Deng Shao: Analysis of the overall situation and new business forms of the OTT industry in 2015

In 2015, OTT continued to move in the same direction, but in a different way. The original relatively chaotic industry, which put terminals first and licenses aside, did not seek revenue but only sought disruption, began to gradually evolve into a relatively orderly industry structure dominated by licenses, with content being the most important, and seeking both scale and revenue. In the context of the full penetration of the Internet in the industry, OTT has gradually developed from the TV Internet to the larger market of the home Internet.

The competition this year is still fierce, but it has turned from hand-to-hand combat to covert warfare. It is no longer a simple individual battle of price and concept, but a group competition of strength and foundation. Behind every enterprise standing on the front line is a complex system supporting it. Among them, licensees, Internet companies and terminals are interdependent, forming a diversified situation in 2015 with both deep alliances and multi-to-multi cooperation, which adds more variables to the market in 2015.

1. Opportunities under the overall industrial pattern of three-network integration

In a sense, 2015 may be the real first year of the Internet in China. Since Premier Li Keqiang proposed the term "Internet +" at the two sessions, this year will surely usher in a broader Internet wave, both from a political and market perspective. The Internet has begun to penetrate more widely into traditional fields from its original single field. Regardless of how much this penetration is a follow-up, the value of the Internet undoubtedly accounts for a greater proportion in the Premier's 1+1 theory.

Back to the industry we are in, the integration of three networks will usher in new opportunities this year. Under the concept of Internet+, many previously deadlocked situations may be broken, and operators will become an important force that cannot be ignored in the OTT field this year. Whether it is DVBOTT of China Radio and Television, Yueme of China Telecom, or Wojia of China Unicom, the competition is only the ability to leverage each other's momentum.

From a broad industry perspective, four forces will emerge this year:

1. Radio and TV operators: Relying on traditional radio and TV resources, integrating the advantages of the Internet, and building a DVBOTT model for radio and TV. However, in the radio and TV market, due to the uneven capabilities of various regions, a Matthew effect will inevitably form. At the same time, in terms of future needs, the greater appeal of radio and TV innovation lies in the existing users of TV screens. Being able to keep the number of users from declining is the biggest victory. As for the extension of industries based on TV, I am afraid that radio and TV are willing but unable.

2. Telecom operators: Regardless of whether it is called IPTV or OTT, based on the needs of the broadband market, such services will inevitably become their focus, especially under the double squeeze of the increase in basic broadband bandwidth and the increase in market competitors (radio, television, private), their expectations for IPTV OTT will be higher. With the coverage of the future IP world, TV-based services are just an entry point for them. In the future, they will inevitably penetrate multiple services for families, and telecom operators have opportunities here. This is also their expectation for the future.

.3. License Operators: With the support of the General Administration, the license operators have a stronger voice in the industry this year. At the same time, they will form 7 major factions headed by them. Their direction can be seen as 7 major national TV virtual operators. With their existing resources, the TV screen business is their focus. For the future extension of the smart home IoT industry, they are more like gatekeepers of the TV screen entrance. They will gain value, but it is difficult to have a dominant position.

4. Internet companies: In the early stage of the industry, Internet companies will rely more on licensees to occupy the home entrance of television. However, as the industry's dependence on capital increases, the smart home field they have laid out will build their own smart home IoT ecosystem through resource connection in the later stage of the industry.

From the perspective of OTT, it will go through a process of continuous change and evolution, from the entry competition represented by terminal products in the early stage of the industry to the user competition represented by content and the scalable resource competition centered on smart home. Among them, the home Internet of Things, as an important part of the industrial Internet and an extension of OTT, will also gradually start to land from the concept. The current smart home is still in the product stage, but with the improvement of the home network in the future, the product will gradually break the closed system, and a home Internet of Things system will be formed with the TV screen as the display window, the mobile phone as the control entrance, and the home gateway as the core hub. The commercial value brought here will be far greater than the current TV field. Of course, this requires time and technological evolution, but smart TV is the foundation and a necessary part of the process.

