Emerging markets are expected to grow much faster than developed regions in the next couple of years and represent ~20% of forecast OTT revenues by 2019. In this article, we outline the changes that will enable this growth.

State of OTT Market in Developing Regions (MEA, LATAM, APAC)

By Lucia Balcazar and Simon Evans

Over-The-Top (OTT) content distribution, which is video delivery over the internet, has become increasingly popular in the past decade and is expected to maintain strong growth globally, with a forecast 11.6% CAGR to 2021. Historic growth of OTT content has been driven mainly by developed markets such as Western Europe and North America, and North America remains the largest OTT market contributing ~60% of the revenue. However, emerging markets are expected to grow much faster than developed regions in the near future and represent ~20% of forecast OTT revenues by 2019.

Global Paid OTT Video Revenues by Region 2016 Pie.jpg

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OTT Growth Drivers

OTT demand in developing regions has principally been held back by low fixed broadband penetration driven by poor coverage and investment as well as large population segments on low income. It is difficult to make significant strides in solving the latter, however, there are signs that suggest the former is moving in the right direction.

There is a noticeable improvement in the speed and performance of broadband networks. For example, the percentage of households in Brazil achieving greater than 4Mbps jumped from 44% in Q1 2016 to 63% in Q1 2017. The most significant improvements have been made in the 4Mbps bracket, however, the number of households achieving greater than 10Mbps and 15Mbps have also started to rise, as illustrated in the map below. Adoption and coverage of these speeds are still low, but as average speeds for Latin America, Middle East & Africa and Developing Asia Pacific all continue to rise (5.5Mbps, 7.4Mbps and 9.6Mbps respectively in Q1 2017) opportunities begin to emerge. For example, video over IP could pave the way for Pay TV operators to consider aggregating third-party OTT services within the main service portfolio in addition to standalone OTT services.

In addition to improved broadband deployments, smartphone device ownership has grown significantly in emerging markets, driving an increase in the use of applications for video streaming. Mobile data traffic is forecast to grow in Asia Pacific, Latin America, Middle East and Africa at 58 %, 59% and 72% CAGR respectively from 2014 to 2019. In particular, mobile video will account for more than 69% of this traffic by 2019.

Evidence to these trends is the rise of SVoD services in emerging markets, which were available (where a SVoD operator has market presence and a household has active broadband connection) to only 1.3% of households in 2014 but will be available to 6.4% by the end of 2019.


OTT Challenge

Data network infrastructure is less developed in emerging regions and thus less reliable and robust than in the developed world. This is particularly true of rural areas, where wireline infrastructure is often completely lacking, presenting a significant obstacle for online content consumption. Delivering quality video content requires high bandwidth and throughput, which is unattainable in some regions. For example, average broadband connection speeds in India and Indonesia (2.3, 2.2 Mbps respectively) are approximately half the global average (5.0 Mbps).

The recommended bandwidth required to view standard definition (SD) video, according to Netflix, is 3Mbps. High definition (HD) and ultra-high definition (UHD) require 5Mbps and 25Mbps respectively. This combined with India’s average broadband connection demonstrates the difficulty in delivering even the basic SD video quality to customers. Customer quality of experience would be negatively impacted if required speeds for delivery can’t be met by infrastructure. OTT providers themselves can do very little to change this, but they can use techniques to reduce the required bitrate to deliver their content. For example, the use of the HEVC (High Efficiency Video Coding) codec enables up to 50% bit-rate reduction for equal perceptual video quality compared to existing standards. OTT providers can also seek comfort in the fact that smartphone uptake is on the rise in Latin America, Middle East & Africa and Developing Asia Pacific all continue to rise (10%, 16% and 14% 2017-2022 projected CAGR respectively). This is likely due to the falling cost of streaming devices, for example, smartphone costs have decreased on average 5% Y-O-Y for the past 10 years.

As average bandwidth is the only driver that’s significantly different for developing markets, it’s the prominent problem that needs solving. Currently, developing regions' existing network infrastructure is not yet capable of sustaining and delivering the necessary speeds for an OTT video market to prosper. The outlook, however, is more positive. Historic trends in broadband adoption and coverage suggest significant improvements to existing infrastructure. Further considering the emergence of techniques reducing bit-rate delivery requirements and continuing cost reduction and uptake in streaming devices, this suggests improved IP-Video reach and growth in OTT video services in developing regions.

 Sources: Akamai, Ovum, Netflix, Cisco, PwC, Statista