One of the central topics of discussion among the network operator community involves how best to respond to the destabilizing impact on their businesses of the continued and rapid growth of OTT and services. These third parties — primarily the content owners and distributors, social networks, online retailers, and search engines — are often achieving huge short-term financial success, essentially by riding free on the back of each service provider's many years of investment in physical infrastructure.
Far from being a win-win situation, this could ultimately end up as lose-lose for everyone on the value chain — right through to the end users who, for the last few years at least, have become increasingly used to consuming high-quality content and services almost for free through their broadband connections. To put it bluntly, the revenues generated for the actual network owners by these new and very sticky third-party services are singularly failing to keep pace with the investment needed to keep the networks operating efficiently and customers properly satisfied.
If we're to develop a mutually beneficial and truly symbiotic relationship between these two communities, then network operators need to find ways where the inevitable and unstoppable growth of OTT can actually underpin — not undermine — their future strategies. Telecommunications service providers and network owners need to quickly find the right technological tools to help them regain their balance, evolve their networks and business models to confront these challenges, and exploit their still significant advantages and strengths.
There are two key shifts that service providers will have to make if they're not to be reduced to the “dumb bit-pipe.” First, they have to better understand how their own customers are now consuming these new services and content, as viewing behaviors, market demographics and audiences continue to change and mutate in the face of new technologies, displays and devices.
Second, they must find ways to add value and new functionalities to their own networks and back-office systems, shifting from being essentially passive carriers of other people's content to becomimg active intermediaries delivering unique functionalities and benefits to the other players involved in this market. This involves developing operator CDNs, adding the power and intelligence required to manage the inevitable and continuous growth in traffic elegantly and economically while simultaneously developing new revenue streams and business models. (See Figure 1.)
The network must mirror the consumer
Ericsson has been closely monitoring the behaviors and wants of consumers for a number of years. Drawing on the more than 100,000 interviews carried out in more than 40 countries by its ConsumerLab research initiative, a number of clear findings are emerging with important implications for network operators.
In terms of recent changes to viewing patterns, there's been an interesting reduction in the use of DVRs. Many consumers are now confident that they can access content missed in real-time by using the Internet and the catch-up services now provided by many broadcasters. This shift naturally places an added strain on already heavily loaded network infrastructure.
Paralleling this move away from DVRs — and especially where live events like sports, concerts or reality programs are concerned — content is becoming implicitly intertwined with second-screen activity and social networking. Users are increasingly watching traditionally broadcast events while simultaneously sharing opinions and other related content with their communities of friends over fixed and wireless broadband networks. Once again, demand for bandwidth and connectivity driven by outside events is affecting network owners and their infrastructure.
In the space of only a few years, customers have also become extremely demanding in terms of the quality of service and experience that they expect and receive when actually consuming content — and the difficulties in how it's actually delivered to them are largely irrelevant. HD content and displays are fast becoming ubiquitous, as are HD video-capable cameras in smartphones, while trials and demonstrations of Ultra High Definition TV (UHDTV) are moving rapidly forward. Again the pattern's the same: more loads on the network operator largely driven by factors beyond their direct control.
Developing the appropriate business models
In considering this need to support an ever-growing repertoire of content consumption behaviors among an increasingly critical audience — and simultaneously generate revenues — it's clear that there's a need for network operators to take a holistic, as opposed to point solution, approach. Ironically, the fragmentation happening in content delivery and viewing activities actually calls out for network operators to develop a common content delivery platform able to support multichannel TV, video on-demand and OTT video content from the same core infrastructure. With such a solution in place, it then becomes feasible for the network operator to begin to optimize content distribution across their entire infrastructure, supporting multiple streaming and delivery formats to drive content across any platform to any screen.
Such a holistic approach also makes it possible for network operators to readily open their network and support commercial systems to selected external content partners, while simultaneously managing the impact of pure OTT offerings.
Let's look at the three basic types of service and business models that need to be supported:
- Operator-managed model: Here the network operator pays for the rights to sell content while the end consumer subscribes directly to the operator's content services and receives guaranteed quality of service and experience levels. This encompasses traditional operator IPTV offerings as well as the increasing trend to offer content for consumption on Internet-connected devices such as PCs, tablets, phones and games consoles.
