NEW YORK: Mansha Daswani explores how OTT platforms are reshaping the landscape in Asia.

Pay television arrived in Asia in the mid-’90s and, in the two decades since then, has extended its reach to about 500 million subscribers across the region. Over-the-top (OTT) platforms have been in operation for just a few years and, according to one estimate, had 594 million active customers last year.

That figure, from Media Partners Asia (MPA), is expected to rise to almost 1 billion OTT customers across the Asia Pacific by 2020. The Hong Kong- and Singapore-based consultancy released that data in its Asia Pacific Online Video Distribution 2015 report in January, and the industry’s developments since then have been rapid and significant.

Of note, Netflix arrived in Australia and Japan, then announced 2016 launches for Hong Kong, Singapore, Taiwan and South Korea. Two pan-regional platforms—HOOQ and iflix—were unveiled and are now up and running. Pay-TV channel behemoth FOX International Channels (FIC) announced a slew of deals with OTT platforms. A stand-alone HBO GO went live in Hong Kong. In India, hotstar is seeing unprecedented usage. And OTT video views in China continue to surge, despite the implementation of new content restrictions.

China is the overriding OTT story in Asia today, with staggering numbers. At present, the nation accounts for 85 percent of the region’s overall OTT base, MPA reports; in five years’ time it will still have a commanding lead of 80 percent.

“In China, you’ve had this traditional television ecosystem that had been highly regulated,” says Vivek Couto, MPA’s executive director. “And then you have this pay-TV ecosystem that has also been regulated and hasn’t really developed in terms of a subscription model. While those industries were having their issues, you had this parallel [OTT] ecosystem that developed.”

Couto values China’s OTT industry at about $2.5 billion. There are a lot of platforms, and they’re all making aggressive content plays.

“One of the best deals we’ve done is our multiyear volume agreement with Youku in China,” says Ganesh Rajaram, executive VP for sales and distribution in Asia at FremantleMedia International. “Youku is very aggressive in the OTT space in China, and they value the genre of product we bring to the market. We’re seeing really good numbers in terms of traffic coming in to watch the programs.”

Rajaram says the partnership with Youku has been “very symbiotic. It will hopefully be the model that other standalone OTT platforms across the region will try to emulate.”

Youku and sister platform Tudou are not only major buyers of finished content, they are also investing heavily in originals, including locally developed IP and Chinese versions of imported formats, among them Big Brother and The Voice Kids. Earlier this year, Youku Tudou announced the creation of a new business unit solely dedicated to original dramas and web-native content. “We’re well poised to rapidly ramp up our content creation, accelerate our revenue growth and diversification, and fully capitalize on the opportunities that the converging online and off­line worlds bring us,” Youku Tudou’s chairman and CEO, Victor Koo, said in announcing the new division.

PLETHORA OF PLATFORMS

Youku Tudou, of course, is not the only game in town in China’s crowded OTT space. Tencent has been licensing a host of content from across the globe, recently inking a deal with South Korea’s CJ E&M to stream New Journey to the West simultaneously with its original run in its home market. Tencent also has an exclusive partnership for HBO content and a deal with FIC for programming from the FOX and National Geographic brands. Most recently, it sealed a landmark deal with Disney for the exclusive TVOD and SVOD rights to all six Star Wars movies. The platform iQIYI, owned by search-engine giant Baidu, set aside a 50 million RMB ($8.1 million) production budget for originals in 2015. Even smaller platforms such as Sohu are making headlines; this March it said it was preparing a local edition of Saturday Night Live.

So where is the money to support these content initiatives coming from? It is almost entirely advertiser-driven. “Advertising is a sizable market,” Youku Tudou’s Koo told TV AsiaPac earlier this year. However, “on the consumer side, the subscription business has been growing very strongly. Partly it’s because of the anti-piracy initiatives by the government. There were always two problems in trying to build a Netflix-type model in China: one was the payment issue and one was the piracy issue. What we’re seeing is that payments via mobile have improved considerably. Piracy was quite a problem. It’s not gone away, but I think there are efforts to address that now.”

In June, iQIYI said it had reached the 5-million-subscriber mark, thanks in large part to its slate of premium movies. In 2014, the platform had the rights to more than 60 percent of movies theatrically released in China and 80 percent of titles that topped 100 million RMB ($16 million) at the box office.

“Most of iQIYI’s users were born after the 1980s and understand the value of content,” Xianghua Yang, the senior VP of iQIYI, said at the time. “With 5 million paid members, iQIYI is the industry leader in terms of paid subscribers. However, this is still a small portion of our over 500 million users, and we expect that the future conversion rate to paid members could be substantial.”

The biggest complication for China OTT in 2015 was the implementation of new regulations by the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT). As of this year, imported content must be limited to 30 percent of the total volume of hours on a platform. And SAPPRFT screens said imported content. The first foreign series approved by the regulator was the Korean romantic comedy Hyde, Jekyll, Me, which began streaming on Youku in July.

Asked about the new rules, Koo told TV AsiaPac, “Like all companies, you have to abide by the local government regulations. It is a part of doing business in China. Since the very beginning, as we started as a video-sharing platform, we’ve had a lot of content monitoring and systems and procedures in place, whether through technology or by a team of people. It’s an area that makes us partner- and advertiser-friendly as well. We see it as an important part of our business.”

