Results and Discussion

1. From the framework of Shapley value to discuss cooperation

Let us assume that there are two kinds of players, the telecoms (CHTvideo (C), MyVideo (M)) and the content providers (Vidol (V), ELTA (E)). The profit of the OTT coalition is equal to the revenues minus the costs. The revenues could come from the advertising and subscription fees. The costs to set up the OTT services are staff, platform software, broadband and content copyright.

There are 15 kinds of coalition among the four players: {C}, {M}, {V}, {E}, {C,M}, {C,V}, {C,E}, {M,V}, {M,E}, {V,E}, {C,M,V}, {C,M,E}, {C,V,E}, {M,V,E}, {C,M,V,E}. Currently the players established their individual OTT service, {C}, {M}, {V}, {E}, instead of any coalition. The interviews showed that the professional managers believed the profit share of coalition smaller than the earning by themselves because of few revenue to share and limited costs of copyright or broadband to invest.

CHTvideo and MyVideo will not form the coalition together because both of them are the Internet Service Providers. It is duplicated to have two broadband networks, so eliminating {C,M}, {C,M,V}, and {C,M,V,E}. For any coalition of one telecom and content providers, why Vidol and ELTA did not cooperate with the telecom? At the 2016 year, currently the cost of broadband is cheaper than before and the price is also flexible dependent on the volume of video streaming. So it is not necessary for the content providers to form the coalition if they can make more profit by themselves.

2. Content copyright is crucial to set up OTTs.

Gimpel (2015) argued that owning the hit contents is very important to set up the OTT. First, consumers will patronize the platforms that offer their favorite TV shows and films, giving producers of popular programing strong negotiating power within the ecosystem. Second, producers must offer a large catalogue of marquee content. Variety and scale are key principles of competing in platform-mediated markets. The independent producer with one hit film or single television series cannot threaten to withhold enough content from platforms to cause viewers to balk or switch to rival platforms. Therefore, producers without scale will have little

negotiating power.

We can find the similar situation happened in Taiwan. Currently, except for the telecom operators, most of the OTTs are also the program producers or the content copyright agents in Taiwan. For example, the parent corporation of Vidol, SET TV, is the biggest program production company and owns over 4000 hours of dramas. The terrestrial broadcaster of 4gTV, FTV, own many IPTV copyright of cable and MOD

channels. The parent companies of Fain TV and ELTA TV also have the similar role of copyright programming agents.

Comparing to other video competitors, those copyright holders control the resources of the programs which is the key factor to provide the OTT services. If the new entry could not have enough contents, they would only be the empty pipe. In addition, they can establish the OTT services by spending as less content budget as possible and reduce the risk of uncertainty.

3. OTTs directly compete but also indirectly cooperate

At beginning of 2016, Netflix and Iqiyi (the biggest OTT in China) began to offer OTT services in Taiwan. Both have the original online dramas and hit contents to attract fans. For example, Iqiyi own the copyright of Descendant of the Sun produced by Korean Broadcast Station (KBS). Although there are still many pirate version online, many drama fans of Descendant of the Sun still subscribed to the Iqiyi’s OTT service in Taiwan to watch the real time and high quality drama. For the other Taiwanese OTTs to compete with the big OTT platforms from oversea, they need to cooperate or share resources in some way to reduce costs.

Although OTTs directly compete with one another, they actually share resources that they did not have. For example, OTTs need as many programs as possible to attract audiences. Many of the OTTs allow their contents in their rival programming categories. For the telecom operators, they have the resources of Internet infrastructure, but have less programming. So they might provide discount fee of bandwidth and cooperate with the other OTTs who have variety of contents.

The reason to indirectly cooperate in the copyright of contents and Internet infrastructure is to reduce the establishment and maintenance costs. The revenue of subscription is still low at beginning, so the OTTs could not afford to invest too much sunk costs. Through this kind of cooperation, some of OTTs claim that they can survive in the long run, even with low subscription.

Since many OTTs only control parts of resources to set up and run the business, their Shapley values, the average of the marginal contributions is pretty low. In addition, currently the revenues of OTT subscription are also very small. The OTTs are more willing to establish their own online video services when they control many digital copyrights and the platform and bandwidth are low at the beginning of 2016 year.

4. Firms offering both pay TV and broadband will thrive

Economies of scope are key for the keystone platforms that control the physical network. Firms controlling the last-mile delivery infrastructure for both pay TV and broadband service are well poised to profit from the video industry regardless of whether TV revenues grow or consumers begin cord cutting. These firms will capture new profits from the growing demand (and willingness-to-pay) for broadband, and they are in the position to offset any decline in pay TV profits with increases in broadband charges (Gimpel, 2015).

Currently the big three telecoms already have had launched their OTT services.

The CHT and Taiwan Mobile are also the conglomerate of IPTV and cable television systems. They begin to leverage their huge cable TV subscribers to negotiate with the

copyright agents for the hit contents with low costs. They may also bundle telephone, data, cable TV and OTT together to deter future new entrants.

Ganuza & Viecens (2014) focused on the interplay between the market of contents and telecom operators in Latin America. It analyzes two strategies related to the market of contents that have been – and are being –developed by traditional telecom operators: 1 Bundling services (fixed and mobile telephony, Internet and TV). 2 Development of proprietary OTT products. They have analyzed under what circumstances a combination of these strategies could be effective to deter OTT agents or to prevent cord-cutting.

VI. Summary

Although Waterman et al (2013) showed that TV Everywhere bundling and vertical integration could deter new entry into the online TV market. Currently, several new OTT entrants who already have hold many channels and program digital copyright began to provide online video services in Taiwan. They have sufficient programs and can run the business in a lower cost, although only few are attractive users to pay for.

Since several OTTs apply the low cost strategies of sharing or discounting digital copyright, Internet infrastructure and bandwidth. Therefore, even though they may not have many huge subscription payment now, they still can sustain the business model for a long run. There could be one or two giant OTTs with economics of scope and scope from the amount of audiences and bundles, to invest huge capital in programming. On the other hand, some small OTTs could still survive in the server

online video competition.