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by EOS Intelligence EOS Intelligence No Comments

Industry Game for Diversifying Monetization Pathways

Currently, gaming industry is believed to be bigger than any other popular entertainment mediums such as films and music. IDC estimated that global gaming revenue reached US$180 billion in 2020. Another research firm, Newzoo, indicated that global gaming industry generated US$159.3 billion in revenue in 2020. On the other hand, the global film industry surpassed US$100 billion in revenue for the first time in 2019 according to the Motion Picture Association. And, as per MIDiA Research (a firm specializing in digital content research), global recorded music industry generated US$23 billion in 2020.

Gaming industry has been on a continuous growth trajectory

Gaming industry has enjoyed a steady growth in the past few years with increasing its reach by each year. As per Newzoo’s analysis, the number of gamers increased from 2 billion in 2015 to 2.7 billion in 2020, indicating annual growth rate of over 6%.

Industry Game for Diversifying Monetization Pathways by EOS Intelligence

Games are generally played through mobile devices, personal computers, or gaming consoles. In 2020, 2.5 billion were playing games on mobile devices (including games played via smartphones and tablets), 1.3 billion on personal computers, and 0.8 billion using consoles. Mobile gaming was the largest revenue segment in 2020, accounting for nearly half of the total gaming industry revenue, followed by gaming on consoles and PC which represented 28% and 23% of the market share, respectively. These estimates are from Newzoo Global Games Market Report 2020 which was based on a survey of 62,500 people from 30 countries (representing more than 90% of the global games industry revenue) conducted between February and March 2020.

Gaming on smartphones generated US$63.6 billion in annual revenue in 2020, recording 13.3% growth over previous year. Increasing number of smartphone users and improving internet connectivity are driving growth in this category. Gaming on tablets generated US$13.7 billion, indicating a moderate growth of 2.7% over previous year.

Mobile gaming has seen unprecedented growth due to coronavirus outbreak. According to Sensor Tower, a research firm providing insights on mobile app ecosystem, global downloads of mobile games from Google Play and iOS App Store totaled 28.5 billion in the first half of 2020, an increase by 42.5% as compared with the same period in 2019.

Newzoo’s analysis concluded that console gaming generated US$45.2 billion in 2020, representing 6.8% growth compared with 2019. While there was an increased demand for gaming consoles amidst coronavirus outbreak as more people turned to games due to stay-at-home restrictions, the manufacturing and distribution of gaming console providers were affected because of global supply chain disruptions, and as a result, the increase in demand for gaming consoles could not be met. For instance, Sony sold 118,085 PlayStation 5 consoles within four days of its launch in November 2020, but this figure was approximately one-third of the volume of PlayStation 4 sold over its launch weekend in November 2013. PlayStation 5 consoles were in high demand and were sold out within minutes after being made available in retail outlets. In October 2020, Sony’s Chief Financial Officer indicated that the company was not in capacity to fulfil pre-orders for PlayStation 5 consoles because of supply chain bottlenecks created by coronavirus outbreak.

PC games, including browser-based as well as downloaded versions, clocked US$36.9 billion in annual revenues in 2020, representing 4.8% year-on-year growth. Though PC games market is not declining, it shows the smallest growth compared with other categories, mainly because there is more deflection towards mobile gaming which is comparatively more convenient and less expensive.

Further, the number of gamers worldwide is expected to cross over 3 billion mark in 2023 contributing nearly US$200 billion in annual revenue for the global gaming industry.

Gaming Market Breakdown by Region
Asia Pacific North America Other Regions

Asia Pacific represents the largest gaming market with a total of US$84.3 billion in annual revenues in 2020.

China, Japan, and Korea are among the top five revenue generating countries worldwide. In 2020, China’s gaming industry raked in about US$41 million in annual revenues, while gaming industry in Japan and Korea recorded annual revenue of US$18.7 million and US$6.6 million, respectively.

North America represents the second largest gaming market which generated about US$45 million in annual revenue in 2020.

The USA, the second largest gaming market worldwide by revenue, accounted for majority of the share of the North America gaming market, with about US$37 million in annual revenues in 2020.

Europe was the third largest gaming market with revenue of US$32.9 billion for 2020, followed by Latin America in the fourth place, with revenue of US$6.8 billion.

MENA represented the smallest region in terms of revenue with US$6.2 billion.

With rising popularity and wider reach, gaming industry looks to unravel multiple monetization strategies

Historically, gaming used to be an entertainment medium for a niche segment, mainly gaming enthusiasts and children or teenagers. At the time, ‘game-as-a-product’ was a go-to monetization strategy for most game developers, where gamers paid one time to purchase the physical or digital copy of the game.

Today, however, gaming attracts a much wider audience, enticing people from every age group. Business strategy has also evolved from upfront-based revenue model to ongoing-based revenue model where game developers seek monetization avenues from various transactions during the lifetime of a game. For instance, retail sales of Ubisoft (a French gaming company) were 98% of total sales revenues in 2010, and in 2019, this was less than one-third of the total revenue. Gaming companies today are increasingly looking to diversify their monetization avenues beyond upfront retail sales.