The effect these new regulations will have on all those programming deals done between Chinese platforms and international content providers remains to be seen.

GLOBAL PLAYERS

Netflix is also in the watch-this-space category in China. In January of this year, the streaming platform announced it aims to complete its global rollout to 200 markets by 2017. Netflix is looking to tie up with a local Chinese partner to enter this already crowded and notoriously impenetrable country as part of its global ambitions.

Up until this year, the streaming platform had been quiet about Asia, focusing its expansion efforts in Latin America and Europe. Its first Asia-Pacific move came with the March launches in New Zealand and Australia, where it has quickly taken on incumbents Stan and Presto.

Next up for Netflix was Japan, where it rolled out in September. Its arrival there makes for an interesting case study for OTT’s prospects in the region—and the role international companies will play in this space.

BIG IN JAPAN

For its Japanese debut, Netflix aligned with local conglomerate SoftBank. As part of the deal, SoftBank customers will be able to sign up for Netflix at SoftBank stores, as well as through the company’s website and call centers. The Netflix fee will then be added to the customer’s regular SoftBank bill.

Netflix arrives in the market after Hulu; the joint venture of 21st Century Fox, Disney and NBCUniversal had a considerable head start, rolling out its subscription offering in Japan in 2011. Three years later, Hulu sold its local operation to Nippon TV. Benefiting from the free-TV reach of its parent company, Hulu Japan reached 1 million subscribers earlier this year.

“What is unique about the Japanese market is that terrestrial is still very strong,” says Kazufumi Nagasawa, chief content officer at HJ Holdings, the Nippon TV subsidiary that runs Hulu in Japan. “Nippon TV is the number one network and still gaining in the ratings. We are 100-percent owned by Nippon TV. We are in a good position to differentiate ourselves, as only we can cross-promote between terrestrial and SVOD.”

In a market as insular as Japan is on the programming front, local content is a key element for Hulu. Upon reaching its million-subscriber milestone, the platform knew “it was time for us to start original programming,” Nagasawa says. To that end, Hulu Japan ordered its first drama series, adapting the German hit The Last Cop.

Netflix, too, is stocking its service with Japanese content. Ahead of its launch, it announced a partnership with Fuji Television Network for two productions: a new season of Terrace House and the drama serial Atelier. Both shows will air first on Netflix and will then be available on Fuji TV On Demand and broadcast TV. Separately, it is also adapting the novel Hibana by Naoki Matayoshi.

“We feel that Japanese content is paramount in order for all of Japan to enjoy our service,” said Greg Peters, the president of Netflix Japan, at a press conference announcing the Fuji alliance.

The other major market where OTT is developing at a rapid clip is India, with two primary platforms backed by the largest pay-TV companies in the country: STAR and Zee Entertainment Enterprises. Each has taken a very different approach. STAR opted for the ad-supported route for its on-demand service, hotstar. Its numbers have been significant; streaming the ICC Cricket World Cup this summer, hotstar logged 340 million views. Zee charges a subscription fee for its DittoTV platform. As of this year, it has a reported 1.8 million customers.

Netflix is said to be readying a 2016 rollout in India, where other key players include Eros Now, backed by film studio Eros, and HOOQ, a platform owned by Singtel, Warner Bros. and Sony Pictures Television that is gearing up for an Indian launch.

“India is critical for us,” says HOOQ CEO Peter Bithos. “It’s unbelievable how fast that market is evolving. We believe our mix of local and Hollywood content is truly differentiated. We think we have a fantastic opportunity to get into the Indian market quickly with a value proposition that appeals to people who love movies and quality stories. We’re not going to be the mass-market premium model with a cricket offering. But with 1.1 billion people, there are a lot of movie lovers out there!”

REGIONAL REACH

HOOQ is one of two platforms battling it out in the Southeast-Asian arena. It began operations in the Philippines earlier this year. Other primary markets for HOOQ include Indonesia and Thailand, a similar footprint to that being targeted by iflix, which has been busy licensing a host of imported content, doing deals with the likes of Twentieth Century Fox, BBC Worldwide, Warner Bros., Disney and Starz, as well as providers in Korea and Malaysia.

“The big opportunity is to really be a first mover in Southeast Asia and emerging markets worldwide,” says Azran Osman-Rani, CEO of iflix Malaysia and COO of the iflix Group, about the new platform’s aspirations.

“While the business model is already established in developed markets, especially in the U.S., the challenges of emerging markets are unique and require an adaptation of that business model,” Osman-Rani says. “First of all, Southeast Asia specifically and emerging markets generally tend to be much more mobile-centric. In developed markets, people have super-high-speed broadband connections, they’re watching ultra HD on big-screen sets at home. In Asia, for most consumers, the small [mobile] screen is their primary, in many cases only, screen. That becomes the primary way of consuming content. Bandwidth—while it is rapidly growing and certainly gives us the confidence that the time is right to [launch iflix] now—is also quite variable in quality across the region. Even within a particular network it varies. So we’ve got to come up with technologies like adaptive bit-rate streaming that can optimize the resolution quality to suit the bandwidth speeds that go up and down.”

