VOD seeing 100% growth in some regional markets

Video-on-demand is expected to double its magnitude in the UAE, once etisalat rolls out its full VOD service, said Georges Dabaghi, General Manager for the Middle East, On Demand Group.

Dabaghi refused to reveal the specifics of the negotiations currently taking place with the telecom operator and other regional operators. However, he suggested that some result is expected before the end of the year.

Du, which currently offers the only fully integrated VOD platform in the UAE, has about 70,000 users, according to sources.

Dabaghi told Emirates Business that the number of users of the service in the UAE will reach nearly 400,000 by 2013. Meanwhile, he expects VOD to witness a minimum growth of 30 to 40 per cent in some markets in the next two to three years and could grow up to 100 per cent in other markets in the region.

 

What is the market growth rate of VOD in the region?

Bandwidth develops proportionately with the requirements of video quality starting at standard definition, high definition and at a later stage 3D TV. In that sense, such video quality in general, and particularly VOD, is a derivative of broadband. The more advanced the service, the higher the bandwidth requirements. If we look at the broadband in the region today, we see a market that is growing potentially anywhere between 50 and 100 per cent year-on-year, depending on the specific region or market. Internet Protocol Television [IPTV] follows broadband and VOD is a part of IPTV service. It is a market that I would safely say is growing at least 30 to 40 per cent and, in certain instances, could be growing at a 100 per cent or more, considering that the service is still in its infancy.

In the UAE, broadband penetration is much higher than that in the region. Is it safe to generalise such high rates in the rest of the region where in some cases internet access is less than 20 per cent?

In the UAE, broadband has infiltrated or is in the process of infiltration on a mega scale. If we estimate the number of homes with broadband by 2011 or 2012 in a city such as Abu Dhabi at 10 to 20 per cent, that would be equivalent to about 200,000 homes. I expect the number of IPTV users will grow to anywhere in the vicinity of 400,000 homes in the UAE by 2013. Broadband penetration would certainly have reached higher rates by that time. Today, IPTV in the UAE counts less than 100,000 users, knowing that du is the only operator that provides full-fledged IPTV services. Etisalat, on the other hand, offers some form of VOD that is not a fully integrated service. Should etisalat finalise and launch its IPTV service, we will be seeing about 200,000 users, a number that is poised to double over the next two to three years. The potential is equally significant outside the UAE, with markets such as Saudi Arabia preparing for IPTV launch. Saudi Arabia already has the broadband infrastructure and the population is significant.

In addition, we are looking at other promising markets such as Qatar, Kuwait and Bahrain. While Qatar and Bahrain are in the process of developing their IPTV offerings, Kuwait still has no similar service. Those are markets that will soon be ready to develop their broadband and support IPTV and eventually VOD and we are looking at those markets to provide our expertise. Egypt, where broadband has infiltrated, forms a significant market for us that we are looking at as well. At the moment, our Dubai office, which was launched at the end of last year, covers North Africa. At a later stage, we will be reviewing our strategy and our business growth to decide on new offices in other parts of this region. In general, we tend to be present wherever it is possible to be as close as possible to local operators and consequently have a better understanding of the demand on content.

How is VOD expected to change the way content is made, advertising in particular?

At this stage, the UAE has transactional VOD services, mainly through du network. This stage is meant to build awareness about the existence of this service and its interactive features. Later, the service will become subscription-based and will be bundled potentially with other differentiated services such as catch-up TV, HDTV and others. At a critical threshold, advertising will consequently transform and infiltrate into such interactive services, allowing a more targeted communication with users. IPTV will, therefore, be able to offer an alternative to broadcast networks. Viewers who usually skip channels with ads, will be treated differently on interactive IPTV platforms. At some instances, users can be enticed to watch advertisements such as reduced-cost or free-of-charge movies – knowing that the service will allow operators to provide accurate profiling of audiences and their preferences and display commercials accordingly. These scenarios and schemes are being planned with operators, and could potentially work. We need the platform and the initial uptake of the market to define the market specifics and decide what form of advertising is best. At that point, advertising will involve the operator, the client and us as specialists on content delivery. We already have the capability and the software that will allow ad insertion. The minute an advertiser shows interest, advertising material can be availed to a system that will be allowed to enter into the network. Seachange, our mother company, owns this system and it is called Adpulse. It is a platform that will easily allow ad insertions and those ads will be displayed at certain time frames, with all the criteria to define how that ad is put on the service. The option to opt out from the display can be enabled for users as well.

