Parks Points

The Challenge in Developing New Revenue Models

by Brett Sappington | Jan. 1, 2012

The evolution of new platforms, usage models, and digital media market players is threatening many of the traditional revenue models for operators. Old models of EU government/public and ad-based funding are plagued with uncertainty in an increasingly online world. For a time physical media was the next stage of delivery, but digital distribution is making physical copies increasingly obsolete while also creating a generation of users raised on the notion that content, particularly music, is free.

Operators must build new revenue models within this challenging climate, and this topic was the primary focus for the session "New Revenue Models: Challenges & Solutions" at Parks Associates' CONNECTIONS™ Europe. The session, moderated by Brett Sappington of Parks Associates, featured the following speakers:

Tim Hadley, Director, Corporate Communications, Omniphone
Colin Lawrence, Commercial Director, BBC World News
Bram Tijdhof, Senior Strategy Manager, Ziggo

Omniphone provides white-label cloud music services, with 12 million tracks licensed and partnerships with mobile handset makers as well as Sony, HP, and RIM. Ziggo is a leader in Dutch cable market, with 55% of the Netherlands market share and 4.1 million subscribers connected. BBC World News provides worldwide news content through a variety of media, reaching 225 million people per week in 170 markets.


The BBC World News has massive fixed costs; therefore, subscriptions are critical to revenue, especially as the ad business is very volatile. News in particular has little lasting value, so it must be monetized at the moment of occurrence. The BBC is trying new revenue opportunities, with mixed success. The mobile window is very important in delivering news, and response has been stronger in markets such as Africa. They also have a BBC News app on Samsung smart TVs, but they are still working to figure out ad monetization in this area.

A key aspect of current services is the move toward a horizontal, end-to-end model, driven by the diversity of devices within the home. Consumers have smartphones and tablets and a variety of connected devices, and they expect their content to be available across these products. As a result, providers can no longer exist in isolated service "silos" but must have offerings across screens, termed TV Everywhere or multiscreen services. However, monetization of these services can be difficult because competitors often offer services for free.

One driver that is to a provider's advantage is that in general consumers ultimately want to move to a single provider of all-in-one services, something often impossible when considering OTT services.

How to Make Money

Tim Hadley of Omniphone noted that music revenues have been declining over the past 10 years, largely due to the loss of CD sales. Twenty-nine percent of global revenues are from digital services, with the majority still through iTunes. In Sweden, 61% of revenues are streaming services, while in the U.S., 48% of revenues are from single-track downloads.

In general, the market trends in music are moving toward streaming and subscription services. Omniphone is profitable despite the prevailing zeitgeist that music is free. The key is providing a premium service that offers a great experience to users. Pure play funded by ads simply does not work. Instead, the company is focused on subscription models that capture a percentage of subscribers with the offer of premium options.

The factors are different for news content. scales its business beyond local markets, and pan-regional advertising based on narrow sets of its audience is key to its revenues. Last year (2010) was the's first profitable year after 20 in business. Its iPlayer is highly innovative and quite secure, but digital ad serving around display is currently quite unstable.

There are some markets where subscribers are paying for mobile video from the BBC, but given the frequency of use, mobile should bring in more. Having to compete against free services makes this model challenging, so Colin Lawrence of the BBC said that the mobile market will start with small payments and grow from there. Likewise, syndicated searched content should bring in gradually rising revenue.

Competing against Free

In the current competitive environment, it is difficult for a service provider to make money from these services. OTT providers don’t have to pay service fees, only access fees. Bram Tijdhof of Ziggo noted that TV Everywhere as a free service is not a sustainable business model. Ultimately consumers will have to bear that cost. For providers, the way to make money is to price data accurately, with speed and volume as the determining components.

Currently Ziggo has some free offerings available, with VOD subscription packages overlaid on top of these free services, in order to get customers accustomed to the Ziggo interface and to slow the growth of over-the-top services like AceTrax and Hulu in the Netherlands. Ziggo is currently focused on succeeding within its own footprint and anticipates that as consumers grow more comfortable with the company's interface, they will keep coming back to same portal.

Owning the Consumer

The panelists all agreed that service providers do have an advantage in their relationship with the consumer. Since providers bill the consumer, they know what the consumer is doing and can interface with that household.

CE vendors want a cut of the revenue stream since they are now part of the ongoing relationship, and Tim Hadley of Omniphone noted opportunities for device manufacturers to receive a share of subscription revenue by offering solutions that tap into larger content options. For example, by offering a device that can tap into music services, end-device manufacturers can receive a share of revenue on a per-track basis.

Music suppliers are experimenting with many different models, including variants of try-it, buy-it. The music industry is also working more closely with ISPs to provide complementary messaging, more enforcement in blocking piracy, and more market momentum toward legitimate music consumption.

Disruptors in the Next Three Years

For Colin Lawrence of the BBC, the technology to provide more localized and addressable content and enable content across multiple platforms will impact their business model. Translation technologies should also open up new language markets. They could also see increased competition from virtual operators such as Xbox and Google.

For Bram Tijdhof of Ziggo, Google TV and Apple TV could be disruptors, but cable can keep them out as the majority of content their consumers watch is local content. Fiber is a threat in the Netherlands as it could threaten their speed advantage. Mobile demands are also important, and they can build a mobile service themselves.

For Tim Hadley of Omniphone, device-centric ecosystems built around consumers by the likes of Apple could be an issue. Competition from companies such as Sony and Google will also be a challenge and disruptive to Omniphone's business model.

Brett Sappington

Brett Sappington

Senior Director of Research

As senior director of research at Parks Associates, Brett Sappington leads Parks Associates research practice for entertainment, access, and consumer electronics. Brett is an internationally recognized thought leader in the television, broadband, and online video services industries. His personal research focuses on the activities and trends among content producers, broadcasters, networks, and operators and the market forces affecting their businesses. Brett is a regular speaker and moderator at international industry events.

Brett has spent over twenty years in the industry as an analyst, executive manager, and entrepreneur for companies specializing in cloud, communication, and IP-related technologies. He founded and served as vice president for Teligy, a software company focused on software for wired and wireless communications systems. Brett established new divisions for networking and audio/multimedia software for Intelligraphics. He has also been involved in the development and marketing of early-market products for Wi-Fi, VoIP, video-over-IP and other technologies.

Brett holds an MBA from the University of Texas at Austin with a concentration in high-tech marketing and a BA in physics from Baylor University.

INDUSTRY EXPERTISE: International Digital Living Trends, Pay TV (IPTV, cable, satellite/DTH, terrestrial/DTT), Broadband, Television and Movie Content Distribution, OTT and Online Video, Entertainment Consumption Habits, Video Infrastructure and Delivery Technologies, Metadata, Middleware, Content Security, Cloud-based Technologies, UI/UX and Discovery Technologies, Set-top Boxes, DVR/Cloud DVR, and Residential Gateways

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