At the end of 2015, we made predictions on the ten events and themes that will shape the communications industry over the next 12 months. As we enter the last quarter of 2016, we give an update on a few of our predictions relating to the digital media and entertainment sector.
Industry Analysis: 2016 Predictions Update for Q3

by Guan Yeap

Prediction: Pay-TV providers follow Comcast’s lead with their ‘Stream’ product and offer slim content packages over the top.

Following on the heels of its announcement of its DirecTV Now OTT service in March, AT&T acquired the digital streaming distribution platform Quickplay over the summer. Already the underlying distribution infrastructure for DirecTV services, this is a logical step for AT&T as it fills a gap in its video entertainment push. European Pay-TV operators are showing their appetite for Pay-TV and OTT offers following the impact that this partnership has had in the North American market. The pan-European race is heating up with US and European OTT services. In August, Europe’s biggest Pay-TV player, Sky, announced plans to roll out its Now TV streaming service (currently available in the UK, Germany and Italy) to several new European markets by the end of this year, starting in Spain. This marks a sizeable intention to grow its OTT video streaming operations beyond its five-nation base – though in new markets it will not have access yet to the kind of premium content rights that it enjoys in its base markets.

Prediction: As OTT and TVE services mature, Pay-TV providers begin to crack down on password sharing.

In July, a Federal Appeals Court in the US issued a ruling on a case that appeared to interpret password-sharing as a federal crime, which sparked initial fears from the password-sharing public on the implications to their Pay-TV services. However, the applicability of the ruling is far from clear (the case itself dealt with ex-employees of a company using computer passwords to access their former employees’ systems), and given the rife nature and toleration of this practice, along with the majority of sharing being in the same household and/or with family members, such fears quickly subsided. Pay-TV providers can clamp down on password sharing as there are now numerous options that can counter, or at least make more difficult, the ease of sharing accounts. Netflix and HBO already have limits on concurrent streaming along with geolocation barriers. How much longer will password- sharing be tolerated, especially if and when subscriber growth slows? Subscriber satisfaction and positive brand equity may come at the expense of growth. In July, Netflix shares dropped 15% as the company missed Q2 projections, highlighting the tough task in the battle for eyeballs.

Prediction: Despite pressure from Netflix and the EC (through AVMSD reform), who both love the idea of a “borderless” content rights ecosystem in the EU, no progress is made on this front.

While no firm decisions have been made, there has been some progress. As part of the European Commission’s efforts to create a single market for online services, in May, member states agreed to proposals that would see European subscribers to online video streaming services have the ability to access these services when visiting other countries within the European Union. The caveat is that EU citizens in other member states can have temporary access, but this time period was left undefined. Proposals currently don’t address significant implementation challenges, such as the impact on content providers’ ability to effectively monetize their content, and the possible monopolization of content rights by the largest Pay TV players – these hurdles will need to be overcome. Also in May, European content quotas were unveiled for video streaming services. At least 20% of the catalogs offered to EU subscribers should be made locally to fend off the intrusion of American content from the new wave of digital on-demand and streaming services. Streaming service providers were unimpressed with such measures. Netflix’s and Amazon’s business models already offer local product as part of the mix in order to entice subscribers. Netflix already meets, or at least is close to, the 20% threshold and could easily remove less popular non-EU content or add old European titles to their line-ups. There is a view that the digital landscape is shifting so quickly that any regulation threatens to not only be burdensome, but rather obsolete. Hollywood and European industry players have been meeting with the EC to air their fears in order to reach a compromise.

> Read more updates and strategies for the Media & Entertainment sector in our Autumn Coordinates