Does not this make it more challenging to have advertising revenue on a VOD platform?

This depends on the ad content and the market. There are schemes to attract customers, but awareness is the key here. The minute the users are aware of what they have and are given the choice, then we can tell what format of advertising will be required, and hence, successful. There is a drive away from traditional advertising models to digital models already. IPTV provides a good alternative, once it gathers a critical mass of users.

What is the volume of investment currently set aside for content aggregation and development?

Initial transactional VOD services are usually meant to sense the pulse of the audience, their preferences in terms of viewing time, and content. We cater to those preferences. The UAE has a significant segment (more than 50 per cent) that wants to watch Hollywood, across all demographics. In terms of content, there are plans to expand further to cater to a broad spectrum of audiences, including Arabs, Indians and Filipinos. At the moment, we are focusing on getting the service on the platform, ensuring quality of delivery, and enriching content that caters to diverse cultures and languages. Acquisition of content depends largely on the volume you are acquiring. The more volume of subscriptions supporting the system, the lower the cost is per user for the aggregated content. Estimating the volume of the market, therefore, requires us to look at what users are ready to pay or are already paying for VOD content. Based on the current observations, the Middle East could possible grow to a $100 million [Dh367m] sector in the next two years. This could double or even quadruple should the speed of laying the infrastructure and building the services in some countries picks up, and should awareness lead more users to VOD platforms in the meantime. The investment in the market per individual is difficult to set at a certain limit, because it depends on the complexity of the service and the requirements of the telecom operators running it. The average of the investment over the years starting from the initial building of the infrastructure to the maintenance and development of the platform can be about $1,000 per user.

How does Dh7 for a movie make financial sense compared to such volume of investment?

The operators are in a better place to answer this question. The ultimate profit goes to the owners of content. Nevertheless, this is the first time that telecom operators will venture into media. Operator can benefit and make profit from IPTV platforms because of their differentiated features that can be bundled as part of a bigger service. In that sense, there is an indirect profitability for the operator, derived from the reduction of churn due to bundled services, the increase of the bandwidth across the network, and the increased opportunities for up-selling other key services that are high key profit makers. The users, in the meantime, are provided with a service that is purely under their control and tailored to their consumption habits.

Will VOD services affect pay TV profitability?

I don't think VOD would cannibalise pay TV revenue. Despite the fact that IPTV is a more interactive service compared to pay TV platforms, I believe that VOD and pay TV can be complimentary, offering the users different services.

What are your company's future plans?

In the UAE we are currently the only people providing VOD solutions. We are leading in terms of market share. We are the sole providers of VOD content and content management services for the du platform and we are currently in talks with etisalat and other operators in the region and expect something to emerge before the end of the year. We are working on expanding our business, increasing our footprint and strengthening it across the region before the end of 2010.

Content firm

On Demand is a UK-based company that was acquired by Seachange International and focuses on content management. It fully administrates and manages content from its acquisition, aggregation, to processing content, trans-coding, subtitling, dubbing, purposing to different screens, or to different consoles, creating meta data and offering consultative services. The company provides content that reaches nine million homes in the UK, Germany, France, Greece, Turkey, Cyprus, Dubai and South Africa. On Demand established an office in Dubai following its agreement with du to provide content for the VOD service that was launched in December 2009. Seachange delivers the technology for both broadband operators and broadcasters.