OTT Presents CDN, Advertising Opportunities for ISPs

As the industry hurtles toward 2013, we’ve seen a hockey-stick-like rise in over-the-top (OTT) video consumption, which has given rise, most famously, to concerns among pay-TV operators that their subscription revenue is at risk from cord-cutting, or people dropping them in favor of cheap streaming options. But a new report from Skytide points out that ISPs are also facing concerns, considering that OTT content is delivered over broadband without the ISPs’ control, precluding them from sharing in the revenue even as network congestion escalates. That will drive the content delivery and advertising businesses, the report said.

And there’s a lot of revenue to miss out on: The study points out that OTT video providers, such as Netflix, Amazon Prime and Hulu (News - Alert), are estimated to generate $8.2 billion globally in 2012 and are projected to swiftly quadruple to $32 billion by 2017; revenue that is not shared with ISPs, according to ABI Research. According to another report from Informa (News - Alert) Telecoms & Media, total OTT revenue is projected to increase 32 percent in 2013, with sales from advertising, subscriptions and transactions expected to climb to $14 billion.

Meanwhile, service providers are being forced to make enormous infrastructure investments to keep pace with the insatiable OTT video demand on their networks; investments that cannot be recouped through monthly ISP access fees alone.

“To free themselves from this bind, CSPs must leverage their core strengths as network operators to create new revenue streams and reduce capital investments (realistically, cost reduction will come first, followed by new forms of revenue),” researchers said,

ISPs have an opportunity to share the wealth by leveraging a few key attributes, like quality of service control, the report postulates. If they play their cards right, for ISPs 2013 may be the year when a commercially viable OTT model emerges that is equitable and sustainable for both content owners and ISPs and allows service providers to actually profit from their infrastructure investments, Skytide (News - Alert) noted.

“All is not lost for ISPs, at least for those who are able to offer content delivery services across their networks,” reads the report. “To successfully compete in delivering video content, they will need advanced analytics and reporting to help them harness these advantages, optimize quality and precisely provision capacity.”

There are trends that are leading OTT providers to increasingly contract with operator CDNs for video delivery, the report noted. For instance, new HD TVs and tablet PCs with high-resolution displays mean that the fluctuating quality associated with best-efforts Internet becomes more pronounced. ISPs can leverage their last mile advantage, utilizing their homegrown CDNs to serve video much closer to the end user, greatly improving quality of experience (QoE) in the process.

The rise of longer-form OTT content will also change the current dynamic, Skytide said. “It’s one thing to watch a 60-second video that suffers from latency, jitter and frozen frames; it’s another to be subjected to those conditions for 60 minutes.”

Online video advertising is another area of growth: the market maturing to the point that advertisers are allocating it ever-larger media spends, confident that the viewer experience and overall environment will fit their brands. With a solid QoE in their pockets, content owners can provide advertisers with consistently high picture quality and a suitable environment to showcase their products and services, incentivizing media providers to partner with ISPs on a managed service.

 “This could create a virtuous cycle in which increased ad dollars support more long-form online video programming delivered with higher quality levels, which in turn attract even more ad dollars,” the report noted.