Get a peek at the the online video trends that will shape 2015

1. 5Online Video Trends
to Watch in 2015

2. 2
Industry pundits, bloggers and
analysts have been prophesying the
rise of a la carte OTT services for the
past several years, certain that it was
just around the corner.
Well, it looks as if the corner will
finally be turned in 2015, with
traditional Pay TV networks like
HBO, Showtime and Starz and
traditional ad-supported networks
like CBS recently announcing their
intention to launch OTT services
next year. Here’s what we know:
HBO will launch an a la carte service
that targets the 80 million U.S.
households that do not currently
subscribe to its service — especially
broadband-only households. HBO is
the gold standard for Pay TV, so this
announcement carries a lot of
weight.
There is some hope that an
attractively priced, standalone HBO
subscription could also dissuade
freeloaders from pirating the service
but that will likely hinge on pricing
and packaging, as yet unknown.
Forrester analyst, James McQuivey
predicts that the service will likely be
priced at about $15 per month,
affordable enough for broadband-only
consumers to justify but
expensive enough to discourage
cable TV subscribers from defecting.
Presumably, Showtime and Starz
would follow suit with similar pricing
and plans.
CBS has already announced that its
OTT service will be priced at $5.99
per month, a curiously high price
point for content much of which can
be consumed for free via antenna or
as part of a basic cable plan.
CBS is likely banking on the fact that
most viewers no longer have
antennas installed and couldn’t use
them to view live programming on
mobile devices anyway. Big
broadcasters eliminated that option
when they successfully took legal
action to shut down Aereo, a service
that equipped subscribers with
miniature antennas that could
stream and record over-the-air
programming to mobile devices.
1
Broadcasters get
serious about a la
carte OTT services

3. 3
While the looming launches of a la
carte monthly OTT services from the
likes of HBO, Showtime and CBS are
significant, it does not spell the end
of the cable bundle as some imply.
Broadcast networks and
multichannel video programming
distributors (MVPDs) have little to
gain from blowing up the bundle.
The broadcasters like bundling
because it allows them to leverage
the equity in their premium brands
to obtain distribution and carriage
fees for secondary offerings.
The MVPDs like bundling because
they can package a grab bag of
programming into a multitude of
flat-rate pricing packages that have
high perceived value with many
consumers. Plus, bundling provides
distributors with a nice, dependable
revenue stream.
With the average cable bill currently
hovering around $90 per month, it
wouldn’t take long for a la carte OTT
services to eclipse that figure.
So, rather than being the death knell
of cable, these OTT offerings are
likely to be additive, appealing
largely to“cord cutters.”
The real test will come when enough
of these a la carte services have
launched to gauge their impact. If
they are successful, they will
encourage other broadcasters to
launch their own OTT services.
This is where things could get very
interesting, because while
broadcasters are not looking to kill
off the cable bundle, they are
looking for leverage to negotiate
more favorable revenue splits with
operators. Successful standalone
services could give them just that.
Implications
Click to Read

4. 4
As competition intensified between
the major subscription video on
demand (SVOD) services like Netflix,
Hulu and Amazon Prime, they rolled
out expanding libraries of original
content in 2014 to differentiate
themselves and stem churn.
Look for them to continue this
content arms race in 2015, especially
as they face the prospect of new
competition from a la carte OTT
subscriptions.
Netflix has benefited the most from
its investment in original content,
striking gold with “Orange Is the
New Black” and “House of Cards.”
Look for it to double down on this
strategy so that it can — in the
words of its Chief Content Officer —
“become HBO faster than HBO can
become Netflix.”
True to its word, Netflix has signed
Adam Sandler to an exclusive four
movie deal and announced some
big forthcoming programming for
2015, including:
• An adaptation of “Lemony Snickets’ A
Series of Unfortunate Events” and a
remake of the 1970’s sci-fi thriller,
“Westworld,”
• “Marco Polo,” an epic 10-episode
series from The Weinstein Company.
• “Bloodline,” a family drama from the
creators of FX’s “Damages.”
Demonstrating its commitment to
original content too, Amazon just
announced a formidable slew of
seven new programs slated to pilot
in 2015, including:
• “Point of Honor,” a drama from
Carlton Cuse, the executive producer
of “Lost.”
• “The Man in the High Castle,” from
renowned director, Ridley Scott whose
credits include “Alien,” “Blade Runner,”
and “Thelma & Louise.”
In a novel crowdsourcing twist, Amazon
plans to debut the first episodes of each
of its seven programs for free on its
Instant Video streaming service, then
solicit viewers to cast their votes for
which shows they would like to have
made into full series.
2
SVOD services will
double down on
original content
Original
Content

