By Popular Demand

This article originally appeared in the MIPTV 2014 issue of TV AsiaPac.

Channels, pay-TV platforms and distributors are finding both pitfalls and rewards as they traverse Asia’s nonlinear content business.

There was a time in the not-so-distant past when the prospect of selling an American or British drama into China for nationwide broadcast was utterly inconceivable. Today, the 300 million or so unique users of China’s leading online video platforms, Youku and Tudou, can access Netflix’s edgy women’s prison series Orange Is the New Black and BBC’s plot-twisty Sherlock, among a wave of other Western shows, on the device of their choosing whenever they want to.

Youku and Tudou, which merged in 2012, represent just one side of a rapidly evolving landscape of over-the-top (OTT) television providers across the Asia Pacific using a variety of models to build viable nonlinear businesses. Results for many of these players have been mixed, as some recent headlines can attest to: At the end of February, Youku Tudou reported its first-ever profit. That same week, U.S. OTT platform Hulu said it was selling off its Japanese ser­vice—less than three years after entering the country. “We have now reached a point in the growth of the business in Japan where we feel the best path forward is to sell the company to a strategic buyer,” CEO Mike Hopkins said in announcing the sale to free-to-air broadcaster Nippon Tele­vision Network.

It is, clearly, still early days for OTT and on-demand in Asia and, as a recent report from Media Partners Asia indicated, “revenue generation is pitiful—but there is future potential.”

The potential, of course, comes from an expanding middle class, rising broadband penetration rates, faster Internet speeds and, as evidenced by increasing pay-TV takeup, a greater willingness to pay a premium for instant, convenient access to content. The potential to boost average revenue per user (ARPU) was among the many factors Astro, Malaysia’s dominant pay-TV platform, took into consideration when investing in its OTT strategy.

“We took some bold decisions a couple of years ago,” says CEO Rohana Rozhan on Astro’s decision to upgrade its infrastructure. “That comes with being a market leader. You can either try to milk the position you’re in or you can use it as an opportunity to reinvent yourself so that you will be a deserving market leader going forward. That’s what we did. We felt that we had to transition our product and content proposition to actually be relevant to not only households, but to individuals within the household, especially in a young economy like Malaysia. The demand for content and accessibility to content—the mobility aspect, the interactive aspect, the anywhere on any device aspect—is prevalent. We monitor the trends in terms of technology rollouts, the proliferation rate of devices, content consumption trends—these are things we cannot ignore.”

Astro swapped out most of its old set-top boxes with new ones so that it could deliver its B.yond service, delivering HD, PVR functionality and on-demand. It then launched Astro On the Go, an OTT service allowing customers to watch content on the device of their choosing. At present, Astro On the Go has about 500,000 active users, watching an average of almost 90 minutes of content weekly. “We understand that we’re in the initial stages, but we have all these encouraging statistics,” Rozhan says. “There’s momentum behind it. Year on year, quarter on quarter, we’re seeing increased takeup.”

FOX International Channels (FIC) also opted to invest in OTT ahead of its competitors, building an authenticated online player for its FOX Movies Premium channel and following that up with similar services for SCM (STAR Chinese Movies) and, this March, FOX Sports.

“In recognition of changing consumer behavior towards on-demand and anywhere, anytime and multiscreen, it was important for FIC to be a first mover in the online player space so as to serve both consumers and our affiliates better,” says Alex Lambeek, the executive VP of affiliate partnerships and syndication at FIC Asia Pacific, the region’s largest pay-TV channel operator. “In addition, being early has put us [ahead] on a steep learning curve, which we believe will serve us well going forward.”

PLAY TIME
Initial response to FOX Movies Play, which has been in the market since 2012, has been “better than expected,” observes Brian Lau, the group’s senior VP of Hollywood movie channels, acquisitions and digital, with about 300,000 downloads of the app to date. Lau concedes that the process of building out the players has not been without a few hurdles along the way.

“Implementing the authentication of our players with our affiliate partners is a challenging process because it requires a great deal of coordination between both parties, so there’s a lot of effort expended to keep projects rolling. However, once the player is launched with an affiliate partner, the rewards for both sides have proven to be well worth the effort.”

“It’s challenging to transition from a pure linear broadcast, using satellite or an IP pipe, to actually going over the top,” agrees Astro’s Rozhan. “You have to cater to different customers viewing over different devices and over the different bandwidths, and try to optimize the individual experience—not to mention the cost. We’re doing that from a technology and platform perspective. Our customer and content group tries to understand behavior—what resonates, who our potential OTT customers are, and what they want to watch. I think we would be missing the plot completely if all we did is replicate what we do on our linear broadcast platform. We now have to embrace the more personal, individual experience in addition to the household experience. We suddenly have to build a fit-for-purpose portfolio of content, products and services to cater to each and every individual on the go.”

CACHE OF CONTENT
Astro’s critical advantage, Rozhan says, is its content-creation capabilities. “The difference between us and a lot of other platforms is that we originate or own or have the rights to almost all the IP that make up our [local-language] channels. Of the 171 linear channels that we have, about 68 or so are our own. We do over 10,000 hours of production every year. That bodes well for us, because we can underpin our OTT product with our own IP.”

Besides FIC, the other pan-regional channel group that has been active in the OTT space is HBO Asia, which has launched a regional version of HBO GO—the online platform that has been a huge success in the U.S.—in Hong Kong with affiliate partner now TV. The platform provides access to more than 1,000 hours of original content within 12 hours of the U.S. broadcast.

“This helps combat piracy and gives subscribers an opportunity to catch the newest episodes of their favorite shows earlier,” said HBO Asia CEO Jonathan Spink when the service premiered in Hong Kong last February. HBO GO expanded its reach with a launch in the Philippines in March.

While the OTT space is currently being led by the major pay-TV incumbents, there are developments taking place on the free-TV side. Notable examples include MediaCorp in Singapore, which offers Toggle as an ad-supported OTT ser­vice, and Filipino broadcaster ABS-CBN with TFC.tv. The previously mentioned Nippon Television has acquired Hulu Japan and will license the platform’s brand and technology. The Japanese broadcaster will also feature its own content on the service. When announcing the deal, Nippon’s president, Yoshio Okubo, said that the move would allow the network to expand beyond terrestrial and broadcast satellite distribution.

Then come the upstarts, those online-only platforms popping up across Asia, some targeting specific markets, others looking to appeal to a global base.

China’s Youku Tudou is arguably the most well known of these newer entrants to Asia’s content-distribution space. Targeting China’s estimated 347 million Internet users, Youku, appealing to a mainstream audience, and Tudou, which skews slightly younger, have become major buyers of Western content, largely from the U.S. and the U.K., as well as Korean dramas and Japanese anime. These genres supplement the wealth of local content on the two platforms.

Another major nonlinear player in China is YOU On Demand (YOD), which started on a small selection of cable operators before expanding more recently to OTT, IPTV and mobile.

“Upon first launching in the cable-TV space, we quickly encountered technical challenges as there was seemingly no unified set of industry standards,” says Shane McMahon, YOD’s chairman, on the initial obstacles he faced in building out the platform. “A great deal of consulting between YOD and our cable partners was required before a proper launch of the ser­vice could occur. Also, as we launch into cable, IPTV, OTT and the mobile space, there is a lot of DRM [digital rights management] that is necessary to ensure that the content on YOU On Demand is protected. From a broader perspective, piracy and competition have been, and will always be, challenges. Whether it be DVDs or bit torrent sites, there is still a lot of accessible pirated content in China. YOU On Demand’s approach is to offer the best-quality content coupled with the best end-user experience, all offered at an attractive price.”

YOU DECIDE
YOD offers customers the option to pay per title or to pay a monthly subscription fee. “Consumers expect to have access to all types of content, whether it be a subscription offering containing a large library of content for a monthly fee or a one-off transactional model to sample [what’s available],” McMahon says. “Additionally, Chinese consumers have demonstrated a willingness to pay to view the latest Hollywood and Chinese movies [in the cinemas], as evidenced by the impressive box-office numbers. With the number of foreign titles permitted in Chinese theaters limited to 34 each year and the limited number of theaters in the country as a whole, there is a great opportunity to educate the market on the availability of even more premium content to be released on YOU On Demand’s TVOD [transactional VOD] and SVOD platforms.”

China’s Youku Tudou may have finally made a profit this year, but the company’s management has admitted that it’s not all smooth sailing ahead. Indeed, the online video space in China is particularly crowded, with Sohu, Tencent and Baidu among the many other companies looking to serve viewers online.

Sunny Zhu, chief content officer at Youku Tudou, told attendees at the Asia TV Forum in December that the greatest challenge the company faces is “revenue, revenue and revenue. The challenge is to monetize [our] traffic.”

Youku Tudou operates on a free ad-supported model at present. Speaking to TV AsiaPac following his ATF keynote, Zhu noted the importance of diversifying the company’s revenue streams to encompass a potential subscriber model and interactive entertainment.

“We need time to nurture the users into the habit [of paying for content],” Zhu said about the possibility of launching a fee-based service. “Interactive products are a natural extension of the viewers’ needs. If you like a celebrity, you may want to provide feedback online, for example by sending virtual flowers or blowing virtual kisses. These [micro-transactions] are value-added products made to cater to the audience’s needs.”

Viki, which was born in Singapore but today operates as a global content platform, is also expanding its revenue stream beyond advertising. Last year, the site, now owned by Japanese Internet services company Rakuten, began offering a subscription service called Viki Pass, charging $3.99 per month for an ad-free, HD viewing experience.

At present, according to CEO and co-founder Razmig Hovaghimian, Viki averages 24 million viewers a month watching more than 3 billion videos that are translated by the site’s users. “Asia now represents over 20 percent of the Viki viewership,” Hovaghimian says. Viki makes its money mostly by selling ads. “We have run successful campaigns with global brands such as Coca-Cola, Procter & Gamble, Samsung and Toyota. Viki offers a very attractive value proposition for brands because of our highly targeted, engaged viewership, especially in markets where very little premium video inventory exists.”

