Video will comprise 80% of network traffic by 2019 – a significant indicator that the delivery of online video, and specifically, OTT video is set to become a significant disrupter to PAY TV.
The question is no longer whether to get into the online video business, but how, and in what capacity. Owning the end to end infrastructure to run an OTT video service requires significant capital, ongoing operating costs, time and expertise. In addition to intense competition, placing bets on which technology will prevail overtime, leveraging content to monetize the service, and building effective in house capabilities quickly becomes a daunting undertaking.
The total cost of ownership for running an OTT video service includes hardware, software, service, licenses, and maintenance. Often overlooked is the continuous investment required to remain competitive and keep pace in a highly dynamic, non-standardized, and fast-moving market.
We are frequently asked to quantify the benefits of a managed services approach to supporting an OTT service. In answer to this, Quickplay has developed a model that measures potential return given your unique parameters; the Quickplay managed service model conservatively enables an average 50%-70% reduction in costs compared to building or assembling and running the same service in house.
ROI Analysis: In House versus Quickplay Managed Services, %
In a Quickplay commissioned report, research shows that the minimal cost of maintaining a head end is $2MM-$3MM a year and increases sharply given the level of complexity.
Incremental to maintenance is launching an OTT service (as shown with Figure 1 above), which consists of ‘non-negotiable’ variable costs such as encoding, transcoding, content rights, DRM and CDN expenses that multiply as the content catalog grows. These head end elements are foundational to any robust user experience. These costs can form a barrier to entry for many operators and content programmers.
Alongside upfront investment, there are the unseen costs of running a video service optimally; employee headcount, service level support and maintenance. There is also continuous development cost to stay competitive by adding features and improving the overall experience through middleware; components that include authentication, content discoverability and personalization – all of which also require a robust content management system.
Quickplay, has spent the last 10 years developing the in-house expertise to enable operators and content providers to rapidly launch and grow OTT services. The advantage to providers is that our approach brings the benefits of a cloud-based model with the added benefit of 24/7 operational support. The power of the Quickplay platform lies within a multi-tenant approach that creates value and economic leverage based on shared operations and common content, with costs spread across multiple providers. Using a software-centric approach, Quickplay has been executing aggressively from its inception on the concept of software defined video—encouraging operators and content providers to remove otherwise internal limits in executing their OTT vision.
Quickplay enriches premium content by using combination of technology (third-party best-of-breed components, proprietary software tools, and private and public cloud), media operations and infrastructure services to power video from a virtualized head end. Cloud technology provides widespread benefits that in some cases far exceed on premise infrastructure. The cloud enables a highly scalable user experience, requires less manpower and lower upfront investment compared to ‘ground up’ solutions. In addition to immediate cost savings, there are supporting moves from industry titans Amazon (web services), Microsoft, IBM and Google that make the cloud ideal for online video. The advent of virtualization, network security and software defined networks (SDN) ensures that quality of service is paramount, and combined with Quickplay’s platform and service operations, are virtually guaranteed to future proof your service against rapid advances in technology.
In the near future, head ends need to evolve to become more like data centers – cloud based video will become the norm, not the exception. It’s not a question of whether the processing needs of content will double or triple demand it’s just a matter of how quickly and if providers will be ready (in the last year alone, Quickplay has seen a 65% YOY increase in video on demand hours off our managed video platform). It is the new paradigm enabling lower total cost OTT solutions and is one of the most significant technology changes to hit the industry in over a decade. Leveraging an IP (or virtual) head end future proofs providers against the inevitable technology and market changes that can substantially impact multiscreen and broadcast requirements.
Benefits of Managed Services
To be successful in OTT, providers must focus on building their brand, acquiring the right content, and optimally merchandising and monetizing their assets. A managed service can provide the service control required to run a carrier grade service with the added functionality required to grow the service. Key benefits include:
- The ability to focus on the differentiating dimensions of the business (i.e., marketing and content), while guaranteeing faster time to market, reduced complexity and lower TCO.
- An OTT service with predictable operating expenses and low capital outlay is extremely attractive given IT budget constraints. Systems integration is handled by the managed service provider, which means existing IT personnel can be assigned to value-creation projects.
- As inevitable technology changes occur, the provider does not need to make additional infrastructure investment. The R&D is taken care of by the managed service provider, essentially future proofing the service.
- Ongoing performance KPIs and 24/7 operational support streamlines delivery, provides advanced analytics related to the user’s experience, and valuable usage insight to improve the service.
Launching and running an OTT video service requires a balance between the right levels of investment and guaranteeing a strong return. Regardless of whether you build, buy or partner, a service should consider the following questions: What is your horizon for growth? Does it justify your upfront investment? Do you have the resources to grow, maintain and innovate your service? Using these questions as a baseline will help determine your appetite for risk. The managed service model can provide a highly effective mechanism to launch a service quickly and with minimal risk and complexity; and it enables the provider to truly focus on the growth of the business. If you are interested in learning about the Quickplay value and ROI model, I encourage you to get in touch so that we may apply our learnings and experience to your unique objectives.