Full disclosure – I’m a member of the Baby Boomer generation. That means I’ve seen the TV industry evolve from the initial three over-the-air VHF channels for the ABC, CBS, and NBC networks, plus a couple of UHF channels for PBS and local programming, to today’s transformational era of On-demand, OTT, IP delivered content. What I’m going to do in this blog is cover the OTT landscape of programming choices, the challenges traditional Pay TV models face, cord shaving, and channel bundling, with a goal of suggesting business models that address the desires of viewers, content producers, carriers, and advertisers. Pretty ambitious huh?
This image shows the typical TV viewing experience I remember growing up - the tiny black and white screen on the single TV in the household, with the whole family watching a show together. Besides the obvious cultural changes since then, we have seen steady change in how we watch TV, and in new services and technology, giving us more choice in what we watch. New OTT services coming online will bring even more viewing options, allowing each household member to watch what they want, when they want, on any screen.
OTT services have already brought us a huge variety of programming choices, and in delivery methods. Smart TVs today usually include built in access to OTT services such as Netflix and Amazon Prime, AppleTV and Roku OTT boxes each provide a broad spectrum of channels, and video streaming to mobile screens gives us the flexibility to watch wherever we are.
OTT services are having an effect on the Pay TV and cable ecosystem. You probably have noticed articles in the press discussing cable “cord cutting” or “cord shaving”, and the number of cable subscribers being lost. Let’s dig deeper into what is really going on. What gets reported is that in the past five years nearly 8.9M net cable subscribers have been lost1. Not widely reported is that satellite (DirecTV and Dish) and Telco (AT&T U-verse and Verizon FiOS) have gained enough subscribers to offset about 95% of the cable subscriber losses1. Today the Pay TV ecosystem has only 550K fewer subscribers then at the peak year of 2009 (99.41M today vs. 99.96M in 2009)1, a small 0.6% decline. But, in these same five years, the number of US households has grown by 4.8M, so we should have seen Pay TV subscriptions grow. This indicates the real number of cord cutters is close to 4.8M. Where are they going? To Netflix, with 43M US accounts, and other popular streaming video services.
The motivations for this are clear - subscribers on average view only 17 channels out of the hundreds that are included in most cable bundles, and don’t want to pay for channels they never watch. The hope is that OTT services will deliver the channels they want to watch at a much reduced monthly bill. It is too soon to know how this will play out in the long run. From the descriptions of OTT channel bundles being rolled out today, it appears the average household will require 2-3 bundles to cover the content they watch. The announced pricing indicates that monthly bills may be smaller than cable packages, but not significantly.
What may the future hold for Pay TV and cable services? To start, cable providers have the advantage of an installed base of almost 100M subscribers. The core piece of their service packages is sticky - the Internet connection. No matter what cord cutting or shaving is done, consumers still need their Internet service for any OTT channels. So, working from the basic Internet access, what other services could be offered? Program search could become a value add. Instead of learning multiple program search tools, consumers would have a single search tool that aggregates results across the OTT services. Another is ad insert. Currently, most ad buys are national or regional. OTT offers potential for granularity in ad buys – down to households or even individuals. Dynamic ad insertion services would allow narrow targeting for efficient use of ad dollars. Could cable providers integrate OTT hardware into their set top boxes? If they did, then aggregated billing is another service.
The only certainty is that we will experience dynamic market development of OTT services. No matter how this evolves, Limelight has the global network and video delivery solutions to handle the most complex workflows to deliver a broadcast quality viewing experience to your audience. Learn more at the Media and Broadcasters Solution site on www.limelight.com