II. Challenges in the New OTT Market

After talking about the big picture, let’s return to the new industrial model of OTT.

With the entry of BAT, home appliance companies have returned to manufacturing, licensees have become more vocal, the box market has become more regulated, and content companies have moved behind the scenes. The roles of all parties in the industry have actually undergone a reshuffle.

First: Licensees become the nominal leaders:

The State Administration of Radio, Film and Television has reversed the situation in which the licensees lost their voice in the market, and has given them stronger authority, hoping that they can take on the responsibility of guiding the industry towards the goals expected by the Administration. Indeed, under policy intervention, the status of licensees has risen significantly, and the market has also formed factions headed by them, forming their own spheres of influence.

For a long time to come, licensees will continue to play an indispensable role in the communication between the industry and policies. After being deprived of the power of independent operation in this round of rectification, Internet content service providers have adopted a strategy of deep bundling with licensees in order to maximize their own value, and by borrowing boats to go to sea, they can ensure their basic interests in the most consistent with the current interests. Thus, there are iQiyi + Galaxy; Youku + Guoguang; Sohu + Nanchuan; Alibaba + Wasu; Tencent + Future TV, etc.

However, since there are seven broadcast control licenses, a multi-to-multi license competition situation has been formed in market cooperation, which makes it difficult to build a completely dominant position. Especially when facing partners with a large number of user resources or high-quality content, it is easy to lower the conditions of cooperation in order to gain scale, which may form a vicious cycle of price reduction among licensees, and even the possibility of rent-seeking is not completely eliminated.

As for the current situation of licensees:

The policy advantage of future TV was broken last year, and it will be very difficult to rebuild it this year;

BesTV's structural adjustment and the loss of partners caused by the suspension of services have also made it face the heavy task of rebuilding the industry chain this year. The telecommunications and broadcasting operator markets will be BesTV's focus, and the investment in Gehua is also to gain the right to speak on the cooperative platform so as not to be easily replaced;

The cooperation between Wasu and Alibaba is a double-edged sword. In addition to content, Wasu's focus this year will be on integrating business and resources with the help of capital. Investing in cable TV in various places is a foreshadowing.

Southern Buddhism still gives people a feeling of being in the clouds and fog, while Youpeng continues to move forward in a high-profile manner;

Mango's financing will be its biggest boost this year. The existing content plus capital and channels will provide extremely strong guarantees for its subsequent development.

Whether the various joint ventures planned by GGG in 2014 can be truly implemented this year and play their due value will determine its direction this year;

Galaxy had a strong start in 2015. Whether it can maintain this momentum and balance the market and policy will be its biggest test.

In 2015, license holders will focus on the 2C market as well as the 2B operator market. But the most important thing is that this year they will intensify their exploration of user-paid business.

Second: Deep alliance and many-to-many cooperation among Internet companies

Internet companies were the targets of suppression in the last round of adjustments. After being forced to recognize the unreasonableness of the country’s content management, they had to change their strategies, moving from the front stage to behind the scenes and starting to make plans using capital.

The characteristics of this round are deep bundling of core resources and extensive multi-to-multi cooperation.

From the perspective of Internet enterprise types:

1. Strategic layout of giants such as BAT:

The giants will not only focus on TV, but also on the home Internet of Things and industrial Internet markets behind TV. However, in the current smart TV market, they will rely on their own advantages to seize as much market space as possible and plan for the future.

Baidu uses iQiyi to approach the market from a content perspective, and through a joint venture with Galaxy to bind a licensee, it secures its own content position. With the help of iQiyi's content, it conducts extensive cooperation with downstream home appliance companies and box manufacturers to increase its user base.

Alibaba and Wasu have formed a tight coupling with capital ties. Starting from the operating system, they firmly grasp the entrance to the platform, and at the same time use capital to acquire upstream content resources, invest in Haier, subsidize terminals, and make up for their own deficiencies in content and hardware. Haier, in particular, is at the forefront of the exploration of smart homes among home appliance companies.

