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The OTT report | Chapter three: Barriers to growth

3: Clinging to the Cord: Barriers to OTT Growth

The sports industry’s road to an OTT future is well-signposted but still in many ways a two-speed highway, with supply-side technology accelerating ahead of the confidence of rights-holders and consumers, who are proceeding at a more cautious pace. As Matt McKiernan, director of online video platform provider StreamAMG, points out: “Streaming has been happening for 12 years at least and is at the 2.0 stage in technology terms, but it’s only now that it is becoming more accessible and reaching the point that rights-holders can begin to monetise almost overnight.”

Alongside growing audience numbers across the OTT market as a whole, the succession of new sports rights-holder DTC services that continue to launch suggests demand is beginning to close the gap, but there remain a number of question marks against key elements of the business model and user experience that present potential barriers to further rapid growth. The most fundamental sources of consumer and rights-holder scepticism persist around the capability of delivery technologies and the cost of providing and accessing services. The threat of piracy is also a potential deterrent for sports properties (albeit less so for fans), while forthcoming changes in online regulation could also have a negative impact on commercial potential.

3.1: Connectivity still a weak link

Connectivity has always been both the lifeblood of the online economy and the source of its greatest frustration. Today’s slow turn of the wheel of buffering is to Millennials what the beeps, growls and whistles of the dial-up modem were to Generation X in the late 1990s, albeit with one crucial difference. Broadcasting live sport online has opened vast new possibilities for the digital media industry but has massively raised the stakes too: the value of the currency of access means the cost of service failure is now potentially fatal for the relationship between viewer and service provider.

Consumers and rights-holders remain wary of OTT technologies because the difficulties of delivering live feeds to millions of individuals simultaneously are easy to understand, plus there are plenty of high-profile examples of services that have failed to do so. These problems have arisen not just as a result of simple volume of traffic but also through issues such as the need for authentication that subscription services often require causing bottlenecks before viewers can even begin watching the feed as the numbers accessing the servers jump from the thousands to the millions in a matter of a few minutes ahead of kick-off. Some examples from the final quarter of 2017 of the continuing occurrence of these types of issue include:

•    Eurosport being summoned to a meeting with Germany’s national football association after service outages affected streaming of two Friday night Bundesliga matches.

•    The start of DAZN’s live-streamed NFL coverage in Canada being plagued by complaints over connection failures, constant buffering, lack of HD video and audio dropping out.

•    NFL Game Pass Europe refunding subscribers 20 per cent of their annual fee after a series of technical problems limited services following the roll-out of a new version of the app.

Rainer Geier, managing director of Sportradar OTT, says the industry recognises it is still some way from winning the consumer’s full trust and believes that only time will bridge that gap as providers are able to demonstrate the resilience of their infrastructure. He says: “For top events, if the user is not able to watch instantly it is a problem and not good for the home sector. You see the issues of Eurosport player in Germany; that was a problem with concurrent users. That will be solved in two to three years but currently it is an issue. If you go to chats and blogs, this is really the main barrier for most people.”

Guaranteeing reliability is complicated by the number of processes involved in OTT delivery, making the system only as strong as its weakest link and with ‘last-mile’ elements such as broadband, mobile and WiFi networks outside the service provider’s control. Geier says: “The most important element for OTT from the technical point of view is a stable and state-of-the-art back-end and media management system which also includes a media player solution that should be customised to individual devices. Then there is also a payment technology system which has to be aligned and the whole content delivery system, by which we mean that the delivery of media content is possible to many concurrent users.

“The secret behind it is the interaction behind all those elements and, for us, the hardest one has been the concurrent user situation. We started our OTT business in 2007 and between 2009 and ’15 we had exclusive rights to LaLiga in the German-speaking market. With El Clásico, which was not on linear TV channels, we gained a lot of experience in managing those numbers because we had two million parallel users at the same time. So from our point of view, we have handled two million parallel users and it works, but you have other solutions where two or three hundred thousand users does not. We can handle 1-2 million no problem because we had this for El Clásico. That is the benchmark but that is just in Germany and Austria. With top-tier rights on a European or global level there is another challenge again. Everybody will try to tell you it is no problem but you need proof of concept and experience. Perhaps three million works but we haven’t proved it. We know the figures in play and from our point of view two million is the benchmark.”

