Videonomics report (pdf) - EY_Online_Vid… · the clutter to garner mass reach while ... TV Advertising TV ... Jordan, KSA, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the

VideonomicsVideo content consumption, production and distribution in the MENA region

January 2018

Strategic | Technical | Creative Strategic | Technical | Creative

2 Videonomics | Video content consumption, production and distribution in the MENA region

Foreword

3Video content consumption, production and distribution in the MENA region | Videonomics

The global clout and phenomenal growth of the FAANG technology companies have led traditional media players to rethink their strategies and given an impetus for digital players to innovate further. In this whirlwind of disruption, one constant for the industry has been its focus on video. Video content is able to cut through the clutter to garner mass reach while maintaining high levels of stickiness within specific niches.

To delve deeper into video content in the MENA region, and its role as the nucleus of the media and technology industries, this report explores some key questions in the space:

• Who is consuming video content and how will this grow?

• How is content being delivered across platforms?

• What kind of content are industry players producing?

• How can business models evolve to monetize content better?

In exploring these questions, we have identified seven key impact trends. We hope you find this report helpful in shedding light on the video content space and the strategic needs of the hour.

As always, it gives me immense pleasure to address the broadcasting and satellite industry insiders, and share the key trends while measuring the “pulse” of the industry through this report brought together in cooperation with Ernst & Young LLP.

A detailed study of the current and future media landscape clearly showed us that the seismic shifts in the way video is consumed will continue to evolve, with MENA’s digital slice of the video revenue pie expected to grow robustly. As evident, this upsurge in digital and innovative mediums is driven by the burgeoning youth and the increasing number of personal viewing devices.

Moreover, with the buoyancy of pure OTT and cross-OTT platforms, the quality of content along with the convenience of the audience is driving viewership. Gone are the days of “filler” or mediocre in-between video content; now, practically every moment is primetime.

Adding to the punchline are strategic media partnerships that will headline the industry and very well shape the curve of the media economy to come. We hope this report proves valuable and helpful in defining your next strategies, and once again, we are pleased to welcome you to CABSAT 2018.

Frederique Maurell Group Director Exhibitions Dubai World Trade Centre

Ahmed Reda MENA Sector Leader Telecom, Media & Technology Ernst & Young LLP

Nripendra Singh Director Media & Entertainment Performance improvement Ernst & Young LLP

Executive summary 06

The video opportunity 08

What’s next? 26

EY’s M&E advisory services 28

Glossary 31

1. MENA’s youth will drive growth 13

2. Strategic partnerships will become key to success 14

3. Infrastructure growth is enabling omni-platform consumption 16

4. Localized content can tap into an audience needs gap 18

5. On-demand content is leading to new viewing habits 20

6. The OTT space has fragmented and driven the need for efficiencies 22

7. Telcos will play an important role in the growth of content delivery 24

Contents


Executive summary

Seven key trends will drive video consumption in the MENA region …

MENA’s youth will drive digital growth, with most MENA markets projected to grow online video revenues at 22 - 35% annually till 2021, to reach 17% of total video revenues from less than 10% today.

1Srategic partnerships will become key to success across content acquisition, management, marketing, distribution and billing2Infrastructure growth is enabling omni-platform consumption, with time spent online making up 70%–90% of the time spent on TV3Localized content can tap into an audience needs gap, as Arabic internet usage is 3x that of English4On-demand content is leading to new viewing habits, which includes time-shifted bingeing and declining consumption of mid-tier content5The OTT space has fragmented and driven the need for efficiencies, across content costs, back-end savings and analytics 6Telcos will play an important role in the growth of content delivery, with IPTV homes projected to grow 11% annually, nearly 3x as fast as satellite homes7


… and redefine strategic imperatives for the M&E industry

Country and market-level business strategiesSuccess will require customized strategies rather than one-size-fits all approaches across content procurement, monetization and delivery. A granular understanding of local demographics, connectivity levels, payment preferences and more is required to tap into each market’s full potential.

Partnering for growthAs the market fragments and competition rises, video providers will need to partner across content creation, distribution, syndication and billing to drive growth and compete across different markets, formats and media.

Customer knowledge

Industry players must ensure they have the right technology systems in place to collect, and then analyze, the wealth of digital data a customer can provide. Insights can be used to build out content libraries, customize user interfaces and develop dynamic pricing models.

Localized content for global Arab audiences

Content providers need to understand the content genres, dialects and formats that deliver the greatest RoI not just at a local level, but which can be leveraged across multiple geographies and tap into the global Arabic diaspora.

