OTT providers must face up to network costs

The cost of providing over-the-top television services would rise to uncompetitive levels once scaled to meet the demands of large viewing audiences.

IHS Screen Digest has warned that OTT providers such as Netflix and Lovefilm would have to change their business models, perhaps even investing in their own video content distribution infrastructure of the kind deployed by the pay-TV operators they are already fighting for eyeballs.

In a new report IHS says that in doing so, the OTTs risk seeing their price advantage, as compared to cable, satellite and IPTV operations, evaporate and potentially reverse.

“To serve the viewing needs of a mass-market audience, the content delivery network (CDN) costs for OTT streaming services would have to fall by a factor of as much as 25,000 just to reach parity with the most efficient broadcast technologies,” said Guy Bisson, research director for television at IHS. “At current prices, it would cost €1.2 billion in CDN costs alone for OTT unicast streaming to serve the population of the United Kingdom with the kind of high definition (HD) viewing they are accustomed to. For the same price, 5,000 linear channels could be broadcast, nearly 10 times the number actually serving the UK today. When OTT unicast streaming services like Netflix are scaled up to suit the mass-audience television market, their advantages in cost, flexibility and technology turn into disadvantages.”

While the cost per hour for satellite delivery remains stable throughout, Bisson says the cost of providing video at standard definition over a CDN exceeds satellite at an audience of just 8,000.

“Even at just 8,000 simultaneous views, unicast streaming becomes less cost effective than broadcast—and this is a tiny amount compared to a typical primetime audience for linear TV.”

IHS suggests that rather than build out a full CDN, OTTs could instead use edge servers for localised content storage.