Another revenue source, in addition to the subscription offer, is content syndication to Netflix, Hulu and others, Hovaghimian says

MOBILE CALLS
For the standalone OTT operators surveyed for this article, mobile viewing presents a significant growth opportunity in the months ahead. Zhu at Youku Tudou says that last year “traffic from mobile devices surpassed our traffic from the PC end. [Since then] it has pretty much doubled. The Chinese people are watching movies and TV serials on mobile phones.”

YOD, meanwhile, recently struck a partnership with Huawei that preloads the YOU Cinema app directly onto the mobile phone manufacturer’s Mate line of devices.

Whether broadcast on PCs, tablets or mobile phones, OTT platforms need a strong, continuing supply of content. As such, leading program distributors are finding a wealth of new opportunities in the region. BBC Worldwide, for one, recently entered into a deal with Sohu in China consisting of dramas like Ripper Street and Sinbad, plus a range of documentaries. Fremantle­Media International has closed volume deals with Youku Tudou, which acquired 202 hours, and Toggle, which snapped up 580 hours. ITV Studios Global Entertainment (ITVS GE) has similarly seen a boost in its on-demand and OTT deals, closing agreements with EMAS and KLfive in Malaysia and Toggle in Singapore. The opportunities for Asian content owners, meanwhile, are also booming, as platforms look to differentiate themselves. The likes of CJ E&M, which represents a wealth of Korean content, and the Philippines’ GMA Worldwide, are looking to OTT platforms to expand the reach of their shows across Asia and beyond.

“In North Asia—China, Taiwan, Hong Kong, Japan and Korea—the digital market has become stable and therefore we no longer see big digital players launching,” observes Hyeonza Hong, the senior VP of sales for Asia at ITVS GE. “However, it has been an exciting time of growth for the Southeast Asian market. We are seeing increasing numbers of new digital platforms launching, such as Migo TV, KLfive and TuneBox as the demand for ‘content everywhere’ in the region increases.”

NEW BUYERS
Ganesh Rajaram, executive VP of sales and distribution for Asia at FremantleMedia International (FMI), backs up Hong’s view. “We are seeing an abundance of new players in the digital platform space. There has been strong growth with OTT services all across the region, but there is a [particular] rise in Southeast Asia due to the constant developments in technology and mobile services. As the region is so diverse, there will be spike territories like China that will have a faster takeup of digital.”

The content needs of these platforms are highly diverse. “It is like a buffet,” says Hong. “Most digital platforms provide an all-you-can-eat service to their subscribers in terms of genre: drama, TV movies, entertainment, nature, factual documentary and lifestyle. But since there are fewer censorship issues in the digital space, content that is a bit edgy, which is not usually available on the traditional platforms, is in demand.”

Rajaram has seen interest in entertainment and reality shows like Project Runway, dramas such as Merlin and Hit & Miss and factual fare. “The expansion in the digital platform space has been advantageous for FMI, as we are now finding homes for some of our more niche content that may not necessarily work on traditional linear platforms.”

Lau at FIC has observed a similar phenomenon; while Chinese and Holly­wood blockbusters do very well on both the linear channels and the online players, “we have found dedicated audiences for series like The Walking Dead, Homeland or Ray Donovan on our player. We feel strongly that our Play services can become great destinations for fans of TV series, and as the rights landscape changes, we hope to move towards offering more of the binge-viewing experience that viewers are expecting. It’s clear this is the way people like to watch.”

Indeed, when asked about negotiations with content owners, Lau notes, “The main issue right now is expanding the rights for TV series, because there should be more episodes made available at any one time.”

RIGHTS MANAGEMENT
Distributors are reluctant to speak on the record about how much money new OTT platforms are willing to cough up, or about how much extra traditional broadcasters are paying to secure access to all the nonlinear rights.

A key element in many negotiations is timing—a number of platforms are seeking to premiere top American and British shows shortly after their launch in the home markets. Youku, for example, reportedly paid a premium to be able to deliver Orange Is the New Black the day after the series premiered on Netflix; ditto with BBC Worldwide’s Sherlock.

Rozhan says that Astro’s strong relationships with distributors and third-party channels have been critical to its entry into the OTT space. “Most [of our content partners], like us, understand that by actually addressing the individual viewing needs in addition to the household needs, we stand to increase the amount of total content that is consumed in each household. This in turn increases our product value and relevance to our customers and thus, ARPU. This is a win-win for both parties. We also believe that in this space, collaboration is key if we are to combat growing piracy. Just like in the traditional linear space, we have to at least be in a position to offer as good a product as the pirates, and, hopefully, with a much better quality of experience, service and convenience. For international content, critical to this would be having access to day/date releases of popular IP, as these are readily available on pirated sites.”

Combatting pirate sites across Asia is a priority for all those involved in the content ecosystem, from the pay-TV players dependent on subscriber and affiliate revenues to the broadcasters and OTT platforms looking to deliver eyeballs to advertisers. To succeed, these services will have to battle it out for the best content, invest in the smartest, easiest user interfaces and, most importantly, figure out how to pay for all of it.