Interactivity

Digital media provides a previously unachievable opportunity to interact with customers individually, and address their needs for escapism, knowledge and social acceptance. Initiatives such as contests, television play-along, prediction, voting and more can boost time spent and increase monetization.

Focus on efficiencies

High customer acquisition, churn, marketing spends and content costs have significantly impacted sustainability. Process efficiencies, organization structure optimization, automation, cost reduction, outsourcing and infrastructure co-operation will be the needs of the hour.


The video opportunity


1208

1580

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135

TV Advertising TV Subscription

1954

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AVoD SVoD / TVoD

2017-21CAGR% 5.5% 7.4% 25.5% 26.2%

2017

3085 4308

2021

+40% growth +40%

growth

Figure 1: MENA’s video market (US$m)1

Digital video revenues will more than double

With most MENA markets projected to grow online video revenues 22%–35% annually till 2021, the region’s digital consumption growth is among the highest in the world1. A large youth population, fast-improving mobile connectivity and a flood of new streaming platforms into the market will drive this growth. As a result, digital’s share of the video revenue pie is projected to rise from 9.6% in 2017 to 17.3% by 20211.

Subscription and transactional revenues comprise a large share of this digital segment at ~45%1. Segmented packages across price points and telco tie-ups for billing have helped in this region, but the trend also points to a new generation that cuts the cord and leapfrogs directly to digital subscriptions.

Meanwhile, online video advertising is expected to show similarly strong growth. Native propositions are emerging as a particular focus, as they offer lower-risk revenue streams for content providers, while brands benefit from more targeted messaging.

Pay TV will continue to drive growth

MENA’s TV market has long been dominated by FTA channels, and consequently, ad-funded business models. The region’s consumers have access to over 900 FTA channels and more than 90% of viewership comes from FTA in markets such as the UAE, KSA and Egypt2. While the region has seen ~ 500 FTA channels added over the last decade, ad revenue growth has slowed2. It appears the ad market is nearing saturation and, impacted by political turmoil, it recorded negative growth in 2016/173.

As FTA channels typically offer local Arabic programing to the widest common denominator, consumers are increasingly seeking out unique content. The industry is looking to meet this appetite through pay TV. 10–15 HD channels are being added every quarter by satellite pay TV operators, and channels such as MTV Arabia have converted to pay4. While piracy remains a major threat to building a sustainable model for premium content, pay TV revenues are projected to grow 7%–8% in the medium-term1.

1 “Global pay TV forecasts”, Digital TV Research, May 2017; “Global SVoD forecasts”, Digital TV Research, Sep.2016; “Media spend forecast”, Zenith Optimedia, Sep.2016; “Media spend forecast”, IPG Magnaglobal, Dec.2016; “Arab media outlook 2016-18”, Dubai Press Club, 2016; Industry discussions; EY analysis- 12 MENA markets considered (Algeria, Bahrain, Egypt, Jordan, KSA, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the UAE)

2 “Arab media outlook 2016-18”, Dubai Press Club, 2016; Industry discussions; EY analysis

3 “MENA's advertising industry: $1B wiped off spending in 2016”, Albawaba Business, Jan.2017; Industry discussions; EY analysis

4 “Growth in pay TV and OTT video services”, Frost & Sullivan, Mar.2017; “Arab media outlook 2016-18”, Dubai Press Club, 2016; EY analysis

The video opportunity


7.5

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Figure 2: MENA's linear TV landscape5

Algeria Tunisia Egypt Morocco Jordan Oman Lebanon Kuwait KSA Bahrain Qatar UAE

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% of TV households that w

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Figure 3: MENA's online video landscape5

KSA

5 “Global pay TV forecasts”, Digital TV Research, May 2017; “Global SVoD forecasts”, Digital TV Research, Sep.2016; “World indicators”, IMF, Jul.2017; “Number of households”, Helgi Library, 2017; EY analysis

MENA’s video landscape

The MENA markets shown in Figure 2 comprise over 48m TV households, but less than a tenth of these homes are estimated to subscribe to pay TV, and only a fifth watch online video regularly5. However, there can be significant regional variation. The more mature pay TV and online video ecosystems in the UAE, Qatar and Bahrain are expected to record stronger ARPU growth, whereas North African markets such as Algeria, Morocco and Egypt have greater potential to grow their subscriber bases5.