The most widely used monetization strategies nowadays include:

In-game purchases

In-game purchases refer to virtual items such as new features, functionality, upgrades, aesthetic elements, or content that gamers can buy to enhance their gaming experience. Newzoo estimated that in-game purchases accounted for nearly three-fourth of the global gaming revenue in 2020.

While in-game purchase seems to be a good monetization strategy, it also involves high cost to acquire paying users. Based on analysis of 992 apps between September 2018 and August 2019, Liftoff (a mobile app marketing firm) found that game developers spend an average of US$86.61 to acquire a user who will make in-app purchase. Moreover, the median average revenue per paying user for free-to-play games was estimated at US$6. However, there was high variance in the amount spent by the gamers and a small set of gamers, who were grossly engaged in games, expectedly spent US$35 to US$70 per day, thus creating high returns for the game developers.

In-game ads

In-game ads is a widely used monetization strategy, especially for free-to-play games. According to a report released in June 2020 by Omdia (a UK-based technology research firm), worldwide game developers earned revenue of US$42.3 billion in 2019 through in-game ads. Based on analysis of top 1,000 games by downloads by App Annie (app analytics company), 89% of them used in-game ads as one of the revenue streams.

As per a 2019 survey of 284 game developers conducted by deltaDNA (a consultancy firm for gaming industry), 94% of the free-to-play mobile games carried in-game ads. Rewarded ads are most popular: 82% of game developers in the deltaDNA survey indicated that they deployed rewarded video ads, compared to interstitial video ads (57%) and banners (34%).

As per the same survey, 30% of game developers showed more than five ads per gaming session. While in-game ads seem like a lucrative monetization opportunity, there is also a risk of affecting gaming experience and thus loosing gamers’ interest. deltaDNA survey suggested that display of too many ads might result in gamer churn (30%), affect gamers’ playing experience (27%), and scare off potential gamers that might be willing to spend on in-game purchases (16%). Hence, game developers need to strike a balance and control the frequency of ads.

Subscription

Witnessing the success of subscription streaming service such as Netflix and Hulu, many game developers have started exploring subscription-based model generating regular revenue stream.

Console gaming companies have been diving into the subscription model for a few years now, for instance, Sony’s PlayStation Now offers on-demand streaming of PlayStation games for a monthly subscription of US$9.99 in the USA. Some of the leading mobile and PC game developers also offer subscription service, for example, Uplay Plus by Ubisoft and EA Play by Electronic Art (creators of world-renowned FIFA game). Subscription-based model is more suitable for large gaming companies who have multiple games under their umbrella, thus offering a wide selection range to the gamers.

Based on a survey of 13,000 people in 17 countries between May 2020 and June 2020, Simon-Kucher (a global consultancy firm) suggested that over one in three gamers opted for at least one gaming subscription. Moreover, hardcore gamers who typically dedicated more than 20 hours per week on gaming would spend US$19 to US$40 per month on gaming subscription service, and casual gamers who played fewer than five hours per week were willing to shell out US$10 to US$30 for monthly subscription.

Gaming industry ecosystem is expanding with advent of new services

As gaming is more and more perceived as mainstream entertainment, there is an increased effort to capitalize on the industry’s wider reach, thus giving birth to eSports and games streaming services. Moreover, with increased demand from gamers to reduce reliance on hardware and access their favorite games anytime anywhere, advancement of cloud gaming service is encouraged.

eSports

eSports includes games played in highly organized competitive environment. As per estimates of Valuates Reports, an India-based research firm, the global eSports market was valued at US$692 million in 2019 and it is expected to reach US$1.9 billion by 2026.

eSports demand cross-industry collaboration including key players such as eSports organizations, tournament operators, digital broadcasters, etc. eSports offer monetization opportunities through advertising and sponsorships, media rights, ticket sales, merchandise sales, as well as in-game purchases.

Game streaming services

Game streaming services allow live broadcasting of gaming sessions by players. Game streaming services have been welcomed by the community of gamers as a medium to learn, connect, and get entertained.

Gaming video content was valued at US$9.3 billion with a viewership of 1.2 billion in 2020. The content may include pre-recorded or live gaming sessions by individuals as well as live broadcasting of eSports events. Game streaming service segment has particularly seen high involvement from Tech giants. Amazon’s Twitch and Google’s YouTube Gaming are the top two players in this space with annual revenue of US$1.54 billion and US$1.46 billion, respectively, in 2019.

Cloud gaming services

Newzoo projects cloud gaming to grow from US$585 million in 2020 to US$4.8 billion in 2023. Cloud gaming ecosystem typically includes game developers, cloud gaming platforms, as well as content service providers. Google launched its cloud gaming platform ‘Stadia’ in November 2019. For a monthly subscription fee of US$10, Stadia offers access to 152 games. Microsoft launched cloud gaming platform xCloud for its Xbox user base in September 2020. China-based gaming giants Tencent and Netease started beta testing of their cloud gaming platforms in 2019.

