Digital Wave


Revenue and subscriber numbers for OTT services are on a steep growth trajectory in the Middle East and Africa. A study from Digital TV Research projects 19.59 million SVOD homes across 28 countries by 2021. Total OTT revenues will hit $1.8 billion by then. The study flagged 2016 as the “watershed year” for the region’s OTT business.

The Middle East and Africa has the world’s highest proportion of people under 30—close to 70 percent of the population. The propensity of young people to consume media via the internet automatically makes the region ripe for OTT. When you add the fact that television content is to a greater or lesser extent restricted by censorship in most countries there, OTT is also positioned as a freer alternative to broadcast TV. Thus, the opportunities become even hotter.

“There is a big, young, digitally savvy audience across the region,” says Christophe Firth, a principal at management consultancy A.T. Kearney. “Digital innovation is taking place in unexpected places like Saudi Arabia. But for OTT to achieve its potential, a number of barriers and impediments need to be overcome. The biggest barrier is that payment mechanisms are lacking.”

According to David Mühle, the regional director for Northern Europe and the Middle East at Ooyala, a provider of OTT solutions, the Middle Eastern market has turned a corner.

“The Middle East is a couple of years behind a market like the U.S., but what happens in this type of situation is they catch up and then they move very fast,” Mühle observes. “Advertising-based OTT is going to take some time to grow because the advertising market is still small. The development is in SVOD and AVOD. We see the big telcos aggregating offers and doing a good job, and they will grow their market share in the OTT space. Traditional broadcasters like OSN are moving in. The real explosion is in the companies starting from scratch. I would say that of 50 new initiatives in OTT, 10 percent will be very successful. A year from now, at least one of them will probably have some market share.”

OTT players come in different shapes and sizes. Starz and Netflix are big international companies focused on international content. Established pay-TV companies such as beIN and OSN have also gotten into OTT, and so have free-TV companies like MBC, which has the biggest entertainment library in the region and has launched the OTT service Shahid. Then there are the pure “from-scratch” OTT players like Icflix, Telly and Istikana and the VOD service Cinemoz.

“The outlook for the local OTT networks is hard to gauge,” says A.T. Kearney’s Firth. “It’s too early to tell. We expect to see a proliferation of OTT services. If they can carve out a niche, they can survive and prosper.”

OSN’s stand-alone OTT service, GO Online TV, launched in May 2014. Since its debut, “digital consumption has become more prominent in the region generally,” says Emad Morcos, chief content officer at OSN. “GO’s importance to OSN’s overall brand is increasing, which means we can launch new and exciting projects. OTT is not just another form of delivery, it is our proactive response to the market, which has opened up to digital in a big way. We believe that the market potential for OTT is significant and untapped. While there are a number of players in the market, our first-mover advantage and our focus on offering premium content positions us at the top of the game. Competition arguably comes not only from within the industry in this region, but we’re also up against the use of virtual private networks (VPNs).”

Morcos adds, “Our challenges come from ensuring that investment is made in the technology to keep up with market trends. Understanding audiences is also key, and [knowing] how best to implement analytics to ensure OSN has the best available data at its disposal. Finally, brand recognition is key, so we make sure that GO stands out in an ever-expanding market by being innovative with its marketing. The platform has to keep evolving.”

Establishing a brand is critical in a market in which there is so much noise. You need a brand that resonates, and that establishes trust and a connection with consumers.

“The model the Middle Eastern companies can learn from is their biggest competitor, Netflix,” Firth says. “It is led by the brand and experience. Netflix packages, curates, personalizes, recommends. It is an enabler. Sure, it’s spending something like $6 billion on original content this year, but its secret sauce is a phenomenal experience based on technology.”

When Netflix officially launched in the Middle East in January 2016, it was already in the region via VPNs, and as many as 200,000 expats had been accessing the American service. The new Middle East version is a shadow of the original because of local pay-TV deals already in place. For example, House of Cards, a signature Netflix original, is not on the regional service because the rights were acquired by OSN. Netflix does plan to invest in local content in the Middle East, but it remains a global product.

Carlos Tibi, the founder and CEO of rival OTT platform Icflix, has welcomed the arrival of Netflix. “We are happy that Netflix is now officially present in the region, as this will further build consumers’ confidence in online methods of payment. [It will also] give the public more choice and a chance to compare between content providers,” he says. “With the rise of streaming services in the region, audiences will now be more inclined to subscribe to multiple streaming services [to have] a wider choice of content to choose from. This will also help curb piracy in the region, which has always been a challenge.”

Tibi acknowledges that the downside is that Netflix’s acquisition of global rights for Hollywood titles may potentially drive up content and programming costs. “However, our prime focus has always been original Arabic programming, as there is a constant demand for local content. We want to ensure that we cater to the needs of the local market. We can comfortably say that we have the largest Arabic library online, and we’re also doing our own original Arabic production.”

