Telco Deep Dive 2018: OTT a tough market for Malaysian players to crack

• OTT platforms are going beyond just content and taking aim at the customer’s wallet
• Malaysia is a small market, so companies need to think regional to make significant gains

THE term OTT or Over-The-Top conjures to mind services like Netflix, iflix, Spotify, Joox and Dim Sum, among others. It is a networking term that describes the wireless delivery of content, services or applications over the internet.

That literally encompasses a lot of verticals and even PwC Malaysia consulting partner Michael Graham doesn’t like the term ‘OTT’ as it implies it could be everything. But fundamentally, in his opinion, it has had the biggest impact in the Video on Demand (VOD) space.

Even research house Gartner’s principal research analyst Fernando Elizalde has described it as video and TV offerings delivered over the Internet. This can be categorised under three services: Internet delivered linear TV (IDLTV), OTT transactional video on demand (OTT T-VOD) and OTT subscription video on demand (OTT S-VOD).

Elizalde estimates that these three types of services will grow on average 22.2% year-on-year from just US$30 billion in 2017 to almost US$84 billion globally in 2022.

PwC has more bullish projections, believing that the OTT market as a whole will be worth US$100 billion in 2019 and is expected to grow to US$150 billion by 2022.

Closer to home, PwC’s report in May 2018 titled ‘The Future of Asean - Time to Act’ states that OTT VOD revenue is projected to increase by approximately 80% to 90% between 2016 to 2021. Meanwhile, the estimated penetration rate for OTT in 2016 was 36% in Southeast Asia and is set to grow to 64% by 2020.

These strong OTT numbers ride on the growing worldwide adoption of smartphones, thanks in part to the availability of low-cost smartphones. Smartphones priced below US$99 are said to have been shipped in quantities of over 500 million units in 2018 alone.

Video-based OTT may be all the rage today but Forest Interactive chief executive officer Johary Mustapha (pic, above), who has been in the ICT services business for more than a decade, recalls that long ago, when his company provided Valued Added Service (VAS) services, the precursor to OTT, it consisted of ringtones and picture messages used on feature phones.

“For companies like us, we had to reinvent ourselves from providing basic feature phone services to publishing games and creating mobile apps,” he said of the market as VAS is becoming extinct and his business moves towards OTT.

Aside from cheaper smartphones, cheaper data prices are a factor as well in driving video-based OTT. In 2014, Indonesia, on average, charged US$4 per gigabyte of data. That was reduced to just under US$2.50 in 2015, and in 2016 was around the US$2 mark. The same trend can be seen in Singapore, where the charge per gigabyte was more than US$12 in 2014 and 2015 but dropped to around US$7 in 2016.

Gartner adds that there is also a shift in consumer patterns due to the entry of the younger and more digitally-savvy generation. The low barriers to entry and an increase in the offering of sports content delivered over the Internet are some of the factors in the dramatic growth of OTT players in recent years.

A new streaming reality

While streaming services like Netflix and Amazon have grown rapidly in developed markets, the same model won’t work in Southeast Asia. When it comes to a choice between a subscription and advertisement model, audiences are more likely to choose the latter.

Johary concurs that within the OTT market in Malaysia, not many people are willing to pay top dollar for content as many expect it to be free. “The only exception to the rule here is Astro where people are willing to pay for its services,” he said.

Astro made its mark in the Pay TV sector when it entered the market in the late 1990s and cornered the scene. This has resulted in services that came after Astro like Telekom Malaysia’s HyppTV or UnifiTV being bundled together for free with Unifi as people didn’t want to pay.

Graham says that there is a willingness among Malaysians to watch ads during the course of watching content.

According to him, Malaysians have a voracious appetite for video content as they watch as much as 260 minutes of content across multiple platforms every day. In fact, that number of minutes spent watching is the highest in Southeast Asia.

However, out of that total number of minutes, only 24% is actually live TV. So does that spell trouble for traditional TV broadcasters?

