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Smart Speakers Take Off

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market Driven View

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Technology, Media & Telecommunications
Smart Speakers Take Off

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 25 2018 — As the smart home market continues to develop in fits and starts, one device has definitely managed to catch the attention of consumers: the smart speaker.

Smart speakers, also called virtual assistants or smart home speakers, have become increasingly popular over the past eighteen months, with total unit shipments surpassing 31 million in 2017, up from just 6.5 million in 2016

Smart Speaker worldwide unit shipments, 2015 - 2017

While smart speakers can function like a traditional speaker, allowing users to play music from a smartphone or the cloud, they also offer myriad other capabilities. One of their most popular features is the ability to respond to voice commands. This allows users to receive hands-free information about the weather, local traffic or the latest sports scores. Voice commands can also do things such as turn on a coffee maker, adjust the thermostat, read an audio book, and even change the channel on the TV.

All smart speakers rely on artificial intelligence, or AI, to carry out tasks, although the responsiveness and raw intelligence offered by smart speakers varies by product. A basic function of AI in a smart speaker is that it permits the smart speaker to learn about a user’s habits and preferences over time, thus allowing the speaker to refine and improve its search responses over time.
Two vendors, Amazon with its Echo products and Google with its Google Home smart speaker, have been the leading proponents – and the largest sellers – of smart speaker products. Other notable products include:
• Apple’s HomePod
• Sonos’ One smart speaker
• Alibaba’s Tmall Genie X1
• Xiaomi’s Mi AI smart speaker

In addition, several other vendors such as LG Electronics, JD.com, Naver, Baidu and Harmon Kardon offer smart speaker products. Even Facebook recently announced that it was planning to launch a smart speaker product before the end of 2018.

Voice assistants
Voice assistants are generally viewed as the key functionality feature in a smart speaker. For many consumers considering a voice assistants platform, they often also have to select an ecosystem, as the leading voice assistants do not work very well together. This selection becomes increasingly important if a user wants to equip multiple rooms throughout the home.

Voice assistants emerged from two distinct usage backgrounds. The first was solely as a controller for a smart speaker, while the second was a voice controller for a smart phone. Coming from the former category, Amazon’s Alexa was originally developed for the Echo smart speaker and then moved into the company’s FireTV devices. After Amazon opened up Alexa to third party developers, smart home proponents rapidly expanded its capabilities into features like controlling lights and thermostats by voice.

Google Assistant and Apple's Siri started out as the voice dialing features on Android phones and iPhones. The two systems let the user take calls, make calls, play music, and answer texts on the phone. Both systems are now focused on making their voice assistants more “smart speaker-friendly” by expanding their capabilities beyond the handset and into the home.

Other leading tech companies are also developing and deploying voice assistants for smart speakers, with Microsoft’s Cortana currently used in Harmon Kardon’s smart speaker product. Samsung’s Bixby voice assistant is reportedly in trials with at least one smart speaker vendor, although for now, it is currently only available on certain Galaxy phones.

Most smart home and voice assistant developers tend to segment the utility of voice assistants into three categories: top of the line; decent, but needs work; and still under construction. Both Alexa and Google’s Assistant are widely considered “top of the line” as the best voice assistants on the market, with Apple’s Siri and Microsoft’s Cortana considered decent, but needing improvement. Other voice assistants, such as Bixby and some being deployed by Chinese smart speaker vendors, are widely viewed as “still under construction.”

Market drivers
With demand spiking for smart speakers over the past year, a common question asked by those without a smart speaker goes something like “why do I need one of these products?” Or more specifically, what is the value proposition of the smart speaker? There are three broad value props for the smart speaker market:
• Usefulness/utility of smart speakers. The basic value of the smart speaker is in its utility, or more specifically its ability to perform a number of core functions (playing music, responding to voice commands, basic online search, controlling other devices in the smart home, etc.) extremely well.
• Directly tied to this utility is the price of smart speakers, with most products selling at retail for under $100. At this price point, the purchase of a smart speaker can be viewed as a relatively low risk purchase. In other words, if the user does not like it or find it useful, buying one is not going to break the household budget.
• While most consumers only use a smart speaker for a few simple functions, its ability to expand its reach – and its ability to control other devices throughout the home – is also a key driver for use and adoption. The intuitive use of voice control and its perceived “cool” factor (a sentiment highlighted by many smart home advocates) is also driving adoption.