1 MENA’s youth will drive growth

Demographic dividends

As teenagers and young adults enter the workforce and become paying consumers (or customers advertisers will pay for), they add a significant boost to media spends. The fastest growing media markets therefore tend to be the youngest ones, as can be seen in the top-right quadrant of Figure 4. As the 10–24 year age group comprises more than a fifth of each MENA market below, except for the UAE, growth will be robust. MENA’s projected video revenue growth of ~6% for linear TV and ~26% for online video from 2017–21 places it ahead of every major media market, except India and Indonesia6.

To capture a piece of this growth, content creators would be well served to focus on relevant genres for this youth audience, which may include sports, premium action or coming-of-age films. Marketing will also need to focus more on social media, where significant time is spent, and digital interactivity will become key to drive sticky consumption.

India

China

US

Indonesia

Brazil

Nigeria

Mexico Russia

Egypt

TurkeyJapanGermany

UK

France

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KSA

Australia

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Qatar

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Figure 4: Demographic impact on media growth6

Non-MENA

Size of bubble denotestotal population 10-24y

% of population 10-24y:

>25%

20-25%

<20%

6 “Global pay TV forecasts”, Digital TV Research, May 2017; “Global SVoD forecasts”, Digital TV Research, Sep.2016; “Media spend forecast”, Zenith Optimedia, Sep.2016; “Media spend forecast”, IPG Magnaglobal, Dec.2016; “Arab media outlook 2016-18”, Dubai Press Club, 2016; Industry discussions; “World indicators”, IMF, Jul.2017; EY analysis


2 Strategic partnerships will become key to success

An interlinked landscape

MENA’s video content ecosystem has become complex, with a multitude of specialties and niches. As few companies are able to produce, deliver and monetize content end-to-end, especially across a range of diverse markets, strategic partnerships have become crucial. We explore several proven partnership models in the region here.

Content Creation Content Aggregation Distribution Platforms Delivery Infrastructure

Figure 5: MENA’s video content ecosystem7

Local production and post - production houses

O3 ProductionsPrime Focustwofour54 (zone)

A

Regional broadcastersADMC

DMI

MBC

Rotana

Foreign studios

Disney Universal Pictures Warner Bros.

Pay TV operators Al Majd Network BeIN Media Group My-HD OSN

20th Century Fox

DTH satellite operators Arabsat Es'hailSat Eutelsat Nilesat Noorsat Yahsat

OTT extensions BeIN Connect OSN Play / Wavo Shahid Plus / Net

Note: non-exhaustive list of companies

Uplink Services

Telco operators / IPTV providersDu

Etisalat

Mobily

Ooredoo

Selevision

STC

Limited (MENA)

Pure OTT playersAmazonCinemozGoogle Play

Icflix

IstikanaiTunes

NetflixStarz PlayTelly

ViuYoutubeYupp Tv

Device manufacturers

HumaxLGRokuSamsung

B

C

D

7 Public company information; “Growth in pay TV and OTT video services”, Frost & Sullivan, Mar.2017; “Pay TV in MENA: Changing the channel”, A.T.Kearney, Mar.2016; EY analysis


8. “Icflix: An Arabic equivalent of Netflix”, Forbes Business, Sep.2017

9. “Disrupting the connected entertainment value chain”, TV Connect, Jan.2017

10. “OSN launches new streaming service”, Digital TV Europe, Aug.2017

11. “OTT and premium online video”, Ipsos, Apr.2017

12. “Starz Play and du partner to bring HD VOD content”, Digital Studio ME, Sep.2015; “Starz Play Arabia expands SVOD service in North Africa”, Rapid TV News, Oct.2016; “Starz Play signs an exclusive partnership with Orange Egypt”, Starz Play blog, Sep.2017

13. “State of payments”, Payfort, Oct.2017

14. “About Humax”, Humax portal, Dec.2017; “Icflix featured on smart devices”, PRNewswire, Jan.2014

15. “Going OTT in MENA”, KNect365, Aug.2017

Content partnerships by pure OTT players OTT-telco partnershipsA C

D

Typically, the bulk of pure OTT players’ content library for MENA is acquired via third parties, as they seldom have the established catalog of traditional broadcasters. Deals for Hollywood content and local Arabic series have filled this gap in recent years. However, as foreign rights are often non-exclusive and local rights are rising in costs, pure OTT players are focusing more on original productions via local partnerships. For instance, Icflix recently partnered with local producers in the UAE, Egypt and Morocco to create original films and series8. Building such IP not only serves as a differentiator in the space but also offers flexibility for geographic expansion and in secondary rights markets.