These problems will be solved but not without further hiccups along the way, and it may take some time for providers to move the dial on consumer confidence. According to a study by IP video solutions provider Phenix based on consumer research carried out by YouGov in October 2017, 72 per cent of sports viewers expect latency issues while watching a live game online, 64 per cent expect buffering, 32 per cent expect poor picture quality and 30 per cent expect to experience loss of service at some point during the broadcast.

3.2: Caution around cost

While the millions being poured into original programming by the likes of Netflix and Amazon are making exclusive content an increasingly important driver of their subscriber numbers, for many of the market’s pay TV defectors, cutting the cord is still primarily a means of cutting their monthly expenditure on in-home entertainment. According to research firm cg42, the average US cord-cutter spends $15 a month on streaming services, while the average cable subscription costs $92 a month.

So far so good, but the more rights-holders go OTT, the more subscriptions sports fans could find themselves needing to keep up with the action. And the cost soon adds up.

OTT service subscription prices, 2018

Player

Territories

Price

Playstation Vue

USA

$49.99 per month + $10.00 per month for Sports  Pack

Hulu

USA

$39.99 per month

DirecTV Now

USA

$35.00 per month

YouTube TV

USA

$35.00 per month

Amazon Prime

USA

$99.00 per year

CBS All Access

USA

$5.99 per month

Tennis Channel

USA

$59.99 per year

ESPN +

USA

$4.99 per month

NowTV

UK

£33.99 per month (sport)

DAZN

Germany, Canada, Japan

€9.99/$20.00/$15.00 per month

Viaplay sports package

Scandinavia

€29.99-40.00 per month

beIN Sports Connect

France

€15.00 per month

Amazon Prime

UK

£7.99 per month

O2 TV Sport

Czech Republic and Slovakia

€2.75 per day/

Eurosport Player

Europe

£29.99 per year

MindiGO

Hungary

€5.00 per month

SportsFix

Malaysia

$2.50-3.00 per month

RugbyPass

Asia

$7.99 per week/$19.99 per month/$159.99 per year

iflix

Asia

$2.50 a month

Source: SportBusiness Intelligence

The impact of price sensitivity is already being seen in the market as viewers use the short-term nature of OTT subscriptions and the seasonality of sport to limit the expense of consuming live action. A study produced by US IoT market research agency and consultancy Parks Associates in 2015 found that the sport season being over was the third most common reason cited by streaming TV subscribers for cancelling a service, at 20 per cent of those exiting. The only bigger issues were both related to cost.

The potential negative implications of service proliferation are something the industry recognises, with Bruin Sports Capital executive vice-president and principal David Abrutyn observing: “Budget for media consumption is a real barrier. Everyone is offering a subscription, and it is not just sport – there is Spotify and other subscriptions and then you have classic cable or linear TV subscriptions too. There is a normal limit on budget for media consumption and in the future this will be an issue for OTT, or at least will slow the shift towards it.”

As fragmentation causes sports fans’ costs to add up over the longer term, the situation could ironically lead to a need to recreate the system that OTT has specifically challenged – that of a middleman standing between rights-holder and consumer to provide more cost effective (and straightforward) access to a full suite of sports content. The difference between the past and future, though, may be the nature of that intermediary service, moving from the one-size-fits-all approach of cable and satellite bundles to a far more bespoke arrangement that allows subscribers to pick and choose around their own specific interests – an ‘iTunes of sport’ where users can manage and scale their consumption on a sport, team or event-by-event basis. David White, president of media at Lagardère Sports and Entertainment, believes OTT proliferation poses a potential problem primarily of “consumers not knowing where to find services” but he is adamant that the solution is not a simple shift in the current bundled model from legacy platforms to digital ones. “If you want to watch Chelsea play, you will pay what you need to pay, but what people are not going to do is pay over the odds to watch Chelsea play by having also to buy another 50 pieces of content they don’t want to watch.