• As homes become increasingly connected and more intelligent, most smart speaker vendors are counting on their products to be the centerpiece of the smart home. While not all smart home proponents want to see the smart speaker as the center of the ecosystem (some notable pay TV service providers are instead positioning the set-top box as the smart home centerpiece), many key players in the technology and telecommunications industries believe the smart speaker is a key steppingstone toward smart home development and adoption.

Market Challenges
The flip side to the growth of the smart speaker market are some key challenges that still need to be more thoroughly addressed by smart speaker vendors. Foremost among these challenges is security.
• Security concerns. Technology and business media publications have had a field day recently with stories of Amazon Echo products “spying” on users. One specific story highlighted how a family in Oregon found out Alexa recorded at least one private conversation and sent it to a contact in their address book.
Amazon confirmed that the incident did occur, and noted that the family’s Echo device woke up due to a word in background conversation sounding like "Alexa." The subsequent private conversation was heard as a "send message" request. When Alexa responded out loud "To whom?" the background conversation was interpreted as a name in the family’s contact list and a recording was sent to that person.
While this event seems to have been quite unusual, the fact that it did occur highlights the security and privacy challenges facing the smart speaker market. While smart speaker vendors are rapidly applying resources to better address security concerns, stories like this one are an obstacle to market growth.
• Another challenge to the market is a general lack of compatibility between smart speaker products and other connected devices. Leading vendors such as Amazon, Google and Apple have designed their products to interact and function with other compatible devices that often use proprietary software of operating systems. While Amazon has been aggressive in allowing third-party developers to integrate Alexa functionality into their products, for the most part Google relies on Android-based products to connect to its Home smart speaker, while Apple relies on IoS-based products for its connected ecosystem.
• Interconnection between the three ecosystems is tricky at best, and often just not possible. As Kagan does not see any serious drive for standardization among smart speaker products or technologies, this issue is going to remain a significant challenge for the near future.
• Related to compatibility with other products is the challenge of ecosystem complexity. While a key driver for the smart speaker market is the growing interest in the potential of the smart home, the caveat to that driver is how to best connect smart speakers with other devices in the home. Again, within the same smart speaker ecosystem (Amazon, Google, Apple, etc.), it is achievable. However, when third-party devices and services provided by cable operators, telcos or even security firms are added to the mix, the complexity of integrating a smart speaker into a broader ecosystem becomes a serious challenge.
• While Kagan identifies ecosystem complexity as a market challenge, we also recognize that some of the leading smart speaker vendors are purposefully designing their ecosystems to work best with their own proprietary platforms and products. This “silo” effect for a given ecosystem can offer the smart speaker vendor advantages over a more standardized and compatible ecosystem. As the smart home continues to develop, and as new revenue opportunities emerge from this development, having a proprietary ecosystem could turn out to be savvy business move on the part of some vendors.

Vendor Market Shares
Amazon, with its Echo smart speaker product line, dominated vendor market shares in 2017. On a global basis, Amazon accounted for just over 60% of smart speaker shipments, with Google’s Home smart speaker accounting for 31% of shipments.

Both Amazon and Google experienced strong growth in unit shipments in 2017. Amazon’s shipments grew from an estimated 5.5 million smart speaker products in 2016, while Google increased from an estimated 500,000 units shipped.

Alibaba and Xiaomi collectively shipped an estimated 1.5 million smart speakers last year, with almost all of their shipments occurring in China, while Sonos shipped an estimated 4000,000 units.

Apple’s HomePod smart speaker does not appear in these rankings, as it did not begin shipping until February 2018.

Worldwide smart speaker forecast
Since their introduction in 2015, demand for smart speaker products has risen impressively, making the product category one of the notable recent successes in the global consumer electronics market. After exceeding 31 million units in 2017, smart speaker shipments are projected to hit 50 million units in 2018.