The other complication for OTT platforms in emerging markets is payment methods, Osman-Rani says. “In developed markets, people are very comfortable with credit cards and [using them online]. That’s not the case here. Even in Malaysia, where there might be 30-percent credit-card penetration, barely half of those users are comfortable using credit cards online. In markets like the Philippines, Indonesia and Thailand, it’s even less in percentage terms. So you have to think about billing and payment in a way that is more suited to these markets.”

Taking those issues into account, iflix has launched in Malaysia, the Philippines and Thailand. Aligning with key telco partners in those markets has been central to the iflix strategy. “Going forward, in terms of which markets we go in, it’ll be those where we can get the fastest alignment with the local telco operator.”

Pricing has also been an important consideration, Osman-Rani adds. “Pricing in emerging markets is very sensitive. The difference between a $2.50 proposition and a $20 proposition is massive in terms of the number of people who can afford that price point. To make the economics work at a $2.50 to $3 price point, you need scale. You cannot make this work within one market. For us to deliver economic sustainability for our investors, we’ve got to be able to say we can get to more than 20 million subscribers over 20 different markets across the emerging market landscape. That includes Southeast Asia, South Asia, the Middle East, Africa, etc.”

MPA data estimates that HOOQ and iflix have some 150,000 subscribers at present.

PAY TV STRIKES BACK

HOOQ and iflix are primarily targeting those customers outside of the existing pay-TV ecosystem; they are not yet luring subscribers away from pricier packages on traditional platforms. But that doesn’t mean that Asia’s cable, satellite and IPTV incumbents are resting on their laurels. Malaysia’s Astro is enhancing its popular TV Everywhere service, Astro on the Go. PCCW Media, owner of the nowTV platform in Hong Kong, has acquired a majority stake in the mobile on-demand video platform Vuclip, which is active in India, Indonesia, Malaysia and Thailand, as well as the United Arab Emirates.

“Vuclip and PCCW Media will develop a best-of-breed OTT platform that provides immediate access to PCCW Media’s premium Asian content set (including Korean, Japanese and Chinese-language titles) across a much-expanded audience base in the Asian continent and other regions,” Janice Lee, managing director of PCCW Media, said of the acquisition.

Channels, too, are looking at opportunities in the OTT space. Following the successful launch of HBO NOW in the U.S., HBO Asia expanded HBO GO in Hong Kong, allowing non-pay-TV customers to access the premium channel for the first time. A+E Networks launched HISTORY Plus on the 4ME OTT platform in the Philippines. Also in the Philippines, FIC has built on an existing partnership with MediaScape, owner of the Cignal DTH platform.

“When the MediaScape group wanted to get into the OTT space, we were able to launch a bouquet of branded SVOD services [with them], as well as our sports channel,” says Rohit D’Silva, FIC’s executive VP for commercial and sports in the Asia Pacific and the Middle East.

“One of the things that helps us move a little faster is that there’s an opportunity in the OTT space to work with existing affiliates, as well as new ones,” D’Silva continues. “We are doing something with Samsung in the Philippines, we are working with Avex in Japan and Tencent in China. Avex is streaming our FOX channel in Japan and [offers] all the catch-up we have associated with that channel. We don’t look at an opportunity with a one-size-fits-all approach. There could be places where there’s real value in approaching it in the way we’ve done with Avex. There could be certain market dynamics where the provider is only offering a TVOD service and we have the ability to sell them some content on a syndication basis. We need to be flexible and collaborative, and at the same time, we have to keep the core elements of what we want to do with our brands.”

RIGHTS MATTER

The size of its portfolio and its slate of owned content have also been beneficial to FIC in its OTT strategy. “If you are only in one or two genres, the challenges are greater,” D’Silva says. “We have a significant amount of SVOD product for National Geographic, we have our FIC original productions, and we’ve cleared a lot of rights over and above that so we can offer SVOD. In Southeast Asia, we have TVOD rights to a lot of Chinese movies, and we have the SVOD rights.”

As the battle for rights intensifies, companies like FremantleMedia International are finding plenty of new opportunities to place a varied slate of products. “The whole OTT explosion has been a boon for us,” Rajaram says. In addition to the volume agreement with Youku, the company has made package deals with the likes of Toggle in Singapore and TonTon in Malaysia, as well as with telco companies in Korea that have launched OTT services. He says deals with pan-regional players are possible but present a different set of considerations, especially when it comes to exclusive versus non-exclusive rights.

“When you have a reality program with a winner, its shelf life is very short,” Rajaram says. “We have shows where non-exclusivity is the norm, as it is with most digital VOD deals, but there are certain premium shows we have where people pay a little more for exclusivity. So there’s always this debate over which platform is going to be best for the show. It’s not one rule for everyone.”

Rajaram says that 30 to 40 percent of his revenues in Asia now come from digital platforms. “We’re doing a lot more deals now,” he says. “It’s not necessarily a lot more money, but the point is that you’re getting so many more viewers. Content we represent will be seen by so many more eyeballs now than it was five or six years ago.”