New research from IHS paints a study in contrasts among Pay TV operators.
Internet Protocol Television (IPTV) providers like AT&T Uverse and Verizon FiOS are showing good subscriber growth and momentum — 398,000 net subs in Q2.
Meanwhile, cable and satellite TV operators are reeling a bit, losing a combined 750,000 net subscribers. Satellite, in particular, is flagging.
To make matters worse, IPTV, cable and satellite operators are duking it out in a shrinking market, casualties of consumers embrace of Over-the-Top (OTT) video like YouTube and Netflix. This chart tells the story.
To turn this around, Pay TV operators are going to have to find a way to actually profit from OTT video traffic rather than simply fend it off. Here’s our take on how they can do it
The subject of cord cutting has been bandied about for the past several years, with arguments seeking to substantiate or debunk the phenomenon usually supported by data that could be interpreted in different, inconclusive ways.
Recent figures from Moffett Research now point to a discernible trend in which Pay TV operators are clearly experiencing a period of sustained subscriber churn — especially from cable and satellite providers.
IPTV providers like AT&T Uverse and Verizon FiOS have siphoned off some of the subscriber base from cable and satellite providers but not enough to keep total Pay TV subscriber numbers from dipping.
It will be interesting to see how Pay TV operators address this threat and blunt the growing exodus of viewers to free and low cost over-the-top (OTT) options like Netflix, YouTube and Hulu. TV Everywhere will become tables stakes for retaining subscribers. A whitepaper by the analyst firm, Ovum titled “The OTT Challenge and Operator Responses” does a good job of laying out some options including:
Strategic partnerships: Operators can leverage an OTT to expand its own offering. As an example, Belgacom has tapped video search engine provider, Blinkx across its entertainment platform.
Become a smart enabler: Operators can benefit from allowing OTT providers to offer enhanced services. Carriers can offer over-the-top publishers billing services, network-based APIs, QoS guarantees and analytics services.
Become an OTT player: Strategic investments or outright acquisitions might make sense for some operators. The Dailymotion acquisition by French operator, Orange is probably the boldest such move so far and will ostensibly help them offer their services into new markets.
Time will tell which strategies that operators embrace but it is clear that the status quo will not suffice long term.
For the past few several years, pundits and industry analysts have prophesied the day when time spent by consumers with digital media would surpass time spent watching TV.
It would appear that time has come.
According to findings released by eMarketer, the average adult will spend 5+ hours per day consuming digital media — spurred by online video viewership over mobile devices — versus 4 hours and 31 minutes watching TV.
Since the research counts time spent within each media — regardless of multitasking — it’s still difficult to accurately determine which content consumers are actually viewing in this age of the “second screen” and continuous partial attention. Still, the message is clear. Digital media is ascendant.
Streaming Media has posted a very interesting presentation that is worth 20 minutes of your time if you are in the content delivery industry. Among the highlights from the presenter, Craig Labovitz of DeepField:
50% of traffic is currently generated by just 35 sites / services.
That figure will climb to 60% by 2014.
Netflix Open Connect may deliver more traffic than all CDNs combined by 2014. A bit difficult to fathom, but we’ll see.
25% of carriers plan to build their own CDN infrastructure. Sounds about right; on the low side for Tier 1 service providers.
Based on the above projections, two of his quotes also really stood out:
“With CDNs at half of Internet traffic, if you are a carrier and not a part of content delivery it’s not clear what business you are in.”
Content owners and MSOs have invested a lot in TV Everywhere without much to show for it.
In fact, The Diffusion Group — a research and advisory firm focused on multi-screen video — just published a new report which reveals that less than 50% of U.S. multichannel TV subscribers have access to authenticated TV Everywhere content.
That is not going to get the job done if MSOs hope to use TV Everywhere to stem churn in the face of popular over-the-top (OTT) programming like Hulu and Netflix.
Enter Fox to shake things up.
It has the broadcast rights for the 2014 Super Bowl and it plans to wield that leverage to push for changes.
How better to compel some of the largest MSOs to sign TV Everywhere authentication deals than to restrict access to the Super Bowl stream to their subscribers? Fox is floating this exact scenario, coercive as it may sound.