A Deloitte survey of over 2,000 US customers conducted between December 2019 and May 2020 indicated that 23% of gaming respondents were multiplatform players, playing games via all three mediums, i.e. mobile, console, and PC. Cloud gaming services could offer good value proposition for these gamers which look for seamless play between platforms.

EOS Perspective

As mobile gaming started to gain more traction, there is an increasing demand for casual games which target mass audience. As per analysis of top 1,000 games by downloads in 2019, casual games accounted for 82% of all game downloads, and remainder were hardcore games. Casual games are for on-the-go fun, which requires less time and low skillset, while hardcore games demand high commitment from the gamers who willfully spend comparatively more time and money on gaming.

Usually, casual game developers prefer ad-supported business model. Since these games require low skills, attracting masses, they are likely to generate more revenue through in-game ads than in-game purchases. As the level of skill set required goes up, a hybrid monetization model is preferred. Beyond that, the main monetization method is in-game purchases, especially for role-playing and strategy games which demand gamer’s higher engagement.

The role of gaming is evolving from a medium of entertainment to a social engagement platform. Games such as PUBG enables social interaction and networking as it allows to connect with different players and chat with people in the game. As per Sensor Tower, PUBG was the highest-grossing mobile game globally in 2020, earning US$2.6 billion in annual revenues. Rising popularity of such games shows how the gaming culture is transforming and pushing game developers to design games allowing players to socialize within the virtual environment.

‘Cross-play’ is another interesting trend which is likely to be the way forward for gaming industry. In September 2018, Fortnite became the first game to allow cross-play between mobile, PC, and all major consoles (Microsoft XBOX, Nintendo Switch, and Sony PlayStation). Between March 2020 and June 2020 more than 60% of Fortnite players paired up with a player from another platform to cross-play. The average monthly revenue-per-user who cross-played Fortnite was 365% higher than non-cross-players.

Multiplayer gaming is becoming a cultural phenomenon, and thus, the industry needs to focus on offering easy on-demand access and development of platform agnostic games.

by EOS Intelligence EOS Intelligence No Comments

Media Players Push the Envelope to Sway in on Streaming Arena

The emergence of online entertainment has led to consumers transitioning from a fixed time-based entertainment on TV to on-demand watching across a wide array of devices. Continuously shifting viewing preferences will further expand digital mode of entertainment thus intensifying the competition between online streaming services and other entertainment providers. This will likely set the tone of how traditional entertainment players refurbish their business objectives and modify their operational models to acquire and retain consumers in the times ahead.

Online video streaming soars, both in subscribers and revenue

In early 2000’s if one wished to watch a movie at home, it meant day(s) of wait before the DVD arrived at the doorstep via mail. However, in 2007, when Netflix launched its online video streaming service, it started a new wave in the entertainment world – the ability to enjoy your favorite movie at the click of a button without having to wait for it to be delivered. This marriage of content and digital technology gave consumers an exciting experience of viewing content in a new way. Since then, video streaming has come a long way and now is a multi-billion dollar industry. In 2018, the video streaming industry was valued at US$ 36.64 billion and is expected to grow at a CAGR of 19.6% between 2019 and 2025, reaching a value of US$ 124.57 billion by 2025.

A surge in the number of devices supporting digital media, increasing internet speed, and the ease to access content (be it information, entertainment, or social) anytime, anywhere is driving the growth of online content.

As the demand for digital on-demand content is growing, consumers are spending more on subscription video on demand (SVOD) such as Netflix and Amazon Prime, making it the most commonly used video service in the over-the-top (OTT) content (content delivered via internet) market – in 2018, of the total global OTT revenue of US$ 67.8 billion, SVOD generated nearly 53% of the revenue standing at US$ 36 billion. SVOD revenue is estimated to reach US$ 87 billion by 2024.

According to global information provider, IHS Markit, the number of global subscribers to online video services such as Netflix and Amazon Prime increased by 27% in 2018 and reached 613.3 million subscribers, an increase of 131.2 million in comparison to 2017. The top three online streaming players account for 45% of this share – Netflix with 155 million subscribers (148 million paid users, with another 7 million using trial accounts), Amazon Prime with 100 million subscribers, and Hulu with 28 million subscribers (26.8 million paid users, with an additional 1.3 million using promotional accounts), totaling to 283 million subscribers.

Media Players Push the Envelope to Sway in on Streaming Arena by EOS Intelligence

Cable TV bearing the brunt

Online video subscriptions (613.3 million) surpassed cable subscriptions (that stood at 556 million, a 2% decrease from 567 million in 2017) for the first time in 2018. However, the online subscription video platforms generated nearly three times less revenue than cable TV, mainly due to low subscription rates. These affordable rates coupled with the flexibility to watch any program at any convenient time has resulted in a drop in the viewership of the television network.

Cable and satellite providers, to some extent, are taking a beating from online streaming as consumers are abandoning traditional cable for streaming services. In the USA, consumers spend US$ 23.3 billion annually on home entertainment, of this 75% (US$ 17.5 billion) is spent on digital entertainment, which depicts the fact that people are spending more on online subscriptions than on the cable TV. This implies that consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services. As a consequence, in 2018, two of the largest direct broadcast satellite service providers in the USA, AT&T-owned DirecTV and Dish Network Corporation’s DishTV, reported losing 1.24 million and 1.13 million subscribers, respectively.

Consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services.

While both players lost a huge number of viewers of the cable television services, during the same year, they were also the largest aggregators through their streaming cable services, namely, DirectTV Now (owned by AT&T) and Sling TV (owned by Dish), which added 436,000 and 205,000 new subscribers each. This shift denotes a change in the way people consume content, choosing a plan that is cable-like but shifting to streaming services at low price point making budgetary cuts while still enjoying favorite programs.

For providers that offer both pay-tv and online subscription as part of their service portfolio, staying afloat in this competitive arena is easier since consumers can shift from one package to another (according to changes in their financial capabilities) and the company does not end up losing customers.

However, for traditional cable companies, the situation is more difficult than expected. In 2018, the top six cable companies in the USA (Comcast, Charter, Cox, Altice, Mediacom, and Cable One) lost a combined 910,000 TV subscribers in comparison to 660,000 subscribers lost in 2017 (38% more in a year). Large cable telecommunications companies such as Comcast and Charter are still in a better position to deal with the situation owing to various business verticals and strong financial records. It is the small players operating in limited territories who are in a muddle – they need to look for alternative ways (other than offering cable TV services, subscribers for which are drastically reducing) to keep their businesses afloat.

Other than losing customers, they are also challenged by the increasing negotiations with programmers (for distributing content via cable) who now have the alternative to broadcast their content via online partners, eliminating the need of cable middleman.

However, unlike in the USA, where the online streaming market is pretty much advanced, in other less developed parts of the world, the development of online streaming platforms is still in its infancy. In the immediate future, it is expected that the streaming services will not be able to cause major impact on traditional video platforms in these geographies, as the adoption of video streaming will be restricted mainly by slow internet connectivity, unlike in the USA, where 5G services are on the brink of being launched.

Constantly evolving entertainment landscape, not without challenges

Online streaming is disrupting the traditional mode of video entertainment challenging the domination of TV as the main entertainment hub. Ascent of digital media players such as Netflix, Amazon, or YouTube, is posing major challenges for other players such as content production studios, cable companies, and media networks thus compelling them to develop new business models and adapt to compete with online streaming players.

To catch up with the changing dynamics of the industry, players from all verticals (including media houses, internet providers, telecom companies, distributors, etc.) in the entertainment industry are revising their business choices and strategically launching new product and services.

Media companies are reformulating their business models by including exclusive streaming services into their overall product and service portfolio. For instance, Disney, US-based mass media and entertainment company, is planning to launch its suite of direct-to-consumer (DTC) services in 2019 starting with Disney+ (to be launched in the USA in November, 2019, followed by launch in Asia and Europe in 2020 and 2021, respectively) focusing on delivering original productions, with all content available for offline viewing. It is estimated that Disney+ is likely to attract up to 90 million subscribers by 2024, nearly more than two times of what Netflix accomplished in five years.

In another example, Comcast-owned mass media house, NBCUniversal, announced the launch of its ad-supported streaming service in April 2020. The service will be free if viewers watch TV through a paid provider with NBCU access (including Comcast and Sky) but one can opt for subscription service to eliminate ads. To start with, the service will focus on licensed content with some original programming.

Recently acquired Time Warner, now named WarnerMedia (acquired by AT&T), also plans to launch its streaming service by the end of 2019 with three tiers of options – an entry-level package focused on movies, premium service with original programming and blockbuster movies, and third option that offers content from the first two packages plus an extensive library of WarnerMedia and licensed content.

With more and more players venturing into the streaming territory and offering new and fresh content, the competition is only going to get harder for Netflix and the likes of it. Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, in the medium term, especially when offering premium subscriptions.

Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, especially when offering premium subscriptions.

Other than media companies, pure-play cable operators are also feeling the heat of the ever-changing entertainment landscape. As the majority of viewers receiving at-home-video services through means other than traditional cable subscription increases, cable TV players are left with no choice but to look for alternative ways to engage with the market. Increasing demand for broadband services is a saving grace for cable operators in this situation. For example, cable provider, Comcast, is becoming more broadband-centric than cable-centric and shifting its focus to high-speed internet services since customers have started dumping high-priced TV services for cheaper streaming services. The company, in March 2019, launched a streaming platform, Xfinity Flex, targeted at broadband internet services customers (who do not use the company’s cable services). The service offers customers set-top streaming box that includes Netflix, Prime Video, HBO, and other apps, and voice control to manage all of the connected devices in their homes.

However, for cable operators, the situation will only worsen in the future. High-speed internet access market, currently dominated by cable operators, will soon be challenged by the rollout of 5G wireless technology by telecom companies such as Verizon, AT&T, T-Mobile, and Sprint, among others. The implementation of 5G services will be a whole new ballgame, highly likely to transform the online viewing experience, and it will be interesting to see how exactly this space will be changed.

New entrants challenging the players

If the TV content and service providers were already not in deep waters due to the rise of online streaming, entry of retail and media players into the entertainment sector has not made the situation any better. Though these entrants are most likely going to be a direct competition for the video streaming players rather than the traditional ones, it cannot be denied that this may be a potential threat to the entire entertainment industry.

