Pay-TV Video on Demand in Emerging Markets - Service Provider Strategies, Business Models and Five-year Adoption Forecasts

At more than 30% of households, pay-TV penetration in emerging markets is far behind rates in developed markets, which average above 60%. In emerging markets, free-to-air operators often take the lead, relying heavily on advertising revenue rather than on the subscription revenue streams that are so lucrative in many developed markets. Low incomes make high prices for pay-TV unaffordable for most in developing markets, and free or inexpensive alternatives such as pirated content deters adoption even further. As a result, only 20% of pay-TV revenue worldwide comes from emerging markets even though nearly two-thirds of the world’s pay-TV subscriptions are there. Monthly subscription fees averaging less than $7, limited network capabilities and a lack of engaging content across emerging markets are the main reasons for the limited revenue opportunity to date.

One way that emerging-market pay-TV operators can improve revenue is by adding video on demand (VoD) and positioning the service as complementary to linear-channel programming — assuming compelling content is included. Furthermore, providing content anytime — and increasingly anywhere — can draw customers away from free platforms that lack such functionality. VoD can therefore be a means to both raise ARPS and increase the loyalty of customers. However, this solution is not so easy, because pay-TV operators need to carefully select an appropriate type of VoD service while implementing the most appropriate pricing model, and this requires network investments that are often minor in comparison to the cost of content.

The main question that this report strives to answer is whether there is a business case for pay-TV VoD in emerging markets. The success of a VoD service in an emerging market will depend on a variety of factors, including the network technology and architecture, content availability, consumer demand and the competitive landscape. Optimal VoD positioning varies by market, so in this report we provide explicit explanations, examples and case studies from a range of markets, including Brazil, Chile, China, Hong Kong, India, Mexico, Poland, Russia and the US. We believe these cases highlight best practices that can be emulated to build incremental revenue streams with pay-per-view, NVoD, push VoD, à-la-carte, movies on demand, DVR and time-shifted TV, subscription VoD, free VoD, true VoD and interactive VoD. The report also includes an update on the status of pay-TV adoption and revenue across emerging markets, setting the stage for an analysis of whether VoD can serve as a viable differentiator to help drive pay-TV demand or whether investments in the service are doomed to fail. The report concludes with VoD and DVR adoption and revenue forecasts covering the world’s largest emerging markets measured by pay-TV revenue and adoption — Brazil, China, India, Mexico and Russia — as well as forecasts for the US, the largest pay-TV market in the world.



Key findings include:

- Despite lower attach rates in emerging markets than in the US, we believe sizeable revenue opportunities for VoD and DVR services still await due to the sizeable and largely untapped markets. In China for example, we expect the number of VoD households to increase at a CAGR of 64% from 2009 to year-end 2014, while DVR households will grow at a 59% rate. By our estimates, these rapid growth curves will translate into more than $1bn in DVR revenue and nearly $240m in VoD revenue in 2014. Explosive growth will also take place in India.

- At year-end 2008, pay-TV households in emerging markets totaled 426m, up 16% from 2007. By 2014, we expect emerging markets to account for 69% of all pay-TV households, up from 64% in 2008. Almost half of the world’s pay-TV subscriptions come from Asia-Pacific, mostly from China and India. The next-largest emerging pay-TV nations are Russia, Egypt, Turkey and Poland.

- Growth in IPTV adoption should spur uptake of VoD services across emerging markets, although the financial crisis, if it continues, could lead to a slowing of deployments and uptake. IPTV operators and digital cable operators are in a better position than analog and satellite players to offer true VoD that includes two-way interactive features, programming that can be accessed anytime, HD and DVR services.

- Our research has found that emerging-market operators are better off introducing PPV or an à la carte model in the early stages to best assess potential demand.

- Even though they boost customer loyalty and reduce churn, DVRs on their own do not present a very profitable business model. We expect there to eventually be a move from DVR STBs toward network DVR service.