Not necessarily says Graham, as people tend to gravitate towards larger screens and this typically includes big TVs. He also pointed out that live TV is still one of the only ways advertisers, especially those selling fast-moving consumer goods, can reach out to millions of people at scale.

The consumption habit of viewers is also evolving to one where they are watching and surfing the internet at the same time on their smartphone, either looking up details related to what they are watching like the biography of an actor or doing some online shopping.

While OTT is clearly here to stay, the big question is whether the OTT model of doing business is actually sustainable? Many OTT players are opting for the freemium model, popularised by services like Spotify. To this extent, iflix has started offering different tiers to its service with a basic free tier that allows users watch some of its content for free but it also has a VIP tier for more exclusive content.

Johary however is sceptical of this model as the strategy of giving content away for free in order to acquire more users just can’t continue, he believes. Having worked in the broadcast industry, he points out the high costs to acquire rights for programmes, especially premium content.

PwC’s Graham is inclined to agree as OTT players like iflix tend to burn a lot of cash to acquire users in the initial stages. Launched by Patrick Grove and his Catcha Group, iflix has raised multiple rounds of funding, though being a privately held company, there is no earnings visibility and the market cannot tell how it is actually doing.

Beyond just video

In everyone’s mind, OTT means music, video and games. But there are also a lot of streaming services like BIGO Live, a broadcasting and live streaming service similar to Twitch and even short-form video services like TikTok that allow users to record videos for sixty seconds.

Graham predicts that OTT platforms are going beyond just content and taking aim at the customer’s wallet, getting them to pay for the services that they consume.

This could come in the form of mobile wallets like Razer Pay where Berjaya Group partnered with global gaming hardware manufacturer Razer to push out the e-wallet in Malaysia and Singapore.

It’s going to be a bumpy ride however as there are 40 different mobile wallets in Malaysia with the likes of Alipay, Boost, GrabPay just to name a few. “There is bound to be consolidation as no customer wants to load their payment credentials into 15 different apps,” said Graham.

While it is not known as one, Johary contends that Grab could be an OTT play as well. After all, it offers services that are delivered over a mobile network. They are one example of a service that connects the physical and digital world together.

On the back of ever-increasing smartphone penetration in Malaysia, with almost 80% of mobile users on smartphones, Johary sees this as an opportunity to bring a portion of the population that is unbanked into the fold while changing their mindset from expecting free services to actually paying for them.

“As the market becomes more mature, people’s mindset will shift towards spending in this market via different payment channels such as operator billing. We will be seeing an influx of first-time spenders thanks to smartphones as they come online,” he confidently predicts.

The future of the OTT market in Malaysia

Being in the OTT market can be pretty tough according to Malaysian Mobile Content Provider president Johnson Lim (pic, above). “There is no government protection and companies are forced straight out of the gate to compete with the very best such as Netflix.”

To stay in the game, local OTT players need to think creatively to come up with content that is compelling but cost-effective. One thing going in their favour is the fact that there is a healthy demand for localised content, said Lim.

But at the same time, the market in Malaysia is too small, so companies need to think on a regional scale to make any significant gains, which is what iflix has done.

He does, however, note that OTT players are held back by the slower Internet speeds which are about 20-30Mbps as compared to Singapore where the average download speed for broadband is 175.13Mbps.

But with initiatives by the current government, especially Gobind Deo Singh, the Minister of Communications and Multimedia, to promote faster and cheaper broadband speeds, this is likely to spur greater innovation from startups and companies.

“It is good to see the government playing an active role in spearheading transformation compared to previously when they had been passive and let the industry take the lead, depending on supply and demand,” notes Johary.

With broadband infrastructure being the backbone of the digital economy, getting Telekom Malaysia Bhd and other broadband players to reduce their pricing will help all mobile users enjoy better speeds.

With average mobile data usage currently standing between 7GB to 9GB a month, Johary believes a ten times increase in speed could push that usage to 20GB or more and that will lead to a boom in demand for OTT services with local players hopefully able to capitalise on the increase.