In May 2019, retail chain, Walmart, that bought Vudu, content delivery and media technology company in 2010, launched a video service offering more than 8,000 movies and TV shows for viewers to watch for free (with ads), as well as a library of more than 150,000 movies and TV titles that people can purchase or rent. The company dropped its initial plans to launch Vudu as a streaming service (competing with Netflix) citing huge investment requirement and lack of experience in producing original content as the reasons. However, the idea was not off the table for too long, as the company announced a list of original content programs including reviving an old movie to be delivered in 11-minute installments, a travel show, an entertainment series, and a crime thriller. Vudu is currently focused on developing content that costs much less than other top video streaming service providers spend on original content, which costs them billions of dollars; the future vision takes the path of reaching the front of the pack slowly and steadily.

In another example from 2018, Snapchat, a multimedia messaging app, launched Snap Originals, offering premium content (with episodes lasting for about five minutes) created exclusively for Snapchat’s users to be viewed on their mobiles. The content includes a range of genres including drama, comedy, documentary, etc., and is developed in partnership with film and television writers and producers.

EOS Perspective

The amount of money viewers spent globally on entertainment reached US$ 55.7 million in 2018, an increase of approximately 16% in comparison to 2017 (US$ 48.1 million). Between 2014 and 2018, consumers’ entertainment spending increased nearly 1.5 times driven by increased expenditure on digital entertainment (including electronic sell-through, video-on-demand, and paid subscriptions). The digital entertainment spending in 2018 was US$ 42.6 million in comparison to US$ 15.7 million in 2014, an increase of 171%, exhibiting a giant move towards digital viewing.

There has been a plethora of cases where TV players have either launched new ideas and concepts or joined hands with other players (in the same realm or similar playfield) to have a foothold in the otherwise challenging entertainment industry. With more and more options congesting the already tight, but diverse streaming video topography, it is most likely going to present increasing competition for traditional television. This, topped with dropping numbers of television viewers globally, only adds to the inevitable nostalgic observation that television may become obsolete, if not dead, in the next five to six decades.

Developing content and building own platforms for streaming videos does not come cheap – players will have to invest billions of dollars in developing content whilst losing revenue by not selling distribution rights to third-party networks and distributors. This stands true for content creators such as Disney and WarnerMedia, who are likely to gradually withdraw their content from online streaming platforms to be broadcasted on their own networks. For instance, Disney will bear an estimated loss of US$ 300 million in annual revenues it currently gets from Netflix for pay-tv rights to its theatrical releases. Thus, it is clear that shifting to a newer streaming business model will not only be costlier but also riskier since it would be difficult to ascertain beforehand how well the content will be accepted by the viewers. Nonetheless, in the current scenario, where there is always demand for more content, players hardly have any other alternative to explore.

The outlook for video entertainment, in the short to medium term, looks promising with coalition among various operators’ in reshaping the video media scene. It can be expected that potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Nevertheless, given the low-price point and round the clock content availability, it can be anticipated that online streaming business will continue to see significant growth in the years to come. For other players, it is important to understand that while their direct audience is shifting, it is not vanishing – just that viewers are watching the content via different modes. Thus, in the long haul, it will be necessary for players to offer a combination of traditional TV packages along with online streaming plans and become a one-stop-shop for content to retain old customers and signing up new subscribers. However, for the businesses, the challenge lies in knowing what offerings to create and whom to partner with, all while retaining customers and generating revenue in the constantly evolving entertainment topography.

Looking at the current scenario, it is apparent that digital platform players will further continue to disrupt (and redefine) the TV and video market in the future. To survive, industry-wide alliances in the form of joint production, partnerships, and mergers are an obvious choice to make. However, in their desperate attempt to stay ahead, it can be expected that companies will try to come up with innovative solutions, something that is neither exactly a cable TV offering nor a video that can be streamed online, but an experience that enthralls the viewers and keeps them hooked to the device of their choice.

by EOS Intelligence EOS Intelligence No Comments

Monetizing 5G: The Road Ahead for Telecom Operators

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A new era of mobile communication and data services is set to begin as telecom operators across the world are priming for roll out of 5G. As per the estimates by Hadden Telecoms, a UK-based consultancy firm, as of August 2019, 287 telecom operators have invested in 5G deployment across 105 countries. Investments span across various facets of 5G technology including ongoing 5G base-station deployment and other infrastructure development, commercial service launches, future commitments or contracts to deploy 5G networks, pilot testing and trials, and research studies. As 5G seems to be an inevitable leap to the future of internet technology, the pressing question for telecom operators is how they can monetize the 5G opportunities.

5G mobile broadband is expected to become the key driver of revenue growth in consumer segment

Telecom operators will be primarily banking on 5G-enabled high-speed mobile broadband which is a natural progression from 4G mobile broadband internet services. An annual industry survey (2018), conducted by Telecom.com Intelligence – an information source for global telecom industry, indicated that 45% of the respondents (i.e. 1,500 telecom industry professionals across the world) recognized mobile broadband as the 5G service with greatest commercial potential. Based on 35,000 online interviews conducted with people across 22 countries in May 2019, Ericsson estimated that, with 5G, the average monthly mobile data consumption will increase 10 -14 times. Rising demand for data-intensive applications offering high quality video viewing and immersive gaming experience will be the key impetus for 5G mobile broadband.