- We highlight a number of obstacles specific to emerging-market pay-TV operators that want to offer VoD. Content licensing remains the biggest hurdle; other obstacles include a lack of affordability, regulatory hurdles, low penetration rates of pay-TV and broadband, limited digital and two-way network coverage, and bandwidth management constraints.

- As operators begin to amass attractive VoD customer bases and develop new advertising models in conjunction with content providers as well as advertisers, we expect ad-funded VoD services to become more prevalent and account for a growing portion of pay-TV revenue.

- By 2014, we expect 34% of pay-TV subscribers in Russia and 29% in Mexico to use VoD, whereas more than 86% of pay-TV subscribers in the US will use VoD.

Key Questions Answered

- What is the status (such as adoption and revenue trends) of pay-TV in emerging markets, and how will current and future conditions affect the success of VoD?
- What are the major drivers and obstacles of VoD?
- Is VoD worth it for pay-TV operators? For content providers? What VoD strategies are being used in emerging markets, and which ones will be most effective?
- What factors can be used to identify whether VoD will be successful in particular emerging markets?
- What are the main challenges and lessons learned of emerging-market pay-TV operators?

Case studies
- Cablevisión (Mexico)
- Brasil Telecom Brazil)
- Akado (Russia)
- Topway, China Telecom (China)
- PCCW (Hong Kong)
- Comcast (US)

VoD and DVR forecasts
- Brazil
- China
- India
- Mexico
- Russia
- U.S

Target audience

Operators:
Understand the technology, competitive and content challenges that await a pay-TV VoD launch in an emerging market. Evaluate your market opportunity and benchmark your own tactics and performance. This report will help you develop and refine an effective video-on-demand strategy as well as identify new approaches to provisioning, pricing and content. Use our forecasts to size the market opportunity and our case studies to assess best practices and develop your go-to-market strategy.

Content Providers:

Discover what is holding back adoption in emerging markets and which strategies can overcome obstacles such as piracy. Evaluate markets to target those that best suit your products and capabilities. Develop strategies to expand the audience for your content and to increase your revenue from it. This report will also help you evaluate the different types of pay-TV VoD and their competitive advantages to develop a practical growth strategy.

Vendors:
Understand market dynamics and assess the needs of both VoD operators and content providers in emerging markets. Use our forecast to develop sales plans and identify key market opportunities.

Investors:
Locate opportunities in challenging environments. This report will help you evaluate and develop strategies that will position your portfolio investments to take advantage of one of the more challenging growth areas of pay-TV in emerging markets. SHOW LESS READ MORE >

Table of exhibits
Companies mentioned
Acronyms and abbreviations
Executive summary
Introduction

Section 1: Pay-TV market outlook in emerging markets
Most pay-TV subscriptions come from emerging markets
Digital technology platforms are likely to drive VoD uptake
Low ARPS limits pay-TV‘s upside in emerging markets

Section 2: VoD drivers, obstacles and strategies
2.1 Drivers of VoD provisioning
New revenue streams driven by VoD capabilities
VoD as a differentiator
VoD can help satisfy customer demand and build loyalty
2.2 Obstacles to VoD adoption in emerging markets
Customer profiles and purchasing power
Regulatory hurdles
Limited penetration of enabling platforms
Investing in bandwidth and managing it efficiently
A questionable business case for content providers
Inadequate quantity and quality of VoD content
Negotiating a favorable revenue-sharing split with content providers
Finding the right mix of content can take time
Free-to-air and pirated alternatives are abundant
Online video and over-the-top broadband VoD: If you can‘t beat =em, join =em
2.3 Finding the right VoD strategy
Pay-per-view and NVoD
Push VoD
À la carte; movies on demand
DVRs and time-shifted TV
Subscription VoD
Free VoD
True VoD
Operator profile — true VoD: VTR in Chile
Interactive VoD
Operator profile — interactive VoD: Airtel in India
2.4 Key findings

