Ziggo vs KPN: closed vs open OTT TV strategies

Wednesday 9 March 2016 | 16:05 CET | Background

Research by Telecompaper shows that 31 percent of Dutch households subscribe to at least one premium TV or OTT video service and 27 percent have two or more. We look here at how the leading Dutch operators KPN and Ziggo are responding in order to profit from the change in video consumer behaviour. Ziggo has adopted the strategy of the incumbent, focused on offering a 'one-stop shop', while KPN's 'open' strategy befits more its position of the most important challenger on the Dutch TV market.

Video is accounting for an ever greater share of the growth in data traffic, raising the question how service providers can monetise this. According to Cisco's latest Visual Networking Index, video will account for 75 percent of mobile data traffic by 2020. Netflix said recently that already 50 percent of its subscribers access the streaming video service over mobile devices. However, mobile accounts for only 10 percent of usage. 

This suggest that it's not just the big names like Netflix and YouTube that are responsible for the growth in video traffic. Consumers have an ever-growing number of video services at their disposal. The question is whether the fragmentation in the market will result in consumers also spreading their budget over more services.

Two drivers

The growth in internet video traffic has two drivers. First, usage is increasing due to entirely new formats and content emerging - from short-form clips like YouTube and Facebook to specially produced 'original content' from the likes of Netflix and Amazon. The second factor is the end of the TV grid - consumers no longer need to consume TV as broadcasters and pay-TV providers dictate. The latter are helping the process by launching their own apps and online portals, and consumers can also turn to OTT providers for on-demand content.

58% have at least 1 OTT subscription

The big question is what this all means for consumer media spending. The supply and demand are increasing, but is the consumer spending more as well? Much of the new content is available free, while canceling traditional TV subscriptions (or switching to cheaper plans) saves money. The phenomenon of 'cord cutting' or 'cord shaving' however is progressing only very slowly

In short, for how many services is the consumer willing to pay? The available offer is wide-ranging: the TV Everywhere services require a pay-TV subscription, while some operators are launching standalone online services, such as KPN Play and T-Mobile's upcoming Knippr. In addition, there are a growing number of new players offering OTT services, like Netflix. The Dutch market is searching for the right price point to attract a significant audience; both KPN and T-Mobile have chosen for a quiet launch of their OTT services while they test out the waters. Netflix, which starts at EUR 8 per month, has set the standard that all other players must address. On the TVOD market Pathe Thuis is the reference point, with rental prices of around EUR 5-6 for top films.

The Telecompaper Consumer Panel shows that 42 percent of households do not subscribe to any premium TV or OTT services, while 31 percent have one such service and 27 percent have two or more. Of the 58 percent with one or more services, around half pay a minimum EUR 15 per month, a third spend at least EUR 20 and a fifth more than EUR 30. Among Netflix subscribers, 55 percent subscribe to another premium TV service, either from their TV provider (premium channel or plus package) or from an online provider.

The market dynamics and search for an ideal price point, a phenomenon underway around the world, show that the video market is far from settling down. In the Dutch market, Ziggo has not yet launched a standalone OTT service, nor has HBO launched its OTT service HBO Now. A variety of other parties could also still enter the market, such as Wuaki (part of Rakuten), Hulu (US broadcasters), Magine, Viacom, Discovery, DisneyLife, YouTube Red or even Apple or Sony.

Ziggo vs. KPN: closed vs. open

The market fragmentation may create apathy or hesitancy among consumers. This may play into the hands of cable operators, traditionally the incumbent on the Dutch TV market. As such, Ziggo has focused on its own VoD service MyPrime, in combination with its hybrid TV box Horizon and the associated app Horizon Go. Ziggo's message to consumers is: there's absolutely no reason to cancel your cable subscription as everything you need is available from us.

KPN is taking a more open approach. It may not be the incumbent on the TV market, but it does have the most extensive strategy, offering TV and video services on a range of platforms and under various brands. It's taking a segmented market approach, which is perhaps the best for its challenger position. KPN's offer includes: 

  • iTV: IPTV over DSL and FTTH under the KPN, Telfort and XS4ALL brands. This is its biggest platform.
  • iTV Online. The OTT version of iTV, available only to subscribers of the above and not as a standalone service.
  • Digitenne: DVB-T under the KPN brand and through a few resellers. Limited offer of 30 channels. The public channels NPO 1, 2 and 3 and the regional channel are available without a subscription.
  • KPN Play. An OTT service with 20 channels, the three HBO channels, its own channel KPN Presenteert and on-demand content. Millennials are the target group.

KPN is still missing a mobile OTT service, such as go90 from Verizon and a full mobile TV service using LTE-Broadcast. It's not clear whether KPN has any plans in this area. Nevertheless, KPN is still ahead of Ziggo in two areas: it's integrated Netflix in its IPTV platform and it offers a broadband-only subscription. KPN's message to consumers is completely different: go ahead and cancel your cable, with us you can choose what you want, get access to Netflix and if you even want to handle it all on your own, just take broadband.

The jury is out, but KPN's open approach fits the challenger role well, while incumbent Ziggo is following a much more closed strategy. 

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