- Wholesale content delivery network model: Here the network operator provides the appropriate content delivery network service exposure and provisioning functions to content providers. The content providers pay for support and the delivery of their content to audiences at higher quality of service and experience than would be possible with direct internet access. By providing direct access — managed and monitored — to their customer base, the network operator has now become a part of the OTT revenue chain and can share in the cash flow.
- OTT service caching: To reduce network overload in the case of true OTT services and content where the network operator gets no financial interest or return, it is possible to use Transparent Internet Caching (TIC) to reduce transit and peering costs. Also, by pushing caching intelligently and dynamically out towards where content is actually being consumed, loads on the core network can be significantly reduced. Experience with large network deployments shows that a significant percentage of true OTT traffic can be addressed in this way with major cost savings.
If network operators are to have the freedom to exploit these different models in ways best suited to their own specific circumstances, then certain functions and features must be available — caching; service creation, management and enhancements; and value-added services and features.
Developing an appropriate caching strategy is one of the most important issues in creating an optimal Media Delivery Network (MDN) environment. It has such a huge impact on not only a service provider's own internal operating economics of transport and storage — as well as the all-important customer experience — but also on shaping their relationships with content owners and international content carriers.
MDN operators need to be aware that not all of the products out there are really best suited to operating in the unforgiving world of video where fast performance is crucial and content handling disciplines are different from those used for ordinary data. On top of this, there has been a historical trend for service providers to purchase different types of caching systems for different types of media and service. Such a strategy is no longer supportable. Instead, there needs to be an integrated approach using one single flexible caching system that can support multiple services such as VOD and OTT, as well as different devices and access technologies.
Servers for this environment require the use of innovative technologies if they are to meet the unique requirements of the video environment. In addition to being low cost and having a small form factor, high reliability and low power, there's also a need for these devices to ingest content live and in real time and support a range of web delivery protocols. Of particular importance is the need to sometimes anticipate or pre-position content in advance of sudden user demand driven by sporting or major national and international events.
Service creation, management and enhancements
If network operators are to differentiate themselves against OTT offerings and earn additional revenues from their customers, they must offer additional functionalities as well as an enhanced user experience. (See Figure 2.) In practice, this usually translates into two specific areas:
- Enhancing the service experience for the customer through features such as enabling fast channel change or rapid service acquisition and allowing fast packet retransmits in the event of errors.
- Increasing opportunities to easily generate additional revenues by managing the insertion of adverts at appropriate places in the content flow or by offering services such as transcoding at attractive prices.
Value-added services and features
Overseeing an MDN operator's distributed architecture of servers and broadband links must be a number of software modules and management systems that turn the network into a successful business. In many cases, the intelligent application and selective application of these can act as vital business differentiators, both in helping smaller network operators compete against larger players as well as in extracting additional revenues from the content owners by providing functionalities that they may be unwilling or unable to provide themselves.
Three specific functional areas are needed here:
- Support for multiple caching solutions that are capable of supporting multiple delivery technologies simultaneously.
- Support for wholesale business models, allowing for remote content upload and management and the reporting of usage, consumption and other data for statistical and performance reporting. This audit element is vitally important in winning, and then enhancing, relationships with content partners who demand transparency in terms of revenues and usage.
- Support for the development of federated network and business models that allow service providers to partner nationally or internationally. Features needed here include content handoff management and the easy interchange of usage reporting to ensure that revenues can be efficiently returned to drive more content creation in a virtuous circle.
The OTT threat
To conclude, it's clear that the erosive over-the-top threat is not going to go away, and the ensuing challenges for network operators can only increase. The growing insights that we now have into the realities of consumer demand and viewing behaviors, plus an awareness of how complementary developments — such as HD, UHDTV and 3D — will change the environment even further and faster mean that the point solutions and systems of yesterday are no longer valid.
The threat cannot be avoided or denied any longer, and necessary change will have to be aggressively embraced. Only a truly holistic and integrated response through an operator CDN will fulfill the increasingly multi-dimensional demands and opportunities that exist out there from a position that simultaneously promotes the strength, competence and capacity of network operators.
Paul Stallard is head of TV systems management at Ericsson.