5. 5
Watch for Hulu to up the ante too,
especially on the heels of Rupert
Murdoch’s recent pronouncement
that he intends to turn Hulu into a
“serious competitor” to Amazon and
Netflix.
As a shot across their bow, Hulu
recently announced “11/22/63,” a
straight to video series from
acclaimed director, J.J. Abrams based
on Stephen King’s 2011 novel.
It then followed it up by inking a
deal with director, Jason Reitman
(“Up in the Air,” “Juno”) for the new
comedy series, “Casual” slated to air
in 2015.
Since Hulu is owned by the alliance
of Fox, Walt Disney Company and
NBCUnivesal, it finds itself in a bit of
a predicament, however.
It needs top notch original content
to become a more viable competitor
to Netflix yet its owners need for
traditional TV to continue to reign
supreme.
As SVOD increasingly becomes the
first choice for viewers, it siphons off
viewers necessary to maintain TV
revenues. Whether the owners of
Hulu can thread this needle remains
to be seen.
The power of original content will
not be limited to the current big
three SVOD players either.
Samsung is reportedly investing
millions to create original video
shorts especially for mobile devices.
Sony is also getting in on the action,
debuting its first original content
series, “Powers” exclusively on its
PlayStation Network. It will leverage
the show to try to upsell PlayStation
Plus memberships.
YouTube would likely be the most
disruptive new entrant in 2015,
either with a subscription or ad-supported
VOD service. YouTube has
already invested heavily in retaining
top content creators; launching a
subscription service is certainly
plausible.
2
Netflix forecasted that
it will spend $6.6 billion
for content in 2015.
If it spends 10% on
original content, as it
projected it would in
2013, it could pay out
nearly $700 million for
its own programming
in 2015.

6. 6
In 2014, the leading SVOD services
leveraged original content to
increase the perceived value of their
services and differentiate their
offerings from one another.
With the planned introduction of a
la carte OTT subscriptions from Pay
TV heavyweights, existing SVOD
services will be under increasing
pressure to also differentiate their
offerings from these cable brands
and to justify their continued share
of wallet.
Given this new context, subscription
video on demand services have little
choice but to increase their
investment in exclusive original
content in 2015, as it becomes an
even more important strategic
asset. Not only to ward off
competitors but to also give
themselves a pathway to raise prices
in the future to pay for all that
content.
Expanding libraries of original
content will also provide them with
leverage against spiraling content
licensing fees, which are estimated
to total $6.8 billion in 2015.
But with series like “House of Cards”
rumored to cost nearly $8 million
per episode, just how much original
content can SVOD services afford to
underwrite?
And how much can they produce
until the networks and studios who
supply the bulk of their content cry
foul? After all, they don’t want to be
perceived as a direct threat.
Suffice it to say, subscription video
on demand services will have to
straddle a fine line in 2015 to
differentiate their offerings without
being perceived as encroaching on
the terrain of their suppliers.
Implications

7. 7
MVPDs are seemingly being
attacked from all sides.
The rise of SVOD services. The
planned launch of broadcaster OTT
services. And the continued friction
from broadcasters escalating
demands for retransmission fees.
In the last few years, broadcasters
have seemed to gain the upper
hand in this battle, demanding that
MVPDs compensate them for
programming across every device.
For instance, Pay TV operators even
need to pay for retransmitting
content that is delivered free over
the air.
When they have balked in these
negotiations, broadcasters have
pulled their content; a strategy that
has caused subscribers to direct
their wrath at the operators,
increasing the pressure to capitulate
to the broadcaster demands.
Witness the infamous 32 day
standoff between Time Warner and
CBS in 2014 where CBS prevailed.
Now CBS is embroiled in another
battle, this time with Dish Network.
CBS appears to hold the ultimate
trump card since it holds the rights
to AFC conference NFL games
including the home market of Dish’s
local pro football team, the Denver
Broncos.
This lack of leverage in
retransmission discussions portends
even tougher sledding for TV
Everywhere, the initiative by MVPDs
to authenticate and deliver their
content across all the devices that
their subscribers use.
TV Everywhere is viewed as a pivotal
strategy for cable and satellite Pay
TV providers to keep their
subscribers from fleeing to free or
low-priced SVOD services, but has
experienced only modest success.
Requiring that MVPDs negotiate
separate contracts with broadcasters
for distribution across each device
type will stifle its success, especially
since they will be hard pressed to
pass the costs on to its subscribers.
3
Retransmission
battles will grow
even more heated
(if that’s possible)

