Monetising mobile video: a new approach for telcosBy Sergio Tieri and Warren Tucker

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Empowered with smartphones and tablets, today’s mobile customers want the widest choice of video possible and are not willing to submit to any limitations on the content they can consume. They are also becoming significant generators of video content themselves – sharing it across social networks. What these factors add up to is that the already strong growth in the mobile video market is expected to accelerate even more, with a 25-fold increase over the next 3 years. For operators of mobile networks this new consumer behaviour presents a number of major challenges.

For telecommunications companies, providing the infrastructure required to cope reliably with increasing video traffic at the right quality means higher costs and significant ongoing investments in network infrastructure. However, consumers will not pay significantly more for pure data alone. What’s more, in straitened economic times there is a growing trend for mobile consumers to manage their consumption in order for their usage to remain within the fixed price limits of bundled data and voice package(s).

While the demand for mobile video content is growing fast, a lack of clarity about how to monetise the growing traffic created by multimedia services persists. Indeed, how many customers will be prepared to pay for this content remains an open question. Those uncertainties mean that to date, approaches to video have largely been based on two models: what might be called the ‘dumb pipe’ and integrated fixed-mobile.

Mobile operators that do not offer any video content themselves are in effect simply providing others with a conduit for their content. The mobile operator carries the traffic of content providers and content aggregators, but does not capture any portion of the value of these video offerings.

Integrated fixed-mobile operators are building bundled propositions, where consumers can access video content through their mobile phone and through

their wireless broadband access at home. This model, while more in line with evolving consumer behaviour, nonetheless suffers from a similar limitation: telecom operators are not content creators and cannot hope to provide consumers with the variety of content and the level of choice they demand. As a result, both approaches described above have failed to gain real consumer traction, limiting the value captured by telecom operators in the video market.

In the meantime, content providers and aggregators, such as OTT (Over The Top) players, have manoeuvred themselves into a strong position. There is a considerable risk of mobile operators being unable to keep pace with content providers’ dynamic behaviour and with consumers’ rapidly changing content preferences. However, Telco’s cannot afford to ignore the increasing demand for mobile video services. Instead, they need to take a new approach, learn from their past experiences and from the emergence of new models, and play a different role.

In Accenture’s view, this means becoming an enabler for content service providers and for content aggregators (such as OTT players) by adopting an open platform for video content attached to a network that delivers the best possible user experience – meaning reliable, with good performance and high-speed. Put simply, an open platform that is seamlessly integrated into a ‘Smart Pipe’. This open platform would provide a valuable service to content providers and would allow mobile operators to capture a greater share of the fast growing value available from the mobile video content market.

This could be achieved by enabling more choice of content for their customers, at a higher level of quality, thereby increasing customer satisfaction and strengthening consumer relationships. This potential opportunity is confirmed by a recent survey (see ‘Accenture’s Mobile Web Watch 2013’ below), which confirmed that consumers value quality over price when choosing their mobile internet provider and that more than 60% of consumers would be prepared to pay more for better mobile connectivity.

With stronger end consumer relationships, telecom operators could, in the medium term, move towards a hybrid model where their enabling platform delivers third parties’ content (such as Vodafone with Spotify) as well as content they directly manage and own, where the opportunity arises to buy content (e.g. BT Sport content in fixed line). This would allow mobile operators to offer their customers the widest choice of content, while maximising the share of value captured. Taking that route, however, will require mobile operators to develop additional capabilities to optimise traffic and reduce network congestion and, ultimately, provide end users with a better streaming experience.

The 4G challengeOperators are betting on incremental revenue generation opportunities by offering consumers free access to content and services. The move by Vodafone to package Sky Sports and Spotify in with its new 4G offering shows that operators understand that they have to show immediate benefits of new 4G services to consumers and why they should pay more. There is little evidence of churn for LTE alone, so operators must focus on locking in consumer loyalty from the outset, or risk losing the battle in the long term. For all operators, getting a significant 4G network footprint is essential. At the same time however, operators can’t afford to get service delivery wrong. Whereas 3G’s unique selling point (USP) was speed, 4G is all about experience. Consumers will not pay for the 4G experience unless they – literally – see a real step change, for example when streaming a football match. Operators also have an opportunity to take on the role of trusted advisor to consumers when it comes to providing the right selection of compelling content, helping create user-focused bundles so consumers get the most out of their new 4G data packages and avoid content proliferation.