Synchronizing linear and digital offeringsB

“Striking the right balance between OTT, apps and linear delivery” was rated as the single most pressing concern in a recent survey of global broadcasters9. MENA’s broadcasters and pay TV operators are wary of digital services cannibalizing the core broadcast audience and losing the exclusivity of premium content. But the lines between linear and digital offerings are blurring. In an effort to create a more streamlined partnership between the two, players are eschewing time delays, exclusivity and other content restrictions. Rather, they are opting for strategies that draw audience support on both mediums. This was reflected, for instance, in OSN’s OTT platform Wavo, which offers a full mix of Live TV, Catch-up TV, VoD and sports content across multiple packages and prices10.

More than a third of MENA consumers surveyed did not pay for any digital content in 201611. And with low credit card penetration in most markets, when these consumers do pay, it is often via cash. This poses billing issues for pay OTT platforms, but telco operators have made deep inroads in these markets. With telco players looking to increase the attractiveness of their data bundles and decrease churn, and OTT platforms seeking direct billing mechanisms and distribution, partnerships between the two groups have become common. Starz Play, for example, has partnered with UAE-based Du and Etisalat, Orange in Egypt and Maroc Telecom in Morocco, among others12.

Hardware bundling

Figure 6: Most preferred payment method (2016)13

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Qatar

UAE

Kuwait

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Egypt

Cash on delivery

Credit card

In a bid to further increase reach and leverage a built-in captive audience, content providers have explored partnerships with hardware manufacturers. Starz Play, for instance, integrated its app directly onto Humax set-top-boxes, while Icflix partnered with Samsung and LG to provide access to smart TV owners14. Meanwhile, MBC partnered with Humax to create a customized set-top box GOBX, which offers free and encrypted satellite channels and supports a broadband connection15. Such devices can allow for more targeted advertising opportunities and may serve as an additional avenue to expand a player’s SVoD subscriber base15.


3 Infrastructure growth is enabling omni-platform consumption

A global shift

The falling costs of broadband data and easy access to smartphones, coupled with the proliferation of streaming services, have changed the way consumers watch content. While consumption on linear TV is largely stagnant at a global level, time spent on online video is catching up with double-digit growth rates in nearly every country16. A similar pattern can be found in MENA, where time spent online (including non-video activities) in the UAE and KSA makes up 70%–90% of the time spent on TV17.

To better address these trends, players would be well served to understand which markets and technologies are driving omni-platform viewership, and how consumption patterns are therefore changing.

Figure 8: Video consumption by device18

Importance of smartphones and tablets

MENA: Share of viewers that use the device to watch online video (2016)

MENA: Share of consumption of OTT videos (2016)

71%

23% 46%

42%

27% 7%

Snartphone

Tablet

Tv / Smart Tv

While video content is getting consumed across a variety of media devices, smartphones and tablets receive the lion’s share of online viewership, per Figure 8. Notably, while tablet penetration is fairly low relative to smartphones, video consumption and stickiness for each tablet user are high. As seen in Figure 9, a household’s tendency to watch videos online is closely related to smartphone access. Given that these 11 MENA territories will gain an additional 35m smartphone subscribers by 2020, it is vital for content providers and delivery networks to ensure formats, user interfaces and payment options are optimized for mobile in particular19.

16. “Online video forecasts”, Zenith Optimedia, Jul.2016

17. “Media consumption forecasts”, Zenith Optimedia, Jun.2016; “Interaction”, GroupM, Apr.2017; EY analysis

18. “Internet user share who consume online videos in the Middle East by device”, Statista, 2017; “Consumption distribution of OTT videos in MENA by device”, Statista, 2017; EY analysis

19. “Global SVoD forecasts”, Digital TV Research, Sep.2016; “World ICT indicators”, ITU- United Nations, Jun.2017; EY analysis

46

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Figure 7: Average time spent (hours/week, 2017) 17

Online

Linear TV


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Figure 9: Omni - platform consumption potential20

Size of bubble denotestotal 2017 population

Lower-penetration, stronger AVoD potential

Higher-penetration, stronger SVoD potential

Strategic imperatives

The era of omni-platform consumption has several implications going forward. First, the same consumer can watch content in various scenarios — be it a tablet at breakfast, a smartphone while commuting or a smart TV at the end of the day. This means content libraries need to be more flexible than ever, with a mixture of short, mid and long-form content to help meet diverse needs across platforms.