This certainly won’t endear Fox with the Pay-TV powers but…. it may take this kind of bold move to turn the tide for TV Everywhere. Stay tuned.
iTunes ushered in the era of a la carte content consumption, with many consumers more than happy to purchase a song or two from a new release rather than buy the entire album.
While that model continues to appeal to consumers, it decimated the traditional music business. That fact certainly isn’t lost on Pay-TV providers and media companies, who have fiercely resisted the notion of unbundling their subscription packages and providing an option to purchase content on a more a la carte basis.
Intel’s premium OTT offering — currently in development — may be on the way to establishing a middle ground. As currently envisioned, the service would:
Enable viewers to select which niche blocks of channels — sports, music, movies, etc.. — that they would like to include in the service. Consumers could not purchase individual channels yet but… they could eliminate a lot of the channels and programming that they rarely watch.
Require consumers to pay a premium to purchase a block of themed channels. This would offer consumers more choice without threatening media company’s lucrative carriage fee revenue.
It will be interesting to see if Intel makes enough headway with this service to actually bring it to fruition.
Sometimes embarrassment can be a powerful motivator for change.
Conversely, so can the stature and prestige that comes from a high ranking.
Looks like both were in play in motivating Cablevision to join the Netflix Open Connect CDN according to this post by FierceCable. The back history looks something like this:
Cable operators like Cablevision are not particularly fond of Netflix, since it siphons off potential pay-per-view customers and sucks up a lot of bandwidth.
Cablevision is not particularly fond of fellow cable provider Verizon either, which it counts as its biggest enemy.
In 2011, the FCC released its first Measuring Broadband America report and Cablevision fared poorly; it delivered advertised Internet download speeds just 59% of the time during peak hours, while Verizon delivered more than 100 percent of its advertised speeds. Not surprisingly, Verizon jumped on this and hammered it home in a series of ad campaigns.
Then Netflix poured fuel on the flame when it began publishing its ISP Speed Index, which also reported that Verizon FiOS delivered faster speeds than Cablevision.
Pushed into a corner, Cablevision chose to join Netflix’s Open Connect CDN in an effort to improve its speeds and its paid off handsomely. Cablevision now ranks #2 among all cable providers — 3 spots higher than Verizon — and is rolling out consumer marketing that touts the difference.
The learnings from all this?
The Netflix ISP Speed Index is working like a charm.
Video caching can be used for strategic advantage to deliver better QoE and improve perceived performance in the eyes of prospective customers. It will be interesting to see if other service providers follow suit.
Online video will represent 69% of consumer internet traffic.
Mobile video is really poised to explode, fueled by the seemingly insatiable global consumer appetite for connected devices like smartphones and tablets. Cisco forecasts that mobile video will account for 66% of all mobile data traffic. For perspective, that would be a 16 fold increase from 2012.
Internet content streamed to TVs will hit a mind boggling 6.5 exabytes per month. 6.5 exabytes per month!
If these numbers actually pan out, it will require massive infrastructure investments and turn up the heat on network service providers to establish new revenue streams to offset these expenditures.
Particularly interesting to us was her mention of the rise of short-form video, driven by the likes of Vine and Dropcam. Just check out Vine’s surge in active users since the beginning of the year. It will probably surpass your expectations; it definitely exceeded ours.
Even so, Skytide is still predicting that the market will also see a surge in long-form video too, as more movies and TV programming are delivered over IP. Check out our 6 Online Video Trends for 2013 report for more insight on the subject.
Cord cutting is poised to put the traditional Pay TV industry in a world of hurt. Or not. Depends on your source.
To date, it’s been difficult to get an accurate read; traditional operators have claimed that over-the-top (OTT) video has had little or no impact on their businesses, while those in the OTT ecosystem have argued otherwise.
A new report from Leichtman Research would seem to indicate that there are indeed some cracks in the Cable TV foundation, and its leaked customers to the tune of 1.5 million subscribers in the past year alone. While OTT is not the sole source for this subscriber churn, it is undeniably a leading contributor.
In the end, it may be Telcos and ISPs that ultimately create the greatest cracks in the cable empire. Those that roll out their own wholesale CDN services have an opportunity to actually profit from OTT traffic and provide a viable alternative to cable. Read Skytide’s whitepaper to learn more.