8. 8
When it comes to high demand
content from blue chip broadcasters,
MVPDs may have to concede to
retransmission fee demands in the
short term. Look for them to try reset
the balance of power in 2015, however.
The most significant happening that
would provide operators with more
leverage is pooling more negotiating
power through consolidation. That’s
already in the works.
The announced merger of Comcast
and Time Warner Cable is currently
undergoing review by the FCC, as is a
second blockbuster proposed merger
between AT&T and DirecTV.
Neither is a sure thing.
The specter of reduced competition or
diminished consumer choice may
derail the mergers on anti-trust
grounds.
The recent push by President Obama
to reclassify broadband providers as
public utilities could also waylay the
mergers or introduce unfavorable
conditions for approval.
With the recent shakeup in the U.S.
Congress, look for Pay TV operators
to also push for a legislative solution,
especially if merger talks fail.
The Satellite Television Access
Reauthorization Act of 2014, a bill to
reform retransmission fees has
already been introduced in both
houses of Congress and is awaiting
next steps.
Not surprisingly, programmers like
CBS and Disney are using their
substantial lobbying clout to derail
the mergers. With Q3 TV ad sales
down 0.5% YoY, they are increasingly
reliant on retransmission fees; CBS
aims to quadruple theirs by 2020.
Another option is for MVPDs to
simply reject retransmission fees with
some of the secondary broadcasters.
DirecTV and AMC may be headed for
such a scenario by end of 2014. If
DirecTV lets AMC fade to black
without a meaningful hit to its
subscriber base, look for other cable
and satellite provides to be likewise
emboldened.
Implications
CBS has publicly
stated that it
expects to grow
retransmission fees
to $1 billion by 2017
and $2 billion by
2020, a fourfold
leap from today.

9. 9
Viewers have generally been
forgiving about online video quality
to date, but that’s about to change
as the stakes get higher.
• More big budget original
programming is set to go over
the top.
• Existing Pay TV brands are
launching OTT options.
• Technologies like 4G LTE are
conditioning consumers to
expect lower latency and HD
quality.
Online video is growing up and with
it heightened expectations and less
forgiveness from consumers,
programmers and advertisers.
Viewers — especially paying
subscribers — are fast coming to
expect the same quality of
experience (QoE) with OTT that
they’ve come to expect with
traditional Pay TV. That means crisp,
consistent picture quality and low
latency.
Programmers are dropping big
bucks on new shows featuring
celebrated directors and actors,
none of whom will accept a second-rate
viewing experience.
And for those programs that are ad-supported,
the expectations by
advertisers will be equally lofty. They
will not tolerate a viewer experience
that doesn’t positively accentuate
their brand.
Key to establishing high QoE levels
for all these stakeholders is the need
to create high user engagement
levels. After all, if a viewer is actively
engaged with the programming,
they are likely to be more satisfied
with their experience.
Slow load times and frequent
buffering in particular have proven
to be the fastest way to send viewers
scurrying for the exits and to
disengage.
Solving this problem will be essential
to OTT success.
4
Online video quality
will become the
linchpin for OTT
success or failure

10. 10
Clearly, the forecast for online video
is bullish. But it isn’t a forgone
conclusion that it will become a truly
viable alternative to traditional Pay
TV until it can consistently provide a
fast loading, uninterrupted HD-like
experience.
If they hope to present a serious
challenge, OTT providers will need to
measurably improve QoE levels to
the satisfaction of viewers,
programmers and advertisers.
That will require a significant IT
investment, particularly for content
delivery networks (CDNs) and
transparent caching which help
reduce network congestion and
improve QoE levels by caching
content at the network edge. This
places content nearer to viewers,
removing the problems that lots of
network hops over long distances
can introduce.
It will also require that internet
service providers (ISPs) continue to
build out their infrastructure to
accommodate the demand.
But who will pay for that?
Beset with diminishing revenue on
legacy services and mounting costs
associated with increasing
bandwidth to meet OTT demand,
ISPs have begun to demand that
content owners pitch in to help
subsidize that build out. To back up
their demands, some ISPs have
throttled traffic from bandwidth
hogs like Netflix, degrading their
stream unless OTT services pay to
directly interconnect.
Faced with unhappy customers and
a poor user experience, Netflix has
been coaxed into reluctantly signing
paid peering agreements with ISPs
like Comcast, Verizon and AT&T.
These agreements enable it to
bypass the the often congested
connection points between the ISPs
and transit providers like Level 3.
Look for Netflix to continue to lobby
the FCC to regulate interconnect
fees, especially on the heals of
President Obama’s call to treat the
Internet as a utility.
Implications
Click to Read

