OTT expansion challenged by cost of scaling up delivery network access

Joseph O'Halloran | 19-09-2012

Research from IHS Screen Digest is warning over-the-top (OTT) video providers that their costs may rise to uncompetitive levels as services are scaled up to meet the demands of large numbers of the average TV-viewing public.
Suggesting that the likes of Netflix may end up as victims of their own success, the analyst suggested that OTT providers may have to change their business models as the market develops, potentially having to invest in their own video content distribution infrastructures. Ironically, similar to those already maintained by the pay-TV companies whose market share they are eroding with better value propositions.
Indeed, added the IHS Screen Digest Insight Report, as OTT firms become more like the pay-TV operators they are competing with, OTT firms will see their price advantage compared to cable, satellite and other delivery systems evaporate and could actually reverse. The analyst also said that the question remained as to whether OTT could evolve then to meet the scale demands of the average TV viewer, or would it be destined to be relegated to the role of delivering low-demand content.

“To serve the viewing needs of a mass-market audience, the content delivery network (CDN) costs for OTT streaming services would have to fall by a factor of as much as 25,000 just to reach parity with the most efficient broadcast technologies,” explained Guy Bisson, research director for television at IHS.
“At current prices, it would cost €1.2 billion in CDN costs alone for OTT unicast streaming to serve the population of the UK with the kind of high-definition (HD) viewing they are accustomed to. For the same price, 5,000 linear channels could be broadcast, nearly 10 times the number actually serving the U.K. today. When OTT unicast streaming services like Netflix are scaled up to suit the mass-audience television market, their advantages in cost, flexibility and technology turn into disadvantages. Even at just 8,000 simultaneous views, unicast streaming becomes less cost effective than broadcast—and this is a tiny amount compared to a typical primetime audience for linear TV,” Bisson added outlining the fundamental fact that with unicast streaming the more viewers there are, the more the cost increases.
The analyst suggested that one way OTT could be scaled up is if providers invest in their own infrastructure by effectively building their own distribution platform. It added that that may not have to be a full-blown wired network, with all the capital spending demands of laying new fibre or coax; instead it could take the form of edge servers for localised content storage, creating efficiencies in CDN costs by delivering content once to each of a number of local hubs.