Section 3: Case studies
3.1 CASE STUDY: Cablevisión to use VoD to drive Televisa‘s digital content in Mexico
Pay-TV market context
Cablevisión overview
Drivers behind VoD provisioning
VoD offering and pricing
Performance
Challenges and lessons learned
3.2 CASE STUDY: Without complementary linear programming, Brasil Telecom abandons VoD strategy
Pay-TV market context
Oi/Brasil Telecom overview
Drivers behind VoD provisioning
VoD offering and pricing
Performance
Challenges and lessons learned
3.3 CASE STUDY: Akado will have to move past PPV to true VoD to differentiate its services in Russia
Pay-TV market context
Akado overview
Drivers of VoD provisioning
VoD offering and pricing
Performance
Challenges and lessons learned
3.4 CASE STUDY: Piracy and online video are obstacles to VoD uptake in China
Pay-TV market context
VoD offerings in China: Shenzhen Topway Video Communication
VoD offerings in China: China Telecom in Shanghai
Challenges and lessons learned
3.5 CASE STUDY: PCCW finds success in subscription-based VoD
Pay-TV market context
PCCW overview
Drivers behind VoD provisioning
VoD offering and pricing
Performance
Challenges and lessons learned
3.6 CASE STUDY: Vast content library drives increasing usage at Comcast, but at a rising cost
Pay-TV market context
Comcast overview
Drivers behind VoD provisioning
VoD offering and pricing
Expanding on-demand content to the PC
Performance
Challenges and lessons learned

Section 4: VoD and DVR adoption and revenue forecasts
4.1 Brazil: DVRs present a larger opportunity than VoD
4.2 China: VoD and DVRs to remain niche services
4.3 India: Uptake hinges on the availability of local VoD content
4.4 Mexico: Uptake of VoD and DVR services to be driven mainly by cable
4.5 Russia: Boosting competition to drive down prices
4.6 US: The largest VoD market
Related resources