APAC 65%

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41%

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26%

Figure 10: Share of viewers that watch live video content more if it has a social media tie-in (%, 2015)21

Mid-East/Africa

Latam

North America

Europe

Second, content providers should be aware of market-level differences in technology infrastructure. As seen in Figure 9, Gulf markets such as the UAE and Qatar have mature well-connected ecosystems, whereas most markets in North Africa are still under-penetrated20. These differences mean that players must customize monetization strategies and user interfaces for each market.

Third, interactivity is becoming increasingly valuable as a way to boost engagement in the short-term, while building loyalty and retaining viewers in the long-term. Content providers should look to build in such interactivity, particularly on social media, and help foster community engagement. Interactivity can take various forms. The gameshow KBC has a live play-along app, the NBA allows fans to vote on social media for players for its annual all-star game, while Netflix has launched a kids’ series wherein multiple storylines can be selected22.

20. “Global SVoD forecasts”, Digital TV Research, Sep.2016; “World ICT indicators”, ITU- United Nations, Jun.2017; “World indicators”, IMF, Jul.2017; “Number of households”, Helgi Library, 2017; EY analysis

21. “Screen wars: The battle for eye space in a TV-everywhere world”, Nielsen, Mar.2015

22. “KBC play along app”, KBC-SonyLiv.com, Sep.2017; “Kids control the story in Netflix’s new interactive shows”, Engadget, Jun.2017


4 Localized content can tap into an audience needs gap

Untapped potential

As is the case with any audience, MENA consumers prefer offerings customized to their language and taste. Historically, there has been a relative dearth of such content, particularly online, but this is changing. Video content providers are recognizing this gap and eschewing one-size-fits-all approaches for targeted plays across both content and customer experience.

Native language content

Given that Hollywood content is often non-exclusive and available across multiple players in the region, video content providers are increasingly focusing on original, locally produced Arabic series and films. Such content not only serves as the flagship draw for a channel or platform but also boosts stickiness and helps draw interest to the rest of the line-up. However, such initiatives are expensive. High-end Arabic series can cost upward of US$200,000 per episode to produce, while the acquisition landscape is seeing a greater protection of IPs24. As a result, market players with scale have a built-in advantage, as they are able to leverage any produced or acquired content across multiple avenues. For instance, pan-regional broadcasters can re-use series on their linear channels and OTT extensions, while global OTT players are able to amortize costs across various international customers.

For many broadcasters and OTT players, building large libraries of original local productions may be unfeasible in the short-term. However, various smaller-scale investments can also boost stickiness. For instance, dubbing English, Turkish, Hindi or even other Arabic dialects has become a common strategy. At costs of US$2,000–US$4,000 per hour, this can be a cost-effective play for OTT players to reach local audiences, as well as the global Arabic diaspora24.

Figure 11: MENA internet use by language23

Arabic

English

58%

25% 2013 +% in 20173%

20%

33%

39%

60%

Better screen quality

Wider range of video content

Better HD experience

Figure 12: Share of customer demands for online video platforms (% of MENA respondents, 2016)25

Demand for a better experience

In contrast to the sparsely available TV ratings in the MENA region, OTT platforms are able to collect a treasure trove of customer data. Digital platforms, with their limitless libraries and configurations, have particularly unique opportunities to leverage these insights. Personalization can occur beyond just content- title recommendations, user interfaces and flexible delivery at different bitrates are all ways in which offerings can be customized further. Indeed, customer experience appears to be a needs gap just as much as content, as seen in Figure 12.

23. “Media use in the Middle East 2017: A seven nation survey”, Northwestern University in Qatar, 2017

24. Industry discussions; EY analysis

25. “Share of customer demands for online video platforms in the Middle East”, Statista, 2017


Localization initiatives

MBC

The past few years have seen the broadcaster launch channels MBC MASR and MBC Bollywood to target Egyptian audiences and Arabic Bollywood enthusiasts respectively. The group has also taken initiatives in re-broadcasting its signal via spot-beams and splitting up local feeds for specific markets26.

ZEEL

The broadcaster has dubbed or subtitled content across its linear and digital offerings in the region. This includes content on its OTT platform Z5 Weyyak, which targets Arabic speakers via dubbed Hindi content, Bollywood movies, as well as locally acquired Arabic series27.

Starz Play

The streaming service has a library of over 1,200 hours of Arabic shows, 2,500 hours dubbed into French and is soon expected to launch an original production for MENA29. Customizations include using French dubbing for North Africa, in contrast to subtitles for (non-animated) Hollywood content in Gulf markets30.

Icflix

The streaming platform made an early push into localizing content for the region and has already produced a dozen films and series28. Through offices in Dubai, Cairo and Casablanca, the company is partnering with local producers for over 40 more productions28.