5G to make dream of high-quality video streaming come true

Video accounts for the lion’s share of telecom operator’s network traffic today and it is likely to become the key driver of 5G mobile broadband service. Based on survey of 30 telecom operators across the world, Openwave Mobility (a mobile data traffic management solution provider) indicated that video on mobile broadband has registered average growth of 50%-60% year-on-year during 2014-2018. In many developing countries, this growth was over 100%. As per Ericsson’s estimates, video’s share in global mobile data traffic is forecasted to rise from 60% in 2018 to 74% in 2024, witnessing a 35% growth annually.

The growth in mobile video from 2010 to 2015 was attributed mainly to increased watch times. Interestingly, since 2015, growth in mobile video was mainly driven by consumer’s move towards high definition (HD) content. Further, video is expected to evolve from HD to higher display resolution such as 2k, 4K, and even 8K in the future. HD video consumes about 0.9GB per hour, while 2k and 4k would consume about 3GB and 7GB, respectively, thereby demanding higher bandwidth capacity and speed – which only 5G will be able to fulfil. This is because 5G is expected to be 100 times faster and have 1,000 times more capacity than 4G, thus enabling smooth streaming of 4k or 8k video without any buffering or lag. 5G will also become backbone for emerging technologies such as 360-degree video, virtual reality, and augmented reality.

5G will push for convergence of communications and media, opening up new avenues for telecom operators by integration of video content and media into their offerings. For instance, in May 2019, US-based telecom operator Verizon hinted that partnerships with content providers such as NFL, The New York Times, and YouTube TV, are part of the company’s 5G video strategy.

Anytime, anywhere gaming gets closer to reality with 5G

Just as 4G enabled video streaming services to go mainstream, 5G is expected to do the same for game streaming (also known as cloud gaming, meaning the game runs on a cloud platform instead of consumer’s devices). As per estimates of Newzoo, a gaming research company, the global gaming market is expected to reach US$152.1 billion in 2019, out of which 45% i.e. US$68.5 billion will be generated from mobile gaming (games on smartphones and tablets). This indicates that smartphones and tablets have already become most commonly used devices for gaming. 5G is expected to push mobile gaming to a next level by enabling game streaming. This is because 5G’s low latency (i.e. time taken to upload data from consumer’s device to target network) will allow consumers to stream games with virtually no lag. Currently, with 4G technology, the average latency is about 50 milliseconds (ms) because of which the response time between player-cloud server-player is too long. But latency could be reduced to 1ms with 5G, thus providing uninterrupted gaming experience to the players.

With advent of 5G, majority of the leading game developers, including Nvidia, Sony, Microsoft, EA, and Google, have already launched or plan to include game streaming as a part of their service offerings. The game streaming market is expected to grow at CAGR of 41.9% during 2019-2025, to reach US$740 million in 2025 from US$45 million in 2018. Telecom operators could tap into this growing demand for game streaming by partnering with game developers. For instance, in March 2019, Nvidia’s CEO indicated that the company will cash in on delivering game streaming service via telecom operators’ 5G offering and in return, telecom operators will get to keep more than half of the gaming subscription fee collected from the players (i.e. consumers). Such partnerships are already seen to be materializing; for instance, in September 2019, SK Telecom (South Korea’s largest telecom operator) paired up with Microsoft to deliver xCloud (Microsoft’s game streaming service) in South Korea over its 5G network.

5G Fixed Wireless Access (FWA) provides telecom operators with scope of market expansion

While 5G mobile broadband provides internet connectivity to smartphones, 5G FWA offers wireless broadband to homes and businesses through 5G networks. 5G FWA is expected to be a better alternative to fixed wired broadband including DSL (Digital Subscriber Line – internet delivered through existing copper telephone lines), cable (internet provided by cable operators through coaxial cables), and FTTH (Fibre-to-the-Home – the latest broadband technology using fibre optic cables). In January 2019, CEO of a US-based telecom operator AT&T emphasized that 5G FWA will evolve as a replacement product for existing fixed broadband over next three to five years.

5G FWA will be able to compete head on with fixed broadband. 5G FWA can provide faster speed and higher bandwidth, while also remaining more cost-effective compared to fixed wired broadband. To be specific, an article published in October 2018 on Inside Tower, an information source for wireless infrastructure industry, indicated that total capex per subscriber to deploy FTTH was about US$2,000-US$2,500, while 5G FWA capex could be estimated at US$1,000-US$1,500 per subscriber (representing nearly 50%-60% cost reduction over FTTH). Earlier, in August 2017, a Dubai-based research firm SNS Telecom estimated that 5G FWA can reduce the initial cost of installing last-mile connectivity by 40% when compared to FTTH.