Table of exhibits
Exhibit 1: Types of pay-TV VoD
Exhibit 2: Global breakdown of pay-TV households, 2005-2014
Exhibit 3: Pay-TV penetration of households in select developed markets, 2008
Exhibit 4: Pay-TV subscriptions by region, 2008
Exhibit 5: TV set and pay-TV penetration of households in select emerging markets, 2008
Exhibit 6: Market shares of pay-TV transmission technologies in emerging markets, 2008
Exhibit 7: Growth in digital penetration of cable subscriptions across emerging markets, 2008, 2014
Exhibit 8: IPTV subscription growth rates across largest emerging-market regions, year-end 2008 to year-end 2014
Exhibit 9: Global pay-TV revenue breakdown, 2005-2009
Exhibit 10: Pay-TV average revenue per subscription in select markets, 2008
Exhibit 11: Multimedia Polska‘s average revenue per analog and digital pay-TV subscription, Q1 2008 to Q1 2009
Exhibit 12: RGU growth at VTR, Chile, 2005-2009
Exhibit 13: Satellite/DTH market shares in select emerging markets, 2008
Exhibit 14: Pay-TV ARPS as a percentage of GDP per capita in select markets, 2008
Exhibit 15: Low pay-TV penetration of households in select emerging markets, 2008
Exhibit 16: Broadband penetration of households in select markets, 2008
Exhibit 17: Penetration of two-way-capable services
Exhibit 18: Concurrency rate comparison for developed and emerging markets
Exhibit 19: Free TV and pay-TV households globally, 2008
Exhibit 20: Regional broadband penetration of households, 2008-2014
Exhibit 21: Pay-TV market share in Czech Republic, 2005-2008
Exhibit 22: DVR pricing in select markets
Exhibit 23: BT‘s VoD service adoption and penetration of broadband subscriptions, Q2 2007 to Q2 2009
Exhibit 24: Evolution of pay-TV VoD services
Exhibit 25: Airtel‘s interactive services
Exhibit 26: Pay-TV indicators for Cablevisión, end of Q2 2009
Exhibit 27: Cable ARPS and digitalization of pay-TV cable networks in Mexico, 2004-2008
Exhibit 28: Leading Mexican pay-TV operators‘ subscriptions, 2004-2008
Exhibit 29: Select pricing for VoD content at Cablevisión
Exhibit 30: Cablevisión‘s pay-TV ARPS, 2006-2008
Exhibit 31: The pay-TV opportunity in Brazil, 2008
Exhibit 32: Brasil Telecom‘s VoD content breakdown
Exhibit 33: Average household spending on pay-TV services in Brazil, 2008
Exhibit 34: Broadband penetration of households in Brazil, 2005-2009
Exhibit 35: Pay-TV indicators for Akado, end of Q1 2009
Exhibit 36: Pay-TV market shares of delivery technologies in Russia, by subscriptions, 2005-2008
Exhibit 37: Cable market shares of operators in Russia, by subscriptions, 2008
Exhibit 38: Digital evolution of Akado‘s pay-TV subscription base, 2005-2008
Exhibit 39: Select films available to Akado subscribers in May 2009
Exhibit 40: IPTV and cable offerings VoD offering in Russia, May 2009
Exhibit 41: Pay-TV subscriptions and household penetration in China, 2005-2008
Exhibit 42: Average spending on pay-TV services by technology in China, 2008
Exhibit 43: Digital cable subscriptions in China — totals and as percentage of all cable TV subscriptions, 2005-2008
Exhibit 44: Topway VoD channel pricing
Exhibit 45: Shanghai China Telecom VoD channel pricing
Exhibit 46: Household penetration rates of TVs, PCs, broadband and pay-TV in China, 2008
Exhibit 47: Pay-TV indicators for PCCW, year-end 2008
Exhibit 48: Hong Kong pay-TV market shares by operator and technology, 2008
Exhibit 49: Pay-TV subscriptions by operator in Hong Kong, 2004-2008
Exhibit 50: Selected VoD channel prices from PCCW
Exhibit 51: PCCW‘s pay-TV ARPU
Exhibit 52: Pay-TV indicators for Comcast, end of Q2 2009
Exhibit 53: Pay-TV by technology platform in the US, 2003-2008
Exhibit 54: Impact of digital subscription growth on Comcast‘s video ARPU, 2004-2008
Exhibit 55: Select pricing for VoD content at Comcast
Exhibit 56: Correlation between VoD viewing and the number of VoD titles, Comcast
Exhibit 57: Video programming costs as a percentage of video service revenue at Comcast, 2007, 2008 and H2 2009
Exhibit 58: VoD and DVR as a percentage of pay-TV subscriptions in select markets, 2008-2014
Exhibit 59: VoD demand and revenue forecast for Brazil, 2008-2014
Exhibit 60: DVR demand and revenue forecast for Brazil, 2008-2014
Exhibit 61: VoD demand and revenue forecast for China, 2008-2014
Exhibit 62: DVR demand and revenue forecast for China, 2008-2014
Exhibit 63: VoD demand and revenue forecast for India, 2008-2014
Exhibit 64: DVR demand and revenue forecast for India, 2008-2014
Exhibit 65: VoD demand and revenue forecast for Mexico, 2008-2014
Exhibit 66: DVR demand and revenue forecast for Mexico, 2008-2014
Exhibit 67: VoD demand and revenue forecast for Russia, 2008-2014
Exhibit 68: DVR demand and revenue forecast for Russia, 2008-2014
Exhibit 69: VoD demand and revenue forecast for the US, 2008-2014
Exhibit 70: DVR demand and revenue forecast for the US, 2008-2014

By 2014, 84 percent of all pay-TV net additions will come from emerging markets, however a successful pay-TV VoD service in these markets will depend on a variety of factors, according to this latest report.