11. 11
Programming bundles for Pay TV
haven’t changed much in recent
years, in part because they didn’t
really need to.
With all the recent flux in the
marketplace, however, look for new
and novel bundles that cater to
changing consumer preferences and
serve as a counter to standalone
OTT and SVOD services.
Verizon just announced an offer that
bundles broadband with HBO,
Showtime, Netflix and basic local
programming from its FiOS IPTV
service for just $60 a month.
Conspicuously absent from this offer
are sports channels and the
accompanying high carriage fees
that add significantly to Pay TV
pricing.
Sony just waded into Pay TV as a
“virtual MVPD” with the beta rollout
of its PlayStation Vue service that
will be delivered over the top
through its gaming consoles.
It will start with about 75 channels,
with the service priced in the $60-
$80 per month range. Unlike most
competitors, Sony will not require
that consumers be shackled to a
contract, a feature that should play
well to cable, satellite and IPTV
subscribers weary of long term
commitments.
Dish Network also plans to launch a
virtual MVPD service but with a twist
that it hopes can keep pricing low.
Dish will encourage prospective
subscribers to access free over-the-air
programming like NBC, CBS and
ABC by using an antenna. Doing so
will enable Dish to avoid expensive
retransmission fees, freeing it to
potentially provide an OTT bundle of
programming from the likes of
Disney, A&E Networks, Scripps and
others for as low as $30 per month.
And not to be outdone, Amazon is
rumored to be mulling a separate
low-priced, ad-supported OTT
service decoupled from its Amazon
Prime service.
5
Pay TV bundling will
get creative

12. 12
By rolling out a variety of new
programming packages and pricing
options, multichannel video
programming distributors like Dish
Networks and Verizon are signaling
that they plan to aggressively defend
their turf.
By testing concepts like the virtual
MVPD, service providers are also
signifying that they plan to retain their
dominance in Pay TV regardless of the
mechanism and technology with
which programming is delivered.
This is an important development.
While OTT has disrupted the Pay TV
status quo, cable, satellite and IPTV
providers have often seemed
constrained by their technology to
effectively marshall a counter attack.
TV Everywhere has been their only
credible option thus far. Despite huge
investment, however, only 21% of Pay
TV subscribes use it at least once per
month according to findings from an
NPD Group study.
Given this tepid rate of adoption,
look for traditional Pay TV providers
to begin placing more focus on
delivering what consumers want and
how they want it, rather than trying
to jury-rig their existing solutions.
These new virtual MVPD offerings
are an initial step in what will be a
longer evolution that ushers in a
hybrid approach and a migration to
Internet delivery.
It is also a tacit acknowledgement
that packaging broadband access
with programming bundles is the
future of Pay TV.
With Moody’s projecting that cable
companies will have more
broadband customers than Pay TV
customers by 2015, it’s conceivable
that programming could be used as
a loss leader to drive more
broadband consumption and
accompanying higher priced monthly
broadband plans.
Implications
By 2015, cable
companies will have
more broadband
subscribers than video
customers.
Source: Moody’s Investor
Service report

13. 13
Many communication service
providers are building and operating
their own content delivery networks.
Because they own the last mile,
operator CDNs can cache content
deep in their networks and deliver it
much closer to the end user,
resulting in faster content delivery
and better video quality that closely
approximates the experience that
consumers have come to expect
from cable and satellite TV.
To achieve this, operator CDNs rely
on Citrix Content Delivery Analytics
to help isolate and correct quality of
service issues, forecast traffic and
provision capacity, understand
content popularity trends, and
ensure accurate billing — all in near
real-time.
To find out more, click here.
Citrix Content
Delivery Analytics
Click to Read