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The already strong growth in the mobile video market is expected to accelerate in the coming years:

• Mobile TV subscription spending will reach $2.8 billion in 2016 from $1.5 billion in 2011, a 14% increase compounded annually.

• In terms of mobile TV revenue share (2012), the top 5 countries include: France (35%), U.S (29%), South Korea (19%), Italy (4%), and Japan with 3% share

• Mobile video traffic will increase almost 25-fold by 2016, with mobile data increasing 18-fold

• Younger demographics (under 35) are increasingly consuming more video on connected consumer electronics devices: on a monthly basis approximately 4 hours on mobile, 6-8 hours on internet and 20-30 hours on time-shifted viewing – (Source Nielsen)

• Multi-screen interactive digital experiences are replacing consumption on a single screen. Three main dynamics are observed in terms of simultaneous usage of device: Smartphone-TV, Smartphone-PC and Laptop-TV

Mobile TV Market Size by region ($, M)

Source: PwC Global M&E Outlook 2011 – 2016

Source: CISCO VNI

Global Consumer IP Traffic - Indexed (2011=100)

Mobile video market trends

405 465 526 627 736 848492 496 537 576 636 680631 724

826967

1,1201,319

2011 2012 2013 2014 2015 2016

Americas APAC EMEA

1,5281,685

1,889

2,4922,847

2,170

+14%

2011

Mobile video Cable hybrid IP VoD High-definition VoD IPTV VoD

Internet PVR Internet video to TV Live Internet TV

2600

2100

1600

1100

600

1002012 2013 2014 2015 2016

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• An extensive Accenture survey of 30,900 mobile consumers in 26 countries confirms that the mobile customer has radically changed in just a few years. Empowered by smartphones and tablets, savvy consumers expect everything immediately at their fingertips. Some of the key findings from the survey include:

• Consumers are no longer loyal to a telco brand: nearly a third of mobile internet users express no preference for the type of provider that meets their needs and only 20% prefer telco over device manufacturers or OS makers

• More than 60% of mobile internet users are willing to pay more for a faster internet connection

• Consumers want a wide array of digital offerings (cloud-based storage, online backup, sharing and collaboration services) and approximately 70% are willing to pay a specific fee for these services

• More than 95% of mobile internet users consider network quality a key element in their choice of a mobile provider, more important than the price of data connection

• Less than 40% of those rating network quality as an important element are satisfied by the current level of service provided by mobile operators

Mobile Web Watch Survey 2013

Models: to open platform and smart pipeThe dramatic growth of mobile video services has stimulated mobile operators to develop new models that aim to seize the video market opportunity. These tend to fall into one of three types:

1. Integrated fixed-mobile operators are taking a reactive approach. They are building bundled propositions that allow consumers to access video content through their mobile device and through their wireless broadband access at home. This model, though, fails to provide consumers with the variety of content and the level of choice they demand, as telcos cannot afford to offer a wide catalogue of content.

2. Some operators have decided to take a very defensive stance, for example by trying to charge content providers for access to consumers, in the attempt to create barriers to the development of content aggregators, such as OTT players. In our view, regulatory and competitive issues will mean that this approach will not last long.

3. Other operators are taking a more collaborative approach, through establishing partnerships with content aggregators such as OTT players. However, the mobile operators’ role in this model is still limited to acting solely as a provider of network connectivity, and, as such, provides them with limited value.

Rather than pursuing one of approaches above, we believe that mobile operators should take a new approach and play a different role. In Accenture’s view that means becoming an enabler for content service providers and for content aggregators through the adoption of an open platform for video content attached to a network that delivers the best possible user experience.

In the section that follows we briefly illustrate the key characteristics of each of the models described above, before describing in more detail what, in our view, should be the target model and the capabilities required for mobile operators to move in that direction.

