Ampere: Direct to Consumer OTT can work out more cost-effective than broadcast

By Barry Flynn, Contributing Editor   

The costs of distributing video Direct To Consumer (DTC) over the Internet are now at a level where for many content-owners and linear channels it is actually more cost-effective than traditional broadcast, according to recent research from consultancy Ampere Analysis presented at the Connected TV Summit in London and commissioned by Magine, a cloud-based TV platform.

Guy Bisson, the company’s Research Director, claims “We’re now in a position where DTC is actually an option, either as a supplement to an existing business or – in certain markets – as the business itself.”

This is down to the fact that with DTC, “firstly the up-front costs to get a channel on air are considerably lower. So with a satellite you’re going to take your yearly transponder, but with an OTT service you don’t have that significant up-front cost. But what you do have is a scaling cost, CDN delivery, that grows with your customer base.”

Ampere accepts that the latter factor makes OTT uneconomic for reaching very large audiences, estimating that for a single channel or service offering video in any definition from SD to UHD, a satellite feed works out cheaper beyond 10m viewers – even if they watch on average just one minute of content per day.

Conversely, for a daily viewer base below 20,000, OTT always works out cheaper, even if all viewers watched five hours of content a day and all content was transmitted in UHD, Ampere found.

Taking two hours of viewing a day as a mid-point (the average amount of content watched by a Netflix customer), and assuming all content is SD, OTT begins to work out cheaper than broadcast at around 50,000 viewers, says Ampere. “Only when DTC reaches fairly significant scale in terms of viewing do technical costs become an issue at the ARPU levels typical of a single-provider SVOD service.”

However, Bisson notes that the DTC model depends on the use of a third-party infrastructure outside the control of the content or channel business on the final hop to the consumer, which affects which markets represent the biggest opportunities.

However, he argues, “it’s not all about broadband penetration, because size is also important. And actually if we look at the size of the addressable market, by penetration and high speed broadband, at the speeds you need for both SD and HD content, what you can see is there’s a lot of opportunity in emerging markets. Mexico, Brazil, Russia, China, Taiwan, Thailand – all start to become interesting [DTC] markets when we talk about the total addressable size.”

Meanwhile, DTC is a perfect fit for an emerging segment of consumers who choose to build their own content bundles, Bisson suggests. Ampere’s research found that in the UK a Netflix customer is 1.5 times more likely than average to also take Sky’s Now TV OTT service; 1.8 times more likely to also take Amazon; 2.5 times more likely also to take Spotify’s streaming music services; and 1.5 times more likely to use the catch-up TV apps of the major broadcasters.

“We call them ‘content connoisseurs’,” says Bisson. “They are young, wealthy, highly engaged with content, they like technology, they watch a little less, but not much less, TV than average, and when they do watch they tend to watch through apps and online services. […] They’re already creating their own entertainment bundles in the home and clearly DTC fits perfectly into that.”

Bisson argues that it would be wrong to view this phenomenon as “complete ditching of pay-TV. If you are building your own bundle, and you add together DTC services, it quickly comes up to the ARPU level that you’d expect from a traditional pay-TV platform. So it’s not pay-TV rejection that we’re talking here.”