Tencent has invested in Future TV as a backup for its license, and relying on its business advantages, it has carried out extensive cooperation, whether it is promoting WeChat TV with home appliance companies, or cooperating with China National Radio and China Radio International on content and licenses. Although it is slow, with a series of actions, its real moves will surface this year. Deep alliances with terminals and platforms, and capital penetration of business will be its subsequent actions.

The behavior of BAT giants will become a weather vane in the market. Relying on the advantages of capital, they will not focus on temporary gains and losses, and the layout is greater than short-term cash income. And it is not just the current business. Among BAT, Alibaba is "domineering", from systems to businesses, it seeks to take over the entire industry chain in a high-profile manner; Tencent is "friendly", seemingly motionless, but in fact gradually infiltrating, completing the layout in a low-key manner; Baidu is "literary", walking around, taking a step forward, and making a move after planning.

2. Content value of Youku and iQiyi

For the development of OTT, content is undoubtedly the core, and the value curve of Internet video companies from PC to TV also coincides with this industry. Although policies forced them behind the scenes last year, it is clear that their pace will not stop.

Deep alliance to ensure that their future OTT market share and their own content will not be easily replaced should be their original intention to establish a joint venture with the licensee, and it is also in line with the licensee's demands.

Regarding content monetization, PC user behavior has always been difficult to build an effective payment atmosphere, but TV has great opportunities, especially now that video websites’ self-produced dramas, sports, and concerts have much more payment on TV than on PC. With the increasing pressure of content censorship, the homogeneity and differentiation of film and television are getting smaller and smaller, and the reverse output and monetization of self-produced programs will become the focus of major video websites.

3. Platform strategies of Xiaomi and LeTV

For Internet companies like Xiaomi and LeTV that have already formed a user base, they actually have the advantage of influencing the licensees in reverse. Especially for platforms with an effective user base, controlling the entrance does give them an advantage in negotiations with operators. With Guoguang endorsing LeTV, both parties get what they want. Xiaomi is able to navigate among multiple licensees with ease, also because of its high-quality user base.

Xiaomi platform, with Galaxy as the broadcast control, integrates more content license service resources of Future TV. In terms of policy, it complies with the 1+3 multi-content requirements of the General Administration. In terms of interests, it uses its own users to seek benefits for licensees. It seems to be a win-win situation for all parties, but the biggest beneficiary is actually the platform that controls users, and has changed from aggregating videos to aggregating licenses. Behind this, too many licensees are undoubtedly the main reason for condoning this change.

LeEco platform is expanding on the basis of the original LeEco ecological industrial chain of content + terminal. From televisions to mobile phones, relying on its own industrial system, its layout is gradually improving. However, businesses such as agriculture and automobiles that seem to be unrelated to the main business are in line with the current situation under the Internet + environment.

In terms of business expansion, Xiaomi relies on the penetration of TV into the home and the multi-point layout of smart home, while LeTV improves its layout from multi-screen business and gradually extends its product chain. The future business of the home must be its next strategy, and the so-called thinking of Internet companies, plus capital, has great opportunities.

But it is not enough to have a platform, you must also have controllable terminals. After all, only by controlling the terminals can you control the users. However, in the current OTT market, it seems that there are countless terminal manufacturers, but most of them only serve as connecting devices between the platform and users. There are actually not many companies that have strong control like Xiaomi and LeTV. Therefore, in addition to pursuing an open Internet user market, targeting a certain selling point in the industry market may have a miraculous effect. Although the number of users is small, the stickiness is high, such as education boxes, or Amway boxes with health as a selling point.