Figure 1

Dumb pipe, no actively managed catalogue

Charge to content providers for access to users

Multi-play bundle

Partnerships with OTT players

Open platform, enabler for content providers

Historicalmodels

Current / emergingmodels

Target models

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Dumb pipe Any mobile operator that is not actively offering any video content is in effect operating only as a conduit for others’ content. The mobile operator carries content providers’ and content aggregators’ (for example OTT players such as Netflix) traffic, but does not capture any of the value of these video offerings. While consumers pay according to the amount of data they use per month, they generally do not perceive a direct relationship between the multimedia content they want to consume and the amount of traffic required to deliver it to their mobile device. As a result, they tend to see these propositions as confusing and of little value. That lack of perceived value means that mobile operators can charge only a limited fee (e.g. between 5-20 GBP) for the bandwidth they provide. At the same time, they have to make significant investments to increase capacity and to support data traffic growth As a result, profit and return on their investment is declining. It is the OTT players who are capturing the greatest share of value, as they take advantage of the connectivity provided by MNO’s. What is even more problematic for mobile operators is that rapidly increasing volumes of traffic create slow and congested networks that create poor quality service, which consumers typically blame on the operator – a lose-lose scenario.

Multi-play bundle This proposition is based on a bundle of:

• Mobile service with broadband connectivity

• Fixed broadband access (fibre or VDSL) + wireless local connectivity (Wi-Fi)

• Multimedia content (subscription based and/or pay-per-use)

Operators with a directly managed catalogue tend to combine content with bandwidth, so that customers do not need to consume their data allowance to see the video content. LTE technology offers the ability to price differentially for various levels of content quality (e.g. standard quality vs HD). Consumer surveys confirm that customers would be willing to pay for a higher quality service yet this possibility has not to date been extensively explored by MNO’s.

This type of offering fits well with changing consumer behaviour. They are increasingly moving towards simultaneous use of multiple devices, for example starting consumption on one device and completing/extending consumption on others (e.g. social media, e-commerce). For fixed + mobile operators this offering enables them to off-load heavy video traffic from the mobile network. The main limit of this model, however, is that content is expensive. Catalogues are therefore typically limited or acquired as part of a larger deal (e.g. Telecom Italia offering football matches as they are the main sponsor of the ‘Series A’ (Premier League)). Moreover, given that video content is still typically consumed at home, the mobile component of these offerings is more of a ‘nice to have’ than a compelling, central feature for which consumers are prepared to pay.

Charging content providers for user access Some operators (e.g. France Telecom) are adopting an aggressive approach towards providers and aggregators, demanding fees for access to customers. France Telecom, for example, claims to have forced Google to pay a certain (undisclosed) sum to compensate for the huge amount of traffic generated by the search engine and by YouTube on France Telecom’s network. A similar agreement has been recently finalised between Netflix and Comcast, where Netflix has accepted to pay Comcast to deliver the traffic of the OTT player to Comcast’s customers. This approach is aimed at capturing a higher portion of the value of the video content market through an ‘access charge’. However, we believe that this model will be unsuccessful as:

• It does not comply with ‘net neutrality’ principles, and is likely to encounter strong objections from regulatory bodies

• It is unlikely to be widely adopted by all operators in each country. Content providers may therefore persuade consumers to migrate to the telecom providers that do not levy such charges, stimulating migration through negative publicity and/or through propositions that are less attractive for the customers of the operators with access charge.

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Partnership with OTT playersThis model is based on a revenue-sharing partnership between mobile operators and OTT players and is being adopted by several operators in the Asia-Pacific market. Here the mobile operator provides access to OTT content through a flat monthly fee. The fee is not directly related to the amount of traffic consumed, so the proposition is more consumer-centric, in terms of relevance, simplicity and flexibility. Examples include:

• KDDI’s Smart Pass service offers unlimited content from some 500 content providers for approximately $4 per month, and revenues are shared with content providers based on usage

• DoCoMo is offering Hulu content to its smartphone, tablet, PC, and connected TV customers for $19 per month

In the US the market dynamic is also changing with providers recognising that bundling data charges into content may be a more compelling proposition to consumers and avoid “bill-shock” moments, particularly given the rise in video over mobile. One such proposition is “sponsored data” launched by AT&T Wireless Network. This service allows content providers to cover the cost of the data charges and absorb these on behalf of the consumer, thereby encouraging uptake. This type of service may prove popular with rights owners for valuable content such as live events. There remain challenges in this model around net neutrality that remain in discussion with the various regulatory bodies around the world.

In our view this model is a significant step forward for mobile operators as it:

• Provides consumer-centric propositions that focus on content and services rather mobile operators’ bandwidth and tariff structures

• Evolves OTT players from threats to partners

On the other hand, the role of mobile operators in this model is still solely limited to being a provider of network connectivity. It is not very efficient in terms of content distribution and control of service quality, given that there is no integration between the mobile operator’s and OTT player’s respective infrastructures.

