The Paradox of Quality and Cost for OTT Businesses

It has only been a couple years since Over-The-Top (OTT) video delivery became a household acronym for live and on-demand video. Since then numerous businesses around the world have popped up (and gone under) to bring video to consumers.

Pure-play OTT portals, such as Netflix, HULU, and Crackle, focus on delivering broad or specialty content to large audiences. Many of the business models – while initially free – now offer “all you can watch” packages for a low, fixed monthly price.

We’ve made tremendous progress in improving internet connectivity speeds in recent years. Not so long ago, 10 Mbps at home was unheard of whereas today subscribers to cable internet services can easily get 100 Mbps or even up to 1 Gbps. This will continue as the cost of bandwidth and access declines. OTT providers welcome these improvements to reliably deliver their content across the internet.

However, large telecom operators, like AT&T, U-Verse and others, operate a dual network: one part of their network is “managed” and can be used for very high quality IP video delivery, and the other part of the network is “unmanaged” or “best-effort.” These providers typically do not offer original content outside of their managed network (such as on mobile devices), leaving OTT companies to leverage the un-managed, best-effort part of the network for their video services.

As the name suggests, it is best-effort; there’s no guarantee of up-time, performance or overall reach. Thousands of OTT services are therefore delivering content to a myriad of devices over a public internet connection that they do not “manage” or control. They make content available and provide a portal. From that point on, it’s fingers-crossed.

Consumers meanwhile have traditionally enjoyed content from cable and/or satellite television, which is super reliable, always on, and offers solid quality. Many are not aware that to deliver the same level of reliability, content providers go to great lengths to optimize video compression, leverage adaptive bit-rate technologies and turn to so-called content delivery networks (CDN). These CDNs aim to deliver content as close to the end-user as possible to the eliminate latency and packet-loss that impact bandwidth throughput and buffering on the last mile.

Content owners pay CDNs either on total bandwidth or consumption (measured in Gigabytes per month). Ironically, as the demand for quality from the consumer increases, so does the load on the CDN and so does the bill for the publisher. A consumer watching HD content (let’s assume 3,000 Kbps) for 1.5 hours per day consumes approximately 60 Gigabytes per month. If the same user watches for 3 hours per day at HD quality, he now consumes 120 Gigabytes per month. If the same user watches 1080p at 6,000 Kbps, the consumption doubles again. So there is a direct correlation between the number of viewers, quality (bitrate) consumed and viewing time.

While this sounds like the right business to be in for a content delivery network (which charges more for increases in consumption), the content owner is typically not able to charge more or monetize more for the same content delivered. Sure, you can have a 4K pricing differential, but 4K video is typically consumed at 12-15 Mbps, and it is highly doubtful that the content owner is able to charge 3-4 times the price merely for content offered in 4K instead of HD.

CDN charges Gbps OTT cost versus quality
Traditional CDNs charge a per Gb model that penalizes broadcasters for growing audiences and higher bitrates.

So paradoxically, the consumers – who are typically price-sensitive – demand high quality video (they’re used to TV image quality), yet the content owner is penalized for offering higher quality as every increase in consumption (time and/or quality) immediately leads to a higher bill. The issue is exacerbated by the trend towards 4K, 5K and virtual reality. It is a constant evaluation and tradeoff between quality, cost and customer satisfaction.

The Internet, in all its glory, capability and tremendous capacity, has traditionally not been a medium that can scale affordably to TV-sized audiences around the world without either having to compromise on picture quality (bitrate) or play-back quality (playback consistency, elimination of buffering and re-buffering). This leaves content providers with quite a conundrum.

Until now?  

Streamroot’s hybrid CDN approach finally offers broadcasters an easy-to-implement technology that breaks the correlation between viewer behavior and the cost of delivery.

Streamroot's flat rate pricing model OTT cost versus quality
Streamroot’s flat rate pricing model allows broadcasters to scale profitably.

While it is not a one-size-fits-all approach, it comes much closer than traditional CDNs to providing a highly reliable distribution platform with a business model that mimics satellite or cable-tv infrastructure. Using fixed fees, Streamroot no longer forces broadcasters to choose between offering higher quality and running a profitable business. In fact, it stimulates them to offer higher quality as there is no additional cost. And as we well know, an increase in video quality can ultimately lead to more engagement, higher consumption of premium content and overall customer satisfaction. And of course, to improving the bottom line.



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