4. Survival of Internet Business Enterprises

As the OTT market grows, more and more traditional Internet companies will accelerate their entry, as evidenced by the gaming boom from the end of last year to now. There will be more and more business applications such as games, education, shopping, and the next round of community O2O, and problems such as non-TV adaptation, homogeneity, and weak profitability will become more prominent, which will bring about a new round of business reshuffle. In addition to the business itself, regulatory review from policies will create crises for aggregation applications and lobby applications, and the attitude of capital will have an impact on the crowded business forms. Especially in the gaming field, this year is the year to squeeze out the bubble.

As the market becomes clearer, the value of the so-called user scale that the business relies on will become smaller and smaller, and the revenue capacity of the business itself will become more important. Here I would like to advise those entrepreneurs who do not pay attention to income: 1. Without income, you may not be able to make it to the day of investment; 2. There are opportunities in the open market and profits in the monopoly market.

Third, digging deeper into the value of home appliance companies

The first wave of transformation of home appliance companies on OTT was a failure. They failed to enter the operation and returned to the basics of hardware manufacturing and sales. This round of upgrades of home appliance companies still started from hardware.

Although there are about 90 million TV sets with Internet functions on the market, the average activation rate and activity are not high. What really boosted the activation rate and activity was the joint brands of a series of home appliance companies and Internet companies launched last year, such as iQiyi TV and Mango TV. Because many buyers of TV sets with the brands of home appliance companies before valued the TV sets, while for all-in-one TVs, many users focus on the content brands attached to them (such as iQiyi and Mango). Different communication purposes will lead to different usage.

In 2015, there will be more and more 1+1 TVs. The endorsement of the Internet will help increase the added value of home appliance products. At the same time, the channels and after-sales service of home appliance companies are also indispensable to Internet companies. Therefore, the combination of software and hardware has become a trend in 2015, and upstream content providers and home appliance companies have formed a deep alliance, as well as many-to-many cooperation between the two. For example, Konka, Tencent, and Alibaba have launched new TV products respectively.

In addition, in addition to traditional home appliances, there will be more and more third-party brands of TVs, such as Dr. Peng's Damai TV, and the original home appliance OEM companies that mainly engaged in OEM will also move from behind the scenes to the front stage, such as Zhaochi and Zhongxin. The competition in the entire TV market will become increasingly fierce. The consequence of all this is that the traditional home appliance TV brands will continue to weaken, and they must build a second advantage barrier outside of the brand, either technical products or high-quality partners.

In 2015, the terminal competition of OTT products, the opportunity of integrated TV is a bright spot, and more and more companies will launch their own TV products. The motivation is that first, it can avoid policy risks better than box sets, and second, the unit price of TV sets can enhance the story in the capital market. But for home appliance companies, if they cannot establish their own advantages in this round, they will be in trouble. (For details, please refer to the home appliance section of the year-end inventory http://otv.lmtw.com/vp/201501/111918.html)

Finally, from OTT to OTT+, the market will change from a single horizontal market to a market that keeps pace with the operator market. The value of operators will be highlighted this year, and the in-depth integration of OTT, DVB and IPTV will be the highlight of this year.

Summary: OTT: From cross-top pass to integration and win-win

The OTT market in 2015 will continue to be exciting, but will also usher in more changes and a new round of industry upgrades. But most importantly, OTT practitioners should shift their thinking from cross-over passing to integration and win-win.

The next step of OTT development is not just a simple update of hardware, software or products, but a consensus on development after seeking common ground while reserving differences among all participants in the industry. TV operators have their content advantages and user base, Internet companies have innovative consciousness, the courage to break through thinking and the increasingly recognized market influence, and the equipment manufacturing industry has hardware advantages and the ability to introduce new products. The combination of the multiple should not be a simple replacement or a simple superposition, but a win-win integration based on deep cooperation between the two parties. In terms of industry value, 1+1 should be greater than 2, and in terms of user experience, it should be 1+1=1.

The open Internet needs to be orderly and the traditional TV needs innovative thinking. Under the general trend of cross-industry integration, no one is better than the other. Only the complementary advantages of the Internet and the traditional TV industry can achieve win-win cooperation.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.