Over-the-top content is a hard nut to crack for Taiwan’s cable TV stations, telecom operators, and regulators.
By Timothy Ferry & Jens Kastner
As people increasingly use communication apps such as Line and WeChat through fixed line, WiFi, or with mobile flat rates, telecom operators over the past four years have seen their revenue dive as much as 40% on SMS messaging and 20% on voice, even though they have spent huge resources on infrastructure and in spectrum auctions. As for video entertainment, users in Taiwan often turn to mainland Chinese websites such as youku.com and iqiyi.com, which offer pirated content; viewers pay nothing to either the video production firms or cable TV operators that previously had been video’s main suppliers.
Over-the-top (OTT) messaging and content – the term used for messaging apps and audio, video, and other media delivered over the internet without the involvement of an intermediary – is taking a bite out of telecoms’ earnings. And despite what are often clear copyright violations, government regulators seem powerless to help, as the providers of pirated OTT content are typically located outside their jurisdictions.
“If you ask who is in control of the internet (in Taiwan), you get no answer,” Huang Yan-nan, Deputy Executive Secretary of the Board of Science and Technology, Executive Yuan, observed at the AmCham sponsored Telecom Symposium – Opportunities and Challenges for Taiwan’s OTT Industry, held late November. “Taiwan has almost no regulation over the internet.”
Yu Hsiao-cheng, Vice Chairperson of the National Communications Commission (NCC), Taiwan’s telecom regulator, adds that “we have not yet decided how (to regulate OTT), and it is a very difficult task for any regulator, given that people use the internet freely across borders.”
The impact of OTT content on viewership via traditional channels such as TV has been strong. Mindy Lee, a Taiwan-based vice president for marketing and communications with Fox International Channels, says that viewership in the whole Taiwanese cable-TV sector has been dropping by about 5% per year in recent years “because people after work go on the web to see videos, rather than turning on the TV.”
OTT content includes legitimate paid third-party content providers such as Hulu and Netflix, as well as media streaming sites such as Next Media’s Nexttv.com.tw and Chunghwa Telecom’s arrangement with cable service operator kbro. But in Taiwan readily available websites offering pirated content have been far more popular than legitimate third-party content providers. According to the Alexa rank – a measure of web traffic – pirate website ck101.com is the 33rd most widely used site in Taiwan, and plus28.com ranks 81st, while a legitimate site such as Chunghwa’s cht.com.tw ranks 172nd, and Nexttv.com.tw ranks 447th.
To counter this phenomenon, Lee says, Fox this year has adopted a new strategy of shortening the time gap between U.S. and Asian premieres, so there is less chance to post the pirated version on the internet before the original debuts. “For popular American TV series like the Walking Dead, we premiere just one day after the U.S. to avoid piracy affecting our ratings,” Lee says.
An additional new strategy employed by Fox as well as kbro is to offer series that have gained immense popularity through internet piracy but present them as whole seasons and in a much better quality than what viewers had seen on the web.
Internet piracy is of course a global issue, and in many regions is growing rapidly, but at least a couple of nations seem to have hit on effective strategies for reducing the impact. The U.K and South Korea, for example, have seen dramatic reductions in pirated OTT content by making use of a variety of measures, particularly site blocking of offending websites.
OTT communication apps such as Line, WhatsApp, and others are equally problematic for telecoms. These services earn money by charging for extras like cutsie cartoon stickers and “corporate accounts” (meaning advertising), while WhatsApp charges US$.99 for each download. These apps have captured a significant amount of telecoms revenue.
WhatsApp was recently purchased by Facebook for US$19 billion – an astronomical price that reflects more the number of users (450 million) and their level of engagement rather than its limited revenue stream. In the run-up to its IPO, which it subsequently cancelled, Line reported it has 490 million users and analysts value it at somewhere between US$10 billion and $20 billion.
Taiwan’s NCC recently moved to begin regulating messaging apps as telecom services, subject to the same rules as traditional SMS and phone service providers. Critics say that this will stunt the development of the OTT ecosystem, and it remains unclear when – if ever – such a ruling would go into effect.
Taiwan Mobile President James Jeng says he doubts that Taiwan’s telecom operators have any promising strategies to employ to minimize the harm done to their business by the OTT providers. The crux of the problem is that there are no weighty incentives for OTT providers to cooperate with telecom operators in the first place, he says. “The beauty of OTT is that everything is for free, so you can grab customers and ad revenue around the world,” Jeng says.
That said, Chunghwa Telecom nevertheless found it worthwhile to make a deal with Line, offering monthly data packages with free Line for only NT$50 extra charge. In other words, the data the subscriber transmits while using Line is not taken into account as part of the monthly capacity allowance.
“OTT is a monster,” says Chunghwa president Shih Mu-piao “But it can just as well become our friend in attracting subscribers.”