Netflix

The company is projected to spend ~US$8b on content in 2018, with over a quarter of this amount spent on original programing31. More of these originals are being customized for specific markets and produced locally, with 48% of 65 upcoming series set to be produced outside the US32. In terms of the MENA market, the company’s first original production — a stand-up comedy special — is expected to be released in 201833.

By leveraging its granular data on consumers and their preferences, Netflix is able to localize offerings through the entire customer journey:

• Library: Viewer inputs (e.g., sub-genres selected, time spent and frequency) help the company pinpoint the type of content to renew or commission afresh. A recent study on scripted series revealed that US cable networks and broadcast channels had a male and female skew respectively, whereas Netflix’s programing was gender neutral and able to target the widest target audience32.

26. “MENA TV landscape: Then and now”, BroadcastPro Middle East, Dec.2016

27. “ZEE drives digispace”, BroadcastPro Middle East, Jun.2016

28. “Icflix: An Arabic equivalent of Netflix”, Forbes Business, Sep.2017

29. “Starz Play Arabia secures new funding”, Variety, Jul.2017; “Starz Play Arabia in Warner deal extension”, The Hollywood Reporter, Jan.2017

30. “Starz Play Arabia on Middle East audiences”, Variety, Nov.2016

31. “Netflix says it will spend up to $8bn. on content”, NY Times, Oct.2017

32. “SVoD content strategies: the drive for originality”, Ampere Analysis, Sep.2017

33. “Netflix’s first Middle East original to be comedy special”, The Hollywood Reporter, Oct.2017

34. “How Netflix reverse engineered Hollywood”, The Atlantic, Jan.2014

35. “Artwork personalization at Netflix”, Netflix Tech Blog, Dec.2017

36. “A/B testing and beyond”, Netflix Tech Blog, Jun.2017

• Discovery: Content is classified across numerous “microtags” — a lead character’s personality traits, the happiness of the ending, the content’s time and setting and various other facets34. Thousands of sub-genres are created using these tags and then, basis viewership patterns and user ratings, Netflix’s recommendation algorithm makes personalized suggestions for each user34.

• Packaging: Each recommended title is given personalized visuals. A series of artwork is continuously tested on subscribers, and artwork prioritizing different characters, themes and fonts is selected for each viewer35.

• Delivery: Adaptive streaming technologies are used to ensure smooth playback, optimized for network conditions and device-level limitations. The company’s content delivery network configures both the hardware and software on the servers used to deliver audio and video files to users36.


5 On-demand content is leading to new viewing habits

Time-shifted bingeing

With content available on demand everywhere and at all times, traditional patterns of primetime viewership are fading. Instead, consumers are picking and choosing time slots convenient to them, at which point they may binge significant amounts of content. This can be seen in Figure 13, where the time spent curve on SVoD platforms is flatter than that on linear TV. Partly due to this bingeing trend, content creators have

been prioritizing shorter serialized arcs over lengthy episodic procedurals. In fact, the last eleven Best Drama winners of the US Primetime Emmys have all had 10–13 episode seasons, compared to the 20+ episode seasons that were the norm earlier. For broadcasters with digital offerings, a key consideration here is optimizing release windows to maximize revenue across both platforms.

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Figure 13: Global viewership by day part (35 - 44y)37

37. “TV viewing: The new dynamic”, Ampere Analysis, Jun 2017; EY analysis


32%

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45%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 14: Top - 20 films' share of total industry production budgets38

Decline of the mushy middle

Mid-tier programing that was used to glue slots together in traditional TV schedules is no longer needed for an on-demand library. As a result, certain types of factual entertainment, news or talk shows may struggle to be appointment viewing. In contrast, two types of content will become more valuable. The first is big-budget spectacles, which have the potential to cut

through the digital noise and attain mass interest. The second is niche programing targeted at specific audiences, who are willing to pay a premium. This hollowing-out of the middle has a parallel in the film industry, which is increasingly focused on lower-budget niche independent films and big-budget tent-poles, as seen in Figure 14.

38. “Production budgets”, The Numbers, Dec.2017; EY analysis on 3601 global films with a cumulative production budget of US$131.4b


6 The OTT space has fragmented and driven the need for efficiencies

Robust competition

MENA’s OTT space has become increasingly competitive. Foreign players continue to roll out across multiple markets and platforms are competing over a finite amount of local content (for acquisition) and talent (for production).