“I believe that in time all TV will be delivered over the internet and I believe that the current bundled services will have no option but to start an à la carte service instead.”

Cost is also an issue on the rights-holder side of the fence. Going DTC can potentially increase properties’ revenues, both directly through subscription, sponsorship and advertising revenue, and indirectly through the increased access to customer data that control of digital properties allows, but it is not without significant cost and risk.

Angus Kirkland, secretary general of the European Hockey Federation, says the governing body can only fund the infrastructure to support live coverage at around a quarter of the tournaments it sanctions each year, explaining: “There is not a problem of us wanting to do more, it is more about how do we manage to do it. We spoke to six or seven different companies and all had the same story: we want to do it but have you got a lot of money? There are quite a lot of big organisations [that can invest heavily in OTT] but actually there are more smaller federations who have content and want to do things better but don’t have the budget.”

He explains: “The biggest challenge is always the technology in venues and the internet connections from them. We are not going to the same place week in, week out, so that is always challenging. Can the checklist be understood in different environments? What is your expectation of what is required, what is their expectation and can you bring them together? That’s the big challenge. It sounds simple because people are used to throwing things up on YouTube but to provide a quality product takes a lot of work.”

That difficulty is recognised by StreamAMG’s Matt McKiernan, who agrees: “The biggest challenge is the production of live streams because it’s a big cost putting in cameras, commentators and overlays. We are asking federations to go from being media organisations to broadcasters overnight. If you have an existing broadcaster with a world feed, that is a big help. You can build a market on the back of that and if that proves big enough you can go it alone. Traditionally there was a big hesitancy to do this because of the jump: it’s an unknown market, you don’t know if you will reap any value and you might damage the TV rights business and risk piracy.”

3.3: Surrounded by pirates?

As long as there has been digital media, there has been piracy, whether through file-sharing, P2P networks, torrent sites or illegal streams: copyright infringement is a major concern for all content producers. Lagardère’s David White says of the situation: “Piracy has been a long-term problem for traditional media platforms but it is more of a problem for new media.”

Illegal viewing is a majority experience in many parts of the world, with research commissioned by digital platform security provider Irdeto in 2017 finding that up to 70 per cent of adults in Latin America had watched some form of pirate material online.

Experience of viewing pirated video content, February 2017

Base: 25,738 adults aged 18+

Source: Irdeto

The Irdeto survey found that illegal streaming of sport was less common generally than watching pirated films and TV shows, but further research by the company around viewing of the Floyd Mayweather v Conor McGregor boxing match in August 2017 – the first major event of its kind to be available to stream legitimately online – highlighted the extent and spread of the issue among sports fans specifically. Irdeto identified 239 illegal streams of the fight, only 67 of which were through established pirate content sites. Some 165 were available through social media platforms including Facebook and YouTube or streaming platforms and apps such as Periscope and Twitch, with six illegal plug-ins also available for Kodi media player devices. The scale of some of the streaming operations was such that the company counted 42 advertisements for illegal streams of the bout on e-commerce sites including Amazon, eBay and Alibaba, while, in total, an estimated 2.9 million people watched the event in this way.

A BBC survey of UK football fans published in July 2017 highlighted similar willingness to watch illegal match streams, whether as a means of accessing games not broadcast on television or as a means of avoiding paying to view. Some 47 per cent of all fans said they had streamed a live Premier League match through an unofficial provider at least once in the past, while 65 per cent of those aged 18-34 did so at least once a month. The most common reasons for watching in this way were because the respondent was present when a friend or family member accessed a stream (29 per cent), the quality was good (25 per cent) and sports TV packages do not offer value for money (24 per cent).
The main steps being taken by rights-holders and their official media partners to combat illegal sports streaming fall into two primary categories: the technical and the legal.