STARZ Play Arabia, which launched in 17 territories in the Middle East in April 2015, also appears untroubled by the arrival of Netflix. “We are definitely complementary,” says John Penney, STARZ Play Arabia’s chairman (and chief strategy officer at Starz). “Many consumers want both of us.”

The company has made payment processing a special focus of its regional efforts.

“The risks were large going into the Middle East,” says Penney. “There was a big learning mountain to climb.”

The challenges in setting up payment systems for subscribers are not just related to low credit-card penetration rates. In fact, some parts of the Middle East have high penetration rates. The problem is that consumers tend not to use their credit cards for recurring monthly payments. This obstacle dovetails with a second one, which is low bandwidth capacity. The Middle East has two tiers when it comes to high-speed broadband: the United Arab Emirates and urban Saudi Arabia have it and other places don’t. Telcos are key players because they have payment relationships with the market and access to bandwidth. Local OTT company Telly already partners with a telco in Kuwait.

STARZ Play Arabia has both an OTT business and a carrier-bundled business. A consumer can get the video service either individually or as part of a bundle. “Many of our potential customers have durable billing relationships with our partners,” Penney says. “You can sign up for us online with only your phone number.”

However, in the Middle East, the majority of telephone subs are prepaid accounts, for which there is no credit relationship between the consumer and the provider. The added complexity is that the STARZ Play Arabia service is an add-on for the telephone customer. The carrier does not do the billing for STARZ, even though the platform has to bill through the carrier.

“One of the big challenges has been answering the question, How do you bill for an $8-per-month service in a prepaid market?” Penney says. “We have a system integrated with carrier billings. Our key area of investment has been in technical IP and speed of integration for the consumer. Under the leadership of our regional CEO, Maaz Sheikh, we have built a consumer video service that has at its core not only a curated content and recommendation system, but also a billing system that learns from the consumer. We are a true partner of the carriers in the region instead of relying on credit cards. That is a real differentiating position.”

Since Icflix launched three years ago, it has learned, adapted and evolved. A central part of its growth has been the development of strategic partnerships with telecom operators right across the region. “By becoming their video-on-demand partner, we give them another opportunity to increase the ARPU for data consumption while making legal streaming available to wider audiences,” Tibi says. “We have also expanded our native app, making Icflix available on more than 12,000 devices.”

In the battle for OTT dominance, producing local content is emerging as the key tactic. “We see a real resurgence in local content,” says A.T. Kearney’s Firth. “Broadcasters are doubling down on local production. As the world becomes more global and connected, there is a desire to reconnect with local culture and heritage. This is part of the OTT opportunity, too.”

STARZ Play Arabia recently took a big step in the content area with the addition of a slate of French-language and Arabic programming just before Ramadan. Original production, however, is not a priority. “When the long-term business is durable, we will map out the next stage of strategy,” Penney says. “We might decide to move into new markets before we get into production.”

Icflix has made investing in local content its core USP. “Our focus on original exclusive drama not only differentiates Icflix as a brand but also helps grow Arab content production,” Tibi says. Output so far has included HIV; the Egyptian police thriller Al Makida; the series Alf Leila we Leila (1001 Nights), which launched during Ramadan; and the Tunisian co-production Chbabek El Jenna (Borders of Heaven) by Fares Naânaâ. This year, Icflix launched its first original animated TV series, Dunia. The company is currently working on several original productions in partnership with the Centre Cinématographique Marocain. It is co-producing Burn Out with Noureddine Lakhmari and a TV series called Familia is in the works. Icflix’s feature film Come Back will be the first movie to address the ISIS problem and its ramifications on the Arab community living in the region and abroad.

Meanwhile, Morcos reports that output deals have been crucial for OSN “to guarantee the strongest possible flow of content right from the first available distribution window. With our current deals, exclusive with almost all major content providers, there is much more recognition of the value of all pay-TV windows, and OSN is now securing digital rights as standard. This helps strengthen our OTT platform’s offering, and it keeps us ahead of competitors’ content offerings.”

Morcos adds, “Exclusivity gives a platform value. Being the home of exclusive content—as OSN is with HBO shows—is a positive way to secure an assured and growing audience.”

Piracy remains a significant problem in the Middle East and North Africa, and farther south in sub-Saharan Africa, where companies operating in the OTT market share many of the same challenges.