Explore our other Perspectives on 5G


5G FWA is expected to become one of the first commercial use cases of 5G technology. SNS Telecom estimates 5G FWA revenues to reach US$1 billion globally by the end of 2019, and the market is forecast to grow at a CAGR of over 84% between 2019 and 2025, to reach US$40 billion in 2025. Another research firm MarketsandMarkets predicts that the global 5G FWA market will grow from US$396 million in 2019 to US$46,366 million by 2026, at a CAGR of 97.5% between 2019 and 2026.

Push for industry digitization by leveraging 5G-IoT technology opens up new market opportunities for telecom operators in business-to-business (B2B) segment

Digital transformation driven by 5G-enabled IoT applications is the key focus for most industries including automotive, healthcare, media and entertainment, retail, energy and utilities, manufacturing, agriculture, public transport, public safety, and financial services. Based on analysis of 400 digitization use cases from ten industries (mentioned above), Ericsson in association with Arthur D. Little (a management consultancy firm) released a report in October 2017 suggesting that the connectivity and infrastructure provisioning to enable industry digitization is expected to generate US$230 billion in 2026. Telecom operators, in their traditional role of operating network infrastructure, have the potential to address 89% of connectivity and infrastructure provisioning opportunity, representing US$204 billion in revenues. As per the Ericsson report, the telecom operators’ potential business from connectivity and infrastructure provisioning is anticipated from number of use cases including real-time automation, enhanced video services, monitoring and tracking, connected vehicle, hazard and maintenance sensing, smart surveillance, autonomous robotics, remote operations, and augmented reality, among others.

Further, many telecom operators are expected to evolve from being network developers to service enablers providing digital platforms catering to industry-specific digitization requirements. Service enablement to address industry digitization is forecast to generate US$646 in revenues in 2026, of which telecom-operator-addressable share is estimated at 52%, translating to US$337 billion.

Moreover, telecom operators also have the opportunity to take on the role of a service creator by developing new digital service and setting up new digital value systems. In this role, telecom operators have the potential to earn US$79 billion in 2026 (representing 18% of the total revenue generated through application and service provisioning).

Thus, if telecom operators partake in every step of industry digitization value chain by adapting the role of a network developer, service enabler, as well as service creator, the total addressable revenue opportunity from industry digitization could reach US$619 billion in 2026.

Monetizing 5G - The Road Ahead for Telecom Operators by EOS Intelligence

EOS Perspective

Traditionally, telecom operators’ business model revolved mainly around providing voice and data services to consumers. Advent of 5G will not only allow telecom operators to unlock new revenue streams in consumer side of business but also expand the addressable market to B2B space.

The onset of 5G will enable telecom operators to explore new use cases and develop corresponding service offerings. For this, telecom operators will need support and cooperation from different players across the ecosystem.

Telecom operators will need to collaborate with application developers, device manufacturers, as well as third-party technology solution providers to co-create services as per the requirement of specific industries. Ericsson research report (based on survey of 50 executives working with 37 telecom operators globally), released in 2017, pointed out that 77% of the respondents believed that third-party collaboration would be vital in monetizing 5G. Realizing the importance of industry collaboration to cultivate commercially viable 5G use cases, most of the leading telecom operators have started building their partnership network. For instance, Japanese telecom operator NTT Docomo indicated that total number of partners in its 5G Open Partner Program (launched in 2018) reached 2,700 by June 2019.

Further, telecom operators will need to modify and tailor their offerings to address the evolving consumer demands and expectations. To be successful, telecom operators will need to strive to develop and offer a complete solution to the consumers. For instance, 74% of the 35,000 respondents (that participated in Ericsson survey in May 2019), indicated that they find the idea of moving away from cable TV and shifting to 5G FWA bundled with 5G TV services very appealing. In view of this, most telecom operators are experimenting with bundling strategy, starting with inclusion of streaming services as a part of their package. Ovum estimates that streaming services (including, video, live sports, music, and game) billed through 5G network bundles offered by telecom operators will grow from US$6 million in 2019 to US$4.87 billion in 2024.

Moreover, telecom operators will need to develop completely new revenue models for enterprises. Telecom operators may adopt a business model widely used by consultants, wherein they can collaborate with enterprises for specific projects and receive a one-time fixed fee or share of project-associated profits or cost savings. Or, like application developers, telecom operators can develop standard solutions for specific industries and adapt licensing model permitting enterprises to integrate the solution into their end-product or subscription-based model allowing the enterprises to use the solution for a specific period of time.

5G’s functionalities and characteristics entice telecom operators to develop new use cases and capitalize on corresponding revenue opportunities. However, the use cases, particularly in enterprise segment, still need to stand the test of practicality and commercial viability. Though 5G offers plethora of opportunities for the telecom operators, it is advisable to focus on a few business cases that best fit to their capabilities and develop the ecosystem (including application developers, device manufacturers, and third-party solution providers) required to take the final solution to prospective consumers.

by EOS Intelligence EOS Intelligence 1 Comment

Africa is Ready For You. Are You Ready For Africa?