“Content protection and being able to protect against piracy for both live and on-demand content is a challenge but technology is solving that one,” says NeuLion executive vice-president and co-founder Chris Wagner, although he also recognises that even the latest measures can only enable faster action to be taken ‘after the fact’ rather than actually prevent content theft taking place in the first place.

He says: “We have sophisticated services that work around the Sky Sports box office product, for example, so when a consumer is asked to buy a digital ticket online, depending on the browser, we have a DRM service implemented that protects this stream regardless of the device and or the delivery network. If someone films and rebroadcast the stream it carries a watermark. We know who that is and can turn it off.”

Technological advance is therefore improving rights-holders’ reactions in their constant game of whack-a-mole with the streaming pirates but it is a strengthening range of legal weapons that is arguably doing more to cut the problem off at source. The most significant of these look like being the UK High Court injunctions granted to the Premier League and Uefa in July and December 2017 respectively that require all internet service providers to comply with instructions from the two associations to block servers hosting illegal streams, rather than the previous arrangements under which shutdowns took place on an individual stream or website basis. Pirates can still move to another server but evasion is now much more complicated and slower to achieve. The Premier League described the injunction as “a game changer” and blocked more than 5,000 server IP addresses while a temporary precursor to the current order was in place during the final two months of the 2016/17 season.

There is one other potential, longer-term solution that rights-holders and media platforms are also being advised to explore, however; one that is focused on addressing consumer demand rather than pirates’ supply. The argument here is tied up with the theory that consumers will be best served by future media rights distributions that allow them to micro-manage their consumption and subscription costs. That implies an increase in the quantity of live action available, which in turn requires an intuitive and comprehensive means of discovering and accessing it – the ‘iTunes of sport’ proposition once more. If rights-holders can give fans the access they want, says David White, the likelihood is they will prefer to stay with names they know and trust. “The most significant problem for OTT,” he says, “is getting the message out there. The challenge is educating fans and consumers [where to source legitimate content], because, in the absence of fans being able to find it, they resort to piracy.”

3.4: Regulation changing the rules of the game

The potential to offer the all-areas access needed to effectively neutralise illegal streaming services is hampered not just by the geographic nature of existing media-rights agreements and the desire of rights-holders themselves to protect event attendance but also by variations in regulatory systems between territories. “Depending on where you are in the world, regulations can be an issue,” says Bruin’s David Abrutyn. “In the US, net neutrality comes into play and begs the question of how easy and accessible things will be in the future. By no means is this a simple process to seamlessly distribute certain types of content.”

Net neutrality – the principal under which ISPs are required to make all websites and apps available to all sources of internet traffic on an identical basis – was repealed in the USA in December 2017. This means ISPs could control the number and nature of websites consumers are able to access according to how much they pay, and could charge high-bandwidth businesses such as streaming services for access to a ‘fast lane’ of content delivery. None of this is considered imminent, but smaller enterprises – such as the OTT operations of minority sports properties and federations – would be at greater risk of marginalisation should new commercial ISP models take effect.

The other emerging potential threat to the business model of rights-holder OTT is around data protection, where concerns have been raised in the marketing industry in general that forthcoming changes to European regulations will make the demographic and behavioural information in which these services are particularly rich more difficult to harvest and utilise for commercial advantage.

The General Data Protection Regulation (GDPR) comes into force in May 2018 and imposes a far wider range of requirements on all organisations (regardless of where they are based) that process the personal data of EU citizens, backed up by fines for breaches that can reach upwards of €20m in the most serious cases. However, the conclusion of many specialists in the field is that while data processing will become more expensive as a result of the new requirements, the greater transparency and emphasis on accuracy promoted by GDPR should improve the quality of data operators will be able to source and analyse, leading to more robust insights that can generate stronger commercial results.

Browse the sections of the OTT report and download the full PDF version here.

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