Eastern Europe: OTT's Final Frontier?
Even as Netflix and Amazon steamroll into new markets around the world, snapping up new subscribers and disrupting established TV markets, there is one region that seems largely unperturbed by the threat from OTT. Unlike most other regions, both operators and broadcasters in central and eastern Europe appear unfazed by the impact of OTT services.
This was probably the most significant take-away from the Digital TV Central & Eastern Europe event last week. Many of the speakers and attendees I spoke with felt that global OTT giants would struggle in the region, because it presented unique challenges for their approach.
For one, price is a challenge. Western European and North American audiences see $10 or equivalent price points as fairly low, but in this region they are seen as high. According to Andrey Kolodyuk, founder of Russian-language streaming service Divan.TV, the right price point for the region is in the $3 to $5 range.
Nikola Francetic, head of group content, media and broadcasting at Telekom Austria Group, pointed out that triple-play bundles in eastern Europe were priced at about $20 per month, so a $10 price point just for Netflix was difficult to justify.
He also said that the content options were not great in the region, sharing his experience travelling from Vienna to Zagreb, and finding that his Netflix library reduced dramatically.
Language is another problem. "These are small countries," said Francetic, "and there is a language barrier. The English speaking audience in these countries is limited."
Netflix's Hollywood library and original content is largely useless for the mass market in this region. Subtitles work in some countries, but in others you need to dub entire series. This adds time and cost to the final product. And even then, local content scores higher.
Kolodyuk listed the most popular shows in the region, and they were all local versions of popular studio shows, such as X-Factor, The Voice, Dancing with the Stars and Ukraine Has Talent.
Netflix has a multi-billion-dollar budget for original programming, and the international market is increasingly important for the OTT giant. But Irina Gofman, group president and CEO at Viasat World, questions the viability of creating original programming for some of these markets.
"[These] markets are not sizeable enough to justify local content production, and the free-to-air channels provide enough content," according to her. Instead she is looking for ways to "localize" content. "You can offer the History Channel, for example," she said. "But it can't be American history, it has to be European history."
She also recommends targeting markets that are similar culturally, using subtitles to overcome the language barrier. For example, she is looking at expanding a Russian-language service to Bulgaria and Romania.
The lack of local content has held back the adoption of OTT services to date. Netflix is in less than 1% of Croatian homes, according to Richard Breskovic, marketing director at Hrvatski Telekom (the DT-owned Croatian incumbent). And it was in about 2% of Lithuanian homes at the end of last year, according to Laima Zivatkauskaite, vice-president at INIT, Lithuania's third-largest pay-TV provider.
"OTT is not very effective in Lithuania," says Zivatkauskaite. "Netflix doesn't work, you need local content."
What does work in the region, then? "Piracy", says Zivatkauskaite, only partly joking. "And free content."
Her concerns about piracy were shared by Francetic and Kolodyuk as well as others. They all cited illegal video sharing as an important aspect of the regional video services market. Interestingly, advertising-sponsored OTT services have not really had much impact in the region. That's been an effective strategy for PCCW-owned OTT service Viu, which addressed high levels of piracy and low willingness to spend in its Asian markets by offering a free basic tier with advertising.
According to Michal Stefanski, global partner manager at Google, CEE accounts for just $400 million of EMEA's $6.5 billion ad spend. And with 44% of EMEA advertising set to be programmatically sold by 2020, setting up a complex ad sales division may not be necessary.
But awareness of SVoD services is much higher in Asia, as are population sizes per country and per language. Most operators cited the low awareness of OTT in the region as another barrier to adoption.
For the more established media companies, such as broadcasters and pay-TV providers, there are important positives here. They have more time to develop strategies to take on OTT and retain subscribers than in other parts of the world. And several speakers outlined the game plan they thought would be most effective.
Firstly, getting access to local content was critical. Local broadcasters are the best source, and partnerships between broadcasters and local pay-TV providers would be beneficial to both. Streaming video services should be bundled with broadband and pay-TV, and delivered across device platforms rather than as a standalone service, and prices should be kept as low as possible.
International content is a "nice-to-have," but needs to be selected keeping local culture in mind. Content from a neighboring country might resonate far more than from Hollywood, even if it's a big-budget movie. And it needs to be "localized" -- subtitled or dubbed.
The service should include both VoD/catch-up and linear content and providers need to invest in an excellent user interface. Personalization, recommendations and so on will be very important to guide viewers less familiar with digital interfaces and navigation features.
Awareness of SVoD is low, and so free trial periods to encourage trial of the service should be utilized. And lastly, providers should look for ad-sponsored free tiers that they can offer to drive audiences with low discretionary income amid high regional piracy.
Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation