes to premium TV content, all the major UK broadcasters operate their own online TV outlets that allow viewers to catch-up on recently broadcast programming. However, it is the BBC s immensely successful iplayer service that still dominates online TV traffic in the UK, accounting for around 37 per cent of all free-to-view online TV streams consumed in the UK last year. With the online video audience growing fairly rapidly, broadcasters have been working to effectively monetise this audience by attempting to serve ads in and around the video content. IHS Screen Digest estimates that free-to-view online TV in the UK generated 124.7m of advertising revenue in 2011, a total inevitably depressed by the dominant share of viewing being taken by the BBC iplayer. This compares with total traditional TV advertising revenues in the same year of 3.5bn and total Internet advertising revenues of over 4.5bn. The market is controlled by the broadcasters (led by ITV), which collectively have a 75.8 per cent market share. Competition in the online TV space has also been intensifying. Google stepped up its efforts to make YouTube a viable service in the UK, initially by adding full-length TV shows from Channel 4 and Five, along with short-form clips channels for most broadcasters. The company has made clear it will invest significant sums in original programming, although initial plans appear to focus on the roll-out of a number of celebrity-curated and other thematic channels to augment the existing YouTube proposition. This effort must also be seen in the context of Google s persistent attempts to create a viable Google TV platform that is optimised for sit-back living room viewing that have so far met with disappointing results. On-Demand Viewing While the growth of VoD services both via TV platforms and online - have been strongly hyped, the impact they have made on overall viewing habits has been modest. IHS Screen Digest estimates that, in the UK in 2010, around 16 minutes were spent per person per day watching non-linear TV content, including all content consumed via DVR time-shifting, online and on pay TV VoD platforms. This represented under 8 per cent of total TV viewing. 10

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