Pay-TV Video on Demand in Emerging Markets: Service Provider Strategies, Business Models and Five-year Adoption Forecasts strives to answer whether there is a business case for pay-TV VoD in emerging markets. This 98-page report provides explicit explanations, examples, and case studies from a range of markets, including Brazil, Chile, China, Hong Kong, India, Mexico, Poland, Russia, and the U.S. These cases highlight best practices that can be emulated to build incremental revenue streams with pay-per-view, NVoD, push VoD, à-la-carte, movies on demand, DVR and time-shifted TV, subscription VoD, free VoD, true VoD, and interactive VoD. The report also includes an update on the status of pay-TV adoption and revenue across emerging markets, setting the stage for an analysis of whether VoD can serve as a viable differentiator to help drive pay-TV demand or whether investments in the service are doomed to fail. It concludes with VoD and DVR adoption and revenue forecasts covering the world's largest emerging markets measured by pay-TV revenue and adoption – Brazil, China, India, Mexico, and Russia – as well as forecasts for the U.S., the largest pay-TV market in the world.

"By 2014, emerging markets will account for 69 percent of the global subscription total, with 84 percent of all pay-TV net additions coming from these markets," says Dan Locke, Senior Analyst at Pyramid Research and author of the report. "Almost half of the world's pay-TV subscriptions come from Asia/Pacific, mostly from China and India. The next-largest emerging pay-TV nations are Russia, Egypt, Turkey, and Poland," he adds..
Even though most pay-TV subscriptions are found in emerging economies, the revenue opportunity in these markets is considerably smaller than in developed ones, due to significantly lower pay-TV ARPS. "Low incomes make high prices for pay-TV unaffordable for most in developing markets, and free or inexpensive alternatives such as pirated content deters adoption even further," Locke says. "As a result, only 20 percent of pay-TV revenue worldwide comes from emerging markets."

"A successful pay-TV VoD service in an emerging market will depend on a variety of factors, including the network technology and architecture, content availability, consumer demand, and the competitive landscape," explains Locke. "Despite lower attach rates in emerging markets than in the U.S., Pyramid believes sizeable revenue opportunities for VoD and DVR services still await due to the sizeable and largely untapped markets," he adds. The report offers specific recommendations to operators, content providers, vendors, and investors.

- ABC
- ABC.com
- Akado
- AT&T
- Brasil Telecom
- BSkyB
- BT
- Cablemas
- Cablevisión
- Cartoon Network
- CBS Television Network
- China Telecom
- China Unicom
- Cinemax
- Comcast
- Comstar
- Corbina Telecom
- DirecTV
- DirecTV Latin America
- Discovery Channel
- Dish Network
- E! Entertainment Television
- Etisalat
- Fox
- Fox Broadcasting
- Freeview
- Grupo Televisa
- HBO
- Hong Kong Broadband Network (HKBN)
- Hulu.com
- i-Cable
- Internet Group
- Megacable
- Millicom
- Movie Channel, The
- MTN
- MTV
- Multimedia Polska
- NBC
- NET Serviços
- Nickelodeon
- NTV
- NTV Plus
- Oi
- Orange France
- PCCW
- Qwerty (Central Telegraph)
- Rede Globo
- SeaChange International
- Shenzhen Media Group
- Shenzhen Topway Video Communication
- Showtime
- Sistema Mass-Media
- Sky
- Sky Mexico
- Starz
- Stream
- Svyazinvest
- Tata Sky
- Telefónica
- Telefônica Brasil
- Telefónica O2 Czech Republic
- Televisa (Grupo Televisa)
- Time Warner Cable
- TiVo
- Topway
- Tricolor TV
- Tudou
- TVB Pay Vision
- TVN (Telewizja na karte)
- UPC Czech Republic
- UTStarcom
- Verizon Communications
- VimpelCom
- Virgin Media
- VTR Chile
- Warner Brothers
- Youku
- YouTube
- Zain