For decades, Africa was associated with poverty and helplessness rather than business opportunities and thriving markets. But the reality is evolving, and companies from across industries are increasingly including the African continent in their investment plans. Global FMCG players too have started to set their eyes on this untapped goldmine of opportunities. However, the market is much more complex than its thriving counterparts in Asia and companies must get hold of the market dynamics before entering or they stand the risk of getting their hands burnt.

Some two decades ago, it became apparent to the leading international FMCG companies that many of their core developed markets in the USA and Europe were no longer able to provide sustainable growth, which made them extend their business focus to include developing markets in Asia. While these economies will continue to still generate significant returns for quite some time, many global FMCG giants are already exploring new growth avenues and are turning their eyes towards the African continent. Growing middle class (already accounting for more than one-third of the continent’s total population, it is expected to hit 1 billion people by 2060), paired with accelerating economic growth, large youth population, overall poverty decline, and urbanization trends are the key factors underpinning Africa’s position as the next frontier in the global FMCG arena.

This has already spurred investment activity amongst leading FMCG players. By 2016, Unilever and P&G plan to invest US$113 million and US$175 million, respectively, to expand their manufacturing facilities in the continent. While these facilities are to be developed mostly in South Africa, they are expected to cater to developing markets across eastern and southern regions. Godrej, a relatively smaller India-based company, has taken up the inorganic route to tap this market, by acquiring Darling group, a pan-African hair care company.

Despite luring growth potential offered by the continent, the African markets are much thornier to penetrate than it seems. A shaky political and regulatory environment acts as one of the largest roadblocks. The continent has witnessed 10 coup d’états since 2000 and has been subject to countless changes in business policies resulting from unstable governments. Further, inefficient distribution networks, inadequate business infrastructure, as well as complex and inhomogeneous marketplace housing 53 countries, 2,000 dialects, and countless cultural groups, all cause African consumer markets difficult to navigate through.

Notwithstanding the challenges, the potential offered by the African continent overweighs. Companies, however, must mould their strategies and offerings to the realities of African markets in order to succeed. Here are a few pointers to consider:

  • Bring affordability and quality to the same side of the coin: Contrary to popular perception, the middle-class African consumer attaches much importance to quality and brands. Companies that have long followed the strategy of selling poor-quality products in this market cannot sustain for long. Having said that, affordability still stays as an important factor for the middle-class Africans. To deal with this, companies can look at offering good quality products in smaller packaging, to ensure low unit price. For several years, African consumers have gotten used to buying smaller quantities that could fit their limited budgets.

  • Discard the one-size-fits-all approach: On a continent with 53 nations, companies looking to enter African markets with blanket approach are likely to fail. While South Africa is relatively more developed and has slower growth, markets such as Nigeria and Kenya are developing at a rapid pace, and thus their dynamics differ. Consumer shopping behaviors and patterns also vary. Sub-Saharan nations, in comparison to North African consumers, tend to exhibit more brand loyalty and are more conservative in trying new things. North African countries also present stronger desire for international brands. Thus, it is most critical for international players to identify the characteristics of a particular market that they plan to enter.

  • Locate the right partners: Informal trade dominates African markets making distribution a daunting task. However, this challenge can be turned into an opportunity for companies to improve their competitive edge and bypass the lack of sufficient distribution and retail facilities. In rural areas of Nigeria and Kenya, Unilever has replicated its Indian direct-to-consumer distribution scheme, wherein a host of individuals undertake direct selling to consumers in their communities. Similarly, other companies have posted sales executives with each sub-distributor to manage inventory and brand image. Distribution costs are high in Africa but bearing them is not optional.

  • Move beyond traditional media: TV and print remain a popular and trusted media for advertising to urban consumers. However, owing to their low penetration in rural regions, they have limited impact on rural consumers. This brings forth the need to reach mass consumers through in-store marketing. Over the coming years, companies can also look into mobile advertising as surveys reveal that the number of Africans having access to mobile phones is already higher than those with access to electricity. Mobile penetration in the Sub-Saharan Africa stood at 57.1% in 2012 and is expected to reach 75.4% in 2016. This promises a gamut of mobile marketing opportunities for consumer companies.

  • Deal with infrastructural woes and innovate to compensate: Power outages, poor transportation, and limited access to cold storage facilities make public infrastructure undependable for businesses. Thus, companies must be open to invest in own power generators and water tanks. Innovations at the product end may also help overcome infrastructural limitations. For instance, Promasidor, an African food company, uses vegetable fat instead of animal fat to extend its milk powder’s shelf life when stored without refrigeration. While spending on infrastructure heavily increases costs, it can provide companies with a competitive advantage in the longer run.

  • Invest in personnel management and grow new talent: The fear for personal safety among foreign nationals and lack of skilled professionals within Africa makes recruitment a challenging task, especially for mid- and top-level management. Tapping into African diaspora located throughout the world comes across as a win-win solution. Moreover, providing training and management courses to local graduates allows addressing personnel needs over long term.


The African market can be a goldmine for FMCG players, if entered cautiously. However, the same can become a landmine, if proper investments and planning are not undertaken. Despite the present challenges, increasing number of companies will be looking into Africa, however only few will have the skill set to translate this opportunity into a great success.

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