As with other regions of the world, consumers in the Asia-Pacific region are increasing the amount of hours that are spent online via those various connected devices, content consumption patterns are starting to change, giving wings to a surge of cloud-enabled, over-the-top (OTT) content and video on demand (VOD). That puts conventional service providers into a transition mode, with fresh challenges to face—but also buckets of opportunity to dip into.

In Asia-Pacific, the region is marked by high media consumption, actually surpassing Europe and western markets, especially via mobile devices. According to a Nielsen report on the changing Asian media landscape, Asian markets rank amongst the top globally for media consumption with four of the top five nations for home TV and online video usage located in the region. Asian countries also took all five spots when it comes to mobile video usage.

Multiscreen usage is soaring, with online consumers in region taking to watching video content on digital screens as well as televisions in equal amounts. In 2012, 83 percent of consumers were watching video content on a TV and 84 percent of consumers in the region on their computer. Mobile phones are also a device of choice for watching video content for 74 percent of consumers in the region. The majority are using their mobile devices for that purpose once per month, Nielsen said, but many are also reporting that they watch video content through their mobiles on a daily basis.

Then there’s the smart TV phenomenon. Last year, 46 percent of all televisions in Japan that were shipped had Internet capabilities; and indeed, Japan had the highest penetration rate with 36 percent, followed by China with 30 percent.

The region is taking a piece of a global pie that is only set to grow. According to Strategy Analytics (News - Alert), the global number of connected TV devices is set to grow from an average of just 0.5 per household last year to one per household by 2017, meaning that the market will grow at a 20 percent CAGR from 2012 to 2017 for these devices.

"Although AV devices have become increasingly overlooked by consumers in favor of infotainment devices such as smartphones and tablets, the integration of IP connectivity is breathing new life into the sector and creating new opportunities for vendors," said Eric Smith, an analyst at the firm. "We see sustained growth in connected models of flat-panel TVs, set-top boxes, DVRs, digital media adapters (i.e. Apple (News - Alert) TV, Google Chromecast, Sky NOW TV), and Blu-ray players. And although ownership of games consoles is expected to shrink from current highs as gaming becomes more casual and increasingly mobile, these powerful devices will continue to act as important multimedia hubs in the living room."

Analysys Mason meanwhile expects that mobile services will exceed 100 percent penetration of the population in the emerging Asia–Pacific telecoms market for the first time by 2018. The firm expects the region to account for 4 billion mobile connections – almost half of the worldwide total. However, important for service providers, it will be growth in services such as data services driven by smartphones that will be critical to driving revenue to $347 billion by 2018.

Evolving VOD and OTT Models

OTT and connected CE devices are tightly wedded, and one sector drives another—an important strategic point for service providers to consider as they craft their service packages for the digital age.

Wireless operators have managed to marry devices, apps, content and network services effectively and have big opportunities going forward.

Convergence (News - Alert) between access to and control of media consumption has narrowed and the shift to digital and OTT distribution is accelerating, as mobile Internet and cloud based services grow in sophistication and popularity. With the traditional terrestrial distribution model now one of many, revenue and subscription models are being adapted and developed by content providers to ensure they stay on top of the technology wave.

“The dynamics around revenue generation continue to change and currently vary by region, for example, subscriptions are more significant in North America than Europe or Asia-Pacific,” said ABI research analyst Michael Inouye. “In time, however, we expect a greater diffusion of revenue across the various business models. For instance, in 2012 58 percent of OTT video revenue came from subscription services, but we anticipate this share to fall to less than 32 percent by 2018. In large part this is driven by a continual shift in consumer demand towards newer forms of digital content distribution.”

Of significant interest to content and OTT service providers is the way in which technology changes are driving the options consumers will have for viewing content in the future. Visible elements of this include Netflix and others expanding to international markets and the growth in catch-up service offerings.

Signs of Change

Shot Tower Capital, a boutique investment banking firm which publishes research papers on the OTT and media markets, also believes that consumers are moving more towards models that give them greater control over consumption choice on all levels. Terrestrial TV viewing is down, while usage of Spotify (News - Alert), Deezer ad You Tube, all of which can be accessed via OTT channels, continues to rise.