Free/Ad - centric

Figure 15: MENA’s OTT landscape39

Subscription/Add-on options

Reg

iona

lG

loba

l

Shahid.net Shahid Plus

YouTube

OSN Play/Wavo

Icflix

Cinemoz

Netflix

Du View

iTunes

eLife On

Amazon Iflix

Z5 Weyyak

Istikana

Telly

Seevii

Viu

mView

Pure OTT player Regional linear TV presence Telco/IPTV presence

BeIN Connect

Note: non- exhaustive list of companies

My Invision

Yupp TVGoogle Play Starz Play

39. Public company information; EY analysis


As the market fragments, players are aggressively pursuing subscribers and reach to realize the benefits of scale:

• Content costs: Large platforms will be able to amortize the cost of content acquisition or production across audiences in multiple geographies. Distribution scale can increase the scope for players to bundle smaller markets into existing deals, leverage different release windows for syndication or procure limited-scale rights.

• Back-end savings: Economies of scale can be leveraged to save on incremental costs such as platform development and cloud storage (price per unit of storage falls with size). Hybrid cloud content management platforms, auto-tagging and auto-versioning are some strategies that can deliver efficiencies at scale.

• Customer analytics: Network effects are important for OTT platforms, as each additional user helps refine the experience for the whole base. This data can be used to optimize content (identifying high time-spent genres), experience (customizing user interfaces) and churn (building better recommendation engines).

While the race to scale will continue in the medium-term, consolidation is expected over time. Indeed, this has proven to be the case globally, with Netflix, Amazon Prime and Hulu accounting for ~60% of global SVoD revenues, while YouTube and Facebook share nearly half the global AVoD pie40.

40. “OTT adds US$25b revenue to the global video industry”, Digital TV Europe, Sep.2016


7 On-demand content is leading to new viewing habits

Growth of telco TV bundles

MENA is a largely satellite-centric region for both free-to-air offerings and pay TV. Satellite provides mass reach across markets, regardless of on-ground cable and fiber connectivity challenges, and requires less investment in last-mile infrastructure. However, the prospect of triple-play services is appealing from a consumer standpoint, and telco pay TV bundles are growing in popularity. Moreover, as these telco operators already have a direct billing relationship with users, an incremental surcharge of IPTV is a relatively low-friction proposition.

As the competition to acquire pay TV users heats up, aggressive discounts and the strengthening of base packs are projected to result in user growth but stagnant ARPU levels for the industry, as shown in Figure 17. This shift toward IPTV will have a muted impact on pan-regional broadcasters and pay TV content providers, as they typically offer content on both satellite and IPTV. However, more local channels accessible on a single platform will need to diversify their availability, lest reach gets impacted. Meanwhile, on the digital front, IPTV players are also looking to tie up directly with OTT players, offering users a bundle that includes access to an OTT platform’s content. Offering such value add-ons may prove to be a key selling point and will help maximize reach.

Figure 16: MENA's pay TV segmentation41

2.73.3

1.1

1.9

2930

15 15

0

5

10

15

20

25

30

35

0

1

2

3

4

5

2015 2016 2017 2018 2019 2020

Monthly average revenue per household (U

S$)To

tal p

ay T

V h

ouse

hold

s (m

)

Pay households (m)

Household ARPU (US$)

4% 11%

1% 0%

Satellite 2015-20 CAGR% IPTV 2015-20 CAGR%

41. “Global pay TV forecasts”, Digital TV Research, May 2017; “Pay TV services in MENA”, Analysys Mason, May 2016; EY analysis- 12 MENA markets considered (Algeria, Bahrain, Egypt, Jordan, KSA, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the UAE)



What’s next?

We believe that new customer segments will emerge. At the top of the video consumption pyramid will be the cord cutters, who will focus exclusively on online-only consumption. In addition, there will be a large share of TV subscribers who will also subscribe to one or more OTT platforms or procure content piecemeal. The next segment will be TV customers who will only watch free digital content. Finally, at the bottom of the pyramid, are free customers who will not pay and can only be monetized through advertising.

Strategies to serve these segments vary. Across the media industry’s three pillars of escapism, knowledge dissemination and provision of social acceptance, media companies will need to create different products for each segment.

Strategies may include providing exclusive content to premium subscribers, with or without aggregated content, to enable a width of offerings. Meanwhile, mass and free customers can provide a large subscriber base, but monetization will only be enabled through advertising. This model requires scale to succeed.

On the news and knowledge front, almost all news is free, whether linear or digital, and that is unlikely to change significantly. News is being used by OTT players to increase the frequency of visits to their apps (news apps and websites receive many multiples the number of visits relative to entertainment apps).