Shipments
Kagan’s longer-term forecast is based on several assumptions, to include:
• the increasing demand for smart speaker products
• their increasing utility, especially in regard to voice-enabled search and response capabilities
• the growing demand for smart home functionality
• an increase in demand for smart speakers in regions like Europe and Asia
This final point is particularly important, as current demand for smart speakers relies overwhelmingly on the North American market. In 2017, 83% of global smart speaker shipments were to North America.
Unit shipments are forecasted to surpass 70 million in 2019 and rise to 142 million by year-end 2022.

While a few countries in regions outside of North America are experiencing some solid demand for smart speakers, such as the United Kingdom, Germany, France, China, and South Korea, the key market to date has been the U.S. With the expanding availability of smart speakers in Asian and European countries, coupled with voice assistants integrating new language capabilities, we expect smart speakers to appear in an increasing number of households outside of the U.S.

Revenues
Revenues for smart speaker products reached $2.52 billion in 2017 and are on track to exceed $4 billion in 2018. Average selling prices, or ASPs, for smart speaker products are generally below $100, with occasional sales promotions offering full-featured products for less than $50.
While most shipments have been concentrated among the sub-$100 price point, there are some notable higher-priced products available. These include the Sonos One, priced at $199 and Apple’s HomePod, priced at $350.
On a regional basis, North America produces the lion’s share of smart speaker revenues. In 2017, North American consumers accounted for an estimated $2.1 billion of the total $2.5 billion in product revenues.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market Driven View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Giorgio Baldassarri, Global Head of the Analytic Development Group, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Giorgio focused on the analysis of the evolution of the credit risk profile of European Union companies between 2013 and 2017, and how this may change under various Brexit scenario; if you want to know more, you can visit here.

I started with an overview of key trends of the credit risk of public companies at a global level, before diving deeper into regional and industry sector-specific performance and pointing out some key drivers of country- and industry-level risk. Credit Analytics Probability of Default (PD) Market Signals model was used to derive these statistics. This is a structural model (enhanced Merton approach) that produces PD values for all public corporates and financial institutions globally. Credit scores are mapped to PD values, which are derived from S&P Global Ratings observed default rates (ODRs).

From January 2018 to October 2018, we saw an increase in the underlying PD values generated by PD Market Signals across all regional S&P Broad Market Indices (BMIs), as shown in Figure 1. For Asia Pacific, Europe, and North America, the overall increase was primarily driven by the significant shift in February 2018, which saw an increase in the PD between 100% to 300% on a relative basis. The main mover on an absolute basis was Latin America, which had a PD increase of over 0.35 percentage points.

Figure 1: BMI Benchmark Median credit scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

Moving to the S&P Europe BMI in Figure 2, we can further isolate three of the main drivers behind the overall increase in PDs (this time measured on a relative basis), namely Netherlands, France, and Austria. Among these, the Netherlands had the most prominent increase between August and October. Again, one can identify the significant increase in the PDs in February, ranging from 150% to 230%, across all three countries. Towards July, we saw the spread between the three outliers shrink significantly. In August and September, however, the S&P Europe BMI began to decrease again, whilst all three of our focus countries were either increasing in risk (Netherlands, from a 150% level in the beginning of August to a 330% level at the end of September) or remaining relatively constant (France and Austria).

Figure 2: European Benchmark Median PD scores generated by PD Market Signals model, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

In the emerging markets, Turkey, United Arab Emirates (UAE), and Qatar were the most prominent outliers from the S&P Mid-East and Africa BMI. As visible in Figure 3, the S&P Mid-East and Africa BMI saw less volatility throughout 2018 and was just slightly above its start value as of October. Two of the main drivers behind this increase were the PDs of the country benchmarks for Turkey and the UAE. Turkey, especially, stood out: the PD of its public companies performed in line with the S&P Mid-East and Africa BMI until mid-April, when it increased significantly and showed high volatility until October. On the other hand, the benchmark for Qatar decreased by over 60% between May and October.