“Our competitors are piracy and Netflix,” says Richard Boorman, the head of communications for OTT service ShowMax, which is available in 36 African countries. “People tend to subscribe to more than one SVOD service,” Boorman says. “SVOD is not like online music. There is no Spotify offering you everything in one place. It doesn’t tend to be either ShowMax or Netflix because they offer different things. The best way to fight piracy is to offer a service that is good enough at the right price so that you ultimately encourage people to subscribe. Your price point makes it not worth the hassles of piracy—like finding the content and worrying about viruses and doing something illegal.”

In Africa, payment is a problem, as it is in the Middle East. Since the end of 2015, ShowMax has been distributing vouchers in the market, so people don’t have to pay by credit card. They are available at point of purchase in about 500 retail outlets. Consumers can pay for one, three or six months. Netflix does not have a voucher system.

“Localization is the best way to differentiate: local payment options, local content and local functionality,” Boorman says. Internet connectivity in Africa is not great, and the cost is relatively high. To address this, ShowMax has introduced downloads. “You can get up to 25 programs and store them for up to 30 days. You can choose from four different file sizes. WiFi is becoming more and more available, and people can watch on their mobiles.” ShowMax also offers bandwidth-capping, so consumers have more certainty about the charges.

Another localization factor is partnerships. ShowMax worked with Samsung, which offered three months of ShowMax free to purchasers of smart TVs, and it also has data deals with Telkom.

Although ShowMax is part of South Africa’s Naspers group, alongside MultiChoice, it is a separate entity that actually competes with MultiChoice’s regional pay-TV provider, DStv.

“For some people, OTT is either-or in terms of pay TV and for others it’s additive to pay TV,” Boorman says. “It’s certainly possible that we are cannibalizing if people want to cut the cord or, in DStv’s case, the satellite connection. But research shows that SVOD is often additive. If you want to see Game of Thrones seasons one to five, subscribe to ShowMax and binge. If you want season six, you need DStv. You get DStv for sports and news. For binge-watching, it’s ShowMax.”

One obvious benefit of being a cousin of DStv is that, because ShowMax is on DStv’s Explora decoder, people who want ShowMax do not have to sign up separately.

With over 20,000 episodes and movies totaling about 15,000 hours, ShowMax has the largest catalog in the market. In South Africa, the content is about 70 percent international and 30 percent local. Original content is on the company’s radar. Right now the focus is on developing the platform and distribution.

In June, TRACE TV (75 percent owned by Sweden’s Modern Times Group) announced the acquisition of pan-African VOD service as a regional foundation for the launch of its international VOD platform, TRACE Play. TRACE hopes to have TRACE Play in 60 to 80 countries. Launched in 2012, is one of the three main African VOD platforms, along with ShowMax and iROKOtv.

“The acquisition is one step toward our goal of being the urban, Afro-American and Caribbean and African content platform for the world,” says Olivier Laouchez, co-founder, chairman and CEO of TRACE. “We are already very strong in music, which is a powerful differentiator. We want to export that musical DNA to other content.”

As part of the deal, TRACE obtained the rights to the comedy shows Ogas At The Top (Nigeria) and The XYZ Show (Kenya). TRACE will continue to invest in original African content and plans to offer exclusive series, movies and other programming.

“Africa is potentially a huge market, but most of the new players in the OTT space are small,” Laouchez says. “We are hoping to be able to consolidate existing platforms. It’s the only way to develop the size you need to compete with Netflix. We want to offer African programming with African talent. To do that, we need to build a machine with the size to do it. SVOD operators invest heavily in technology, and they’re all doing pretty much the same thing. Technology will be neutral. The differentiator will be content. It would make sense to work together and invest in content instead.”

He believes the only viable way to get OTT off the ground in Africa is with a paid model. The advertising market is not there to support it, and YouTube dominates free content.

The biggest challenge to growth, Laouchez says, is the very low level of access to adequate bandwidth for video across the region. “The key is the investment by internet providers in offering the bandwidth at affordable prices. The most important companies are the mobile operators. We want to work with them by offering content that will help them build their brands and drive their 4G and other services.”

A.T. Kearney’s Firth also sees the logic of consolidating content in the OTT game. The winning hand may be a full house that offers consumers a choice of streaming services to pick from, in the Middle East, Africa and around the world.

“The market is in transition everywhere,” he says. “Following the first wave of services led by the likes of Hulu and Netflix, there has been an explosion of quality and diversity with lots of different services offering attractive content. This means that some consumers might want to subscribe to five or six or eight different SVOD providers, [and have] a different commercial relationship with each one. There will be a role for aggregators in the OTT space, as we see in pay TV.”

But that role will be bigger and better.

“The future is going to be ‘smart aggregation,’” Firth continues. “OTT will be able to be much more clever at bundling attractively. With pay TV, customers might get 300 channels, many of which they don’t want. Smart aggregation will enable them to get the OTT services they want and pay for those alone. This is a trend we will probably see globally.”