But the game changer and most disruptive innovations will come from interactivity with customers. Through smartphones, content platforms can create immersive “play along” experiences with reality TV, “vote and be counted” involvement, “guess what happens next” challenges and much more around episodic content and events, particularly sports.

We believe this new segmentation will drive a more focused approach to the creation of quality content, and as the inevitable shift takes place to data-driven decision making, the customer will truly benefit.

Escapism News Social acceptance

Cordcutters

Premium pay TV +

tactical digital users

Pay TV subscribers + free digital consumers

Free subscribers

Social interaction

TV play along

Content gamification

News for career develop-ment and communities of interest to drive engagement

General news to boost visits and time spent

Premium exclusive content for SVoD and TVoD

Aggregated �ad-supported content

The new market segmentation42

42. EY analysis


What’s next?

M&E companies preparing today for the video experience of the future should ask the following questions:

• Which future video trends will have the greatest impact on my company?

• Do I have the systems, processes and organizational structure to meet these trends head on? Have I thought through the supply chain, customer experience and data needs?

• How will these trends disrupt my well-established business models for ad-supported, subscription and transactional content monetization?

• What will I need to do to adapt my strategies to prepare for a video consumption future different to the one employed by the industry for decades?

• How do I reimagine a viewing experience where screens complement, rather than compete against, one another?

• What tools or technologies do I need to measure engagement in an omni-platform, multi-screen environment?

• How do I measure and monetize bingeing? How do I use it to boost the value I can deliver to advertisers?

• What is my risk tolerance and investment boundaries when it comes to creative innovation?



EY’s M&E advisory services

Our M&E PracticeEY has a dedicated media & entertainment practice across Africa, India & the Middle East (AIM) region with over 100 experienced resources. We work with clients across television, film, print, radio, digital, events, advertising and out-of-home.

Strategic

• Business plans

• Market studies

• New technology diligence and assessment

Performance improvement

• Robotics and automation

• Business dashboards

• Cost reduction

• Ad sales efficiency

• Content procurement efficiency

• Distribution efficiency

Operational services

• Internal audit

• Process documentation

• Risk Management

• Compliance Management

Technology

• Security reviews and ongoing monitoring

• Media application design and implementation

• Controls strengthening

Human capital

• Staffing for the future media organisation

• Right sizing

• Organisation structure development

Marketing spend

• Event conceptualization

• Event process validation

• Marketing spend audits

• Interactivity with consumers

Our services include:


Contact details

Ahmed Reda MENA Sector Leader Telecom, Media & Technology E: [email protected]

Michael Hasbani Partner MENA Advisory E: [email protected]

Sameh Taher Partner MENA Financial Accounting Advisory E: [email protected]

Anil Menon Partner MENA Transactions Advisory E: [email protected]

Nitesh Jain Partner MENA Tax Advisory E: [email protected]

Ashish Pherwani Partner Media & Entertainment Advisory E: [email protected]

Amit Sachdeva Partner and Advisory Leader Technology, Media, Telecom, MENA Advisory E: [email protected]

Nripendra Singh Director Media & Entertainment Performance improvement E: [email protected]

Report acknowledgements:

• Radhika Pradhan, Senior manager

• Aditya Lahiri, Senior consultant

• Tanmay Mathur, Senior associate

For any comments or queries, please contact:

Radhika Pradhan T: +91 22 6192 3386 E: [email protected]

Maya Sawaya T: +971 566869571 E: [email protected]

Creative team: Yashaswita Gawade, Allan James


Glossary

Term DefinitionAPAC Asia Pacific

ARPU Average revenue per user

AVoD Advertising video-on-demand

CAGR Compound annual growth rate

FAANG An acronym for the companies Facebook, Apple, Amazon, Netflix and Google

FTA Free-to-air

IPTV Internet protocol television delivers content over the internet, in contrast to traditional terrestrial, satellite and cable television delivery methods

KSA Kingdom of Saudi Arabia

LATAM Latin America

M&E Media and entertainment

MENA Middle East and North Africa

OTT Over-the-top media distribution across the internet, directly to end-consumers

RoI Return on investment

SVoD Subscription video-on-demand

TVoD Transactional video-on-demand

US$ US dollar

Y-o-Y Year-on-year

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

The MENA practice of EY has been operating in the region since 1923. For more than 90 years, we have grown to more than 6,000 people united across 20 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region.

© 2018 EYGM Limited. All Rights Reserved.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

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