Open platform to enable third-party contentAll the models we describe above are based on limited (or indeed no) collaboration and integration between telecom operators and content providers/aggregators. We believe that this is the main reason why mobile operators have yet to successfully seize the video market opportunity. So what is the alternative? We suggest that operators are now ready to learn from their past experiences and take advantage of the emergence of new, more open models. This requires them to adopt a more proactive and collaborative approach, with an open platform for video content, that will act as an enabler for content service providers and for content aggregators (e.g. OTT players). The primary service offered by this platform would be the ability to distribute content through

storage capabilities distributed across the telecom network, instead of having a single distribution point. This is a more efficient solution as it reduces required capacity investment and enables better control of quality, thus improving customer satisfaction. The platform would offer the flexibility of adopting different charging models (pay per use, subscription based, advertising based, etc.), in order to support different business models for content providers.

Examples of this approach are already being developed:

• Youview, the UK partnership between content providers (BBC, ITV, Channel 4, Channel 5) and telecom / infrastructure operators (BT, Talk Talk, Arqiva), is currently focused on the fixed telecom market, but could evolve towards a fixed-mobile platform

• NTT has recently launched their ‘network cloud’ strategy, a platform that is being proposed to OTT players to provide more efficient and better quality services than those that the OTT could provide with their servers that sit outside the telco network

This model could represent an attractive solution for content owners (such as studios and broadcasters) to disintermediate content aggregators (such as OTT players). As a result, it would allow mobile operators to provide a valuable service to content providers and in doing so capture a higher portion of the value in the mobile video content market.

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Moreover, this model would also allow mobile operators to provide a wider choice of content to their customers and at higher quality. That would both increase customer satisfaction and strengthen relationships. As a result, this model could evolve in the medium term towards a hybrid whereby the enabling platform delivers both third parties’ content (B2B model) and content directly managed and owned by the telecom operator (B2C model). The hybrid model would blend proprietary content and services with an open platform approach, allowing mobile operators to provide their customers with the widest choice of content, while maximising the share of value captured.

The hybrid model, in fact, would allow telcos to:

• Gain a better relationship with their customers through providing them with rich and diverse content

• Achieve economies of scale through sharing the costs of the platform across different content providers

Therefore telcos would be able to leverage these benefits (better customer relationships and greater economies of scale) to offer their own content through this common platform. This evolution would be similar to developments in the retail sector. Large retail chains such as Tesco and Sainsbury’s initially sold only other companies’ products. Once they had generated sufficient brand recognition in their own right and significant economies of scale, they introduced own-brand products.

Table 1 below illustrates the comparison between the traditional approach adopted by mobile operators (closed model) and the open / hybrid models described above.

Closed Model Hybrid Model Open Model

Consumer choice

Business model B2C B2B & B2C B2B

Integration level

HighOperator owns content, content partner licence,

network, platform, set top box, etc

MediumOperator manages a platform

that delivers their content and enables external content

LowOperator manages a platform that enables external content

and service providers to leverage it in a more flexible

way to reach consumers

Value captured by operator

Sharing of technical investment

Sharing of content rights costs

Table 1

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Which capabilities are required in this new world?Video traffic is putting extensive pressure on the network. The traditional approach adopted by mobile operators, i.e. simply adding new capacity without adding new capabilities and without managing traffic more effectively, is not, in our view, the right way to tackle the current challenges.

Mobile operators need to develop a specific set of capabilities to optimise traffic and reduce network congestion and, ultimately, provide end users with a superior streaming experience. They need to transform their network into a differentiated smart pipe, managing and optimising the way traffic travels over the backhaul through the adoption of a solution that enables the caching of regularly consumed content at the base station level. This will reduce the amount of traffic that is carried across the backhaul and transport networks, thus reducing the capacity investment required and the level of network congestion while, at the same time, enabling a better streaming experience for the customer.

In other words, instead of operating with a single distribution point for content, the smart network distributes content through storage capabilities distributed in the Radio Access Network. This can be implemented through a technical solution called CDN (Content Distribution Network) that analyses the most popular content and stores it dynamically across several distribution points, closer to the location of the end users more likely to request it.