For channel providers to the OTT market such as Peer TV, these developments are significant, as they suggest take up of their platforms should rise quickly, once the tipping point is reached. “Currently, the market for OTT solutions is developing quickly, but it is too early to say what the market will look like in 10 years,” said AviVermus, CEO at Peer TV, which was one of the first companies in the market to launch an Android (News - Alert) based set top box, the eTV.

The eTV enables broadcast content to be distributed via the Internet and downloaded directly onto a normal TV screen. Vermus added, “What we can say though, is that usage of OTT is growing quickly, with time shifted viewing being particularly popular as a driver of the market. We are also seeing big changes in the way consumers view TV – preformatted channel line ups will be less important in the future, as consumers focus on the content they want to watch, on demand and drawn from a range of providers, which could include traditional broadcasters and Internet-only players such as Netflix and Amazon.”

Traditional service providers do indeed have opportunities that are starting to foment, as some companies are diving into the fray early with a specific eye towards Asia-Pacific and its unique profile.  Inview for instance has launched a low-cost smart TV ecosystem with OTT functionality into the Asian market. The solution, dubbed the Liberator, combines cloud delivery of OTT services with lightweight software that can be deployed on a wide range of hardware platforms. Inview says it is completely scalable without incurring additional cost - from basic set-top box (STB) functionality to advanced DVR.

As well as a core of cloud OTT services, including VOD, social media and a ready-to-go apps library, Liberator has a user interface (UI) and back office management system that can be completely customized. This allows for user profiling and recommended content functionality, which can help the operator introduce targeted advertising. Multiscreen functionality within the solution will be demonstrated at the event, bringing a unified viewing experience for users across all platforms.

“Internet speeds across various parts of Asia can have inconsistent speeds and reach,” said Julie Austin, CEO of Inview Solutions. “Coupled with this, consumer spend is often low. Having recognized the needs of Asian operators to address these issues, we are excited to provide them with the ability to launch a low-cost STB service that can easily be upgraded into a more sophisticated OTT offering.”

Meanwhile, SPB TV, a provider of technology solutions for mobile, IP and OTT TV, is leveraging its technology for OTT/IP TV service monetization in Asia through targeted ads. Its technology for in-stream ad replacement by accurately targeted commercials on all screens is unnoticeable for viewers and tracked by the monitoring server, allowing the advertiser to improve the ad campaign’s efficiency at any point.

“TV advertisements are, on the one hand very traditional, and on the other hand the most innovative monetization tool for a TV service,” said Kirill Philippov, CEO of SPB TV. “With our own experience, we have proven that it can be an effective support to monetization through subscription, and also might become a sufficient way to run your TV at a great profit.”

And, satellite distribution services provider GlobeCast has launched an OTT “Incubator Platform” in Asia, which provides a suite of services for broadcasters looking to reach customers in the region.

The platform’s goal is to help broadcasters gain visibility and secure carriage agreements with Asian pay-TV platforms.

Available on iOS and Android tablets and smartphones, the Incubator Platform is designed for broadcasters who do not have a presence in the region. GlobeCast says it eliminates the need for such broadcasters to make costly investments in regional playout and satellite distribution before gaining carriage agreements in Asia — an investment that is not sustainable for many niche mid-tier channels that would typically have to withdraw from the region after a few months.

The bottom line? The potential for telcos in emerging markets to prosper from OTT and VOD services is strong as long as they address content, technology, partnerships, payments and regulations.

Pyramid Research noted that there is growing interest among content owners in expanding presence beyond mature markets and partnering with OTT providers and conventional ISPs and telcos. That’s because the increasing saturation and concentration of content rights in developed markets is pushing global content providers to look for new opportunities to license their products, on traditional as well as on OTT platforms. Pyramid added that contrary to received wisdom, legacy broadband infrastructure was not necessarily a strain to OTT video growth, suggesting that telcos are in a position not only to cope with the growth of third-party OTT, but also to launch their own services.

"In emerging markets [like Asia-Pacific], the OTT model is enabling telcos, pay-TV providers and media companies to respond to the demand for video streaming services on multiple viewing platforms, from laptops and mobile phones to the latest connected devices," said Daniele Tricarico, analyst at the firm.