Figure 3: S&P Mid-East and Africa BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

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We then looked at different industries in Europe. As shown in Figure 4, the main shift in S&P BMIs occurred in February, with most industries staying on a similar level for the remaining period. The main outliers were the S&P Industrials, Materials, and, in particular, Consumer Discretionary Europe, Middle East, and Africa (EMEA) BMIs. The S&P Energy BMI saw some of the highest volatility, but was able to decrease significantly throughout September. At the same time, the Materials sector saw a continuous default risk increase from the beginning of June, finishing at an absolute median PD level of slightly over 1% when compared to the start of the year.

Figure 4: S&P EMEA Industry BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion, looking at the public companies, Latin America, Asia Pacific, and Europe pointed towards an increase of credit risk between January 2018 and October 2018, amid heightened tensions due to the current U.S. policy towards Latin-American countries, the U.S./China trade war, and Brexit uncertainty.

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

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AVIA OTT Summit 2019 Offers Insight Into Changing OTT Roadmap

Mar. 06 2019 — Over-the-top video in the Asia-Pacific has been rapidly evolving as OTT players continue to learn and understand the landscape. Industry experts who participated in the Asia Video Industry Association OTT Summit 2019, held February 20 in Singapore, emphasized the importance of relevant content and adaptability of OTT players, particularly in finding the right business model.

According to Media Partners Asia's Vice President Aravind Venugopal, most OTT players that entered the region in 2016 — citing Netflix Inc., HOOQ and iflix — primarily offered a subscription service, whereas PCCW Media Ltd's Viu provided ad-supported content. He said that a year after, each one was trying to figure out what revenue model would work best. It was at that time that sachet pricing, transactional video-on-demand and ad-supported content became more prevalent.

As for 2018, it was said that OTT players moved toward paths through which monetization could continue to grow, and advertising video-on-demand had to be maximized. Venugopal cited that in one of Media Partners Asia's studies, online video platforms that were more ad-focused came out on top. China players such as iQIYI Inc., Tencent Holdings Ltd.'s Tencent Video and Youku Tudou Inc. are able to monetize consumers by adding sachet pricing, as well as allowing customers to purchase magazines or books, or any other offering that would make them stay on the service.

As more OTT services enter the region, finding the most ideal business model to retain and grow viewership can be a challenge. Panelists who were part of the "AVOD vs SVOD vs TVOD: Finding the Right Business Model" discussion, however, agreed there really is not any right model — it is yet to be discovered as OTT players learn more about their respective areas of operation.

Services will have to adapt and should be open to evolving content offerings based on consumers, while also taking regulatory policies into consideration.

In the case of HOOQ, CTO Michael Fleshman highlighted that the company is moving toward using a freemium model, through which consumers may eventually no longer need to register on the site. The OTT player is also trying to maintain simpler packages, with free content very much accessible for everyone.

He also said that HOOQ was initially worried about cannibalizing the subscription video-on-demand business, but as it turns out, engagement is still doing well.

HOOQ recently added linear channels to its offering, and Fleshman emphasized that the OTT service is not shifting but expanding its service so customers will not feel the need to go somewhere else to watch linear channels.

When global OTT player Netflix entered Asia in 2016, it had an international playbook in hand, which made collaborating with local operators a crucial step in learning more about the region. Subscription payment was one of its main concerns and having local partners became beneficial in addressing this.

When asked how the company felt about competitors and what its competitive advantage was in the Asia-Pacific region, Tony Zameczkowski, Netflix's vice president of business development in Asia, said the company sees competition as a good thing.

He also said Netflix's competitive advantage is its platform, content, marketing and partnership. In terms of platform, Zameczkowski elaborated that Netflix provides a "hyper-personalized" service capable of providing recommendations and personalizing the customer's content library.

In terms of content, Zameczkowski acknowledged that the OTT player's local content offering was initially weak. Soon after acquiring various licensing content from producers, however, Netflix started producing original content. The company will continue to invest in relevant titles. In relation to marketing the service, Zameczkowski said that Netflix banks on its titles, part of its promotional strategy.

Partnering with telcos was also very instrumental in establishing Netflix's presence in the region. Likewise, partnering with device manufacturers was important — a different approach for the company, as the Netflix app would normally be included on most devices in U.S. and European markets.

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