Another key capability to meet the requirements of the new mobile customer is the ability to measure the experience delivered to the customer. This means knowing how the network is performing at each node and ideally at the user level, in order to control the actual quality offered to the customer. This requires a holistic approach based on algorithms that reconstruct the experience perceived by customers through the combination of network management and customer satisfaction in a single, integrated suite of performance and quality indicators. These indicators can be combined with trend analysis and predictive models of network performance so to understand and optimise the customer experience based on number and type of users impacted by service quality degradations.

This will be the benchmark by which operators are measured and selected, as demonstrated by the results of the Accenture Mobile Web Watch Survey (see page 3).

The ability to prioritise traffic is becoming critical too; prioritisation is based on the value of the content to be delivered and/or the customer to be served. This feature would also enable content providers / aggregators to develop offerings with different levels of service (e.g. bronze / silver / gold) to meet a more sophisticated and differentiated set of customer needs. The Mobile Web Watch Survey confirms that the ability to diversify the quality of services for different customer segments will become increasingly important.

Mobile operators could further enhance their role as enablers of content providers / aggregators by offering additional technical services such as signal encoding/decoding, streaming services etc., in effect providing content owners with a complete turn-key solution. In addition, telecom operators could use their existing resources and capabilities to offer outsourcing services. These might include ‘white label’ customer support and billing integrated with customers’ bills, providing an alternative to card payment, which still raises, especially in certain geographies, a significant barrier to the wider adoption of premium video services.

Finally, telcos could also leverage the information available in their infrastructure and systems to provide content providers with very detailed customer analytics, combining service usage, location, and so on.

Overall, telecom operators have an opportunity to radically transform their position in the mobile video market and to capture a higher share of market value. However, they need to be prepared to add new resources and capabilities in order to provide content players with a comprehensive enabling platform, with a full set of technical and business outsourcing services. If they do that, telcos will also facilitate the market entry of additional smaller players, as the technical investment required to offer video services will be shared among all the players that will access the open platform. As a result, end users will enjoy a greater choice of content and the demand for video services is likely to increase even more.

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A mobile Content Delivery Network (CDN) is a network of servers - systems, computers or devices - that cooperate transparently to optimise the delivery of content to end users on any type of wireless or mobile network. The primary purpose of a Mobile CDN is to serve content to end users with high availability and high performance. In addition, Mobile CDNs can be used to optimise content delivery for the unique characteristics of wireless networks and mobile devices, such as limited network capacity, or lower device resolution. Added intelligence around device detection, content adaptation can help address challenges inherent to mobile networks which have high latency, higher packet loss and huge variation in download capacity.

Mobile Content Delivery NetworkMobile CDNs should integrate mobile delivery services that optimise the delivery of any kind of content including live video streaming, on demand video and the delivery of other content assets. In the case of video content, these services include caching, device detection, image rendering, video transcoding and bit-rate adaptation.

With mobile CDN solutions, nodes are deployed at the edge of the network and in multiple locations. These nodes cooperate with each other to satisfy requests for content by end users, transparently moving content to optimise the delivery process. The benefits of optimisation can take the form of reduced bandwidth usage, improved end-user performance, or increased global availability of content over a mobile network. CDNs are important for mobile operators as they can lead to significant savings and avoid network congestion.

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Moving forwardTo date, mobile operators’ have been largely unable to monetise the potential and rapidly growing opportunities that video presents and have failed to meet consumers’ demands for near limitless choice and variety. On the other hand, providers such as OTT players have created offerings that more closely meet those requirements, and consequently, they are grabbing the largest market share. By taking a different approach and developing a new role, telcos could reinsert themselves in the value chain to gain a higher share of available value. Developing an open platform for video content, attached to a network that delivers the best possible user experience, and making this solution available to content providers along with a full set of technical and business outsourcing services, would also allow mobile operators to provide a wider choice to their customers – a greater choice that would increase customer satisfaction.

Over time, this model could evolve towards a hybrid with the platform delivering both third parties’ content (B2B) as well as content directly managed and owned by the telecom operator (B2C). This would allow mobile operators to offer their customers the widest choice of content, and maximise the share of value they capture.

In order to take this approach mobile operators will need to develop the appropriate set of capabilities, to optimise traffic, reduce network congestion and, ultimately, provide a better streaming experience to end users.

AuthorsSergio Tieri

Sergio Tieri is Accenture’s Communications & Media Strategy expert in the United Kingdom and Ireland

sergio.tieri@accenture.com

Warren Tucker

Warren Tucker is Accenture’s network practice lead in the United Kingdom and Ireland.

warren.w.tucker@accenture.com

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