2015: Jumping on the OTT Bandwagon

March 31, 2015

We’re just a quarter of the way into 2015, and we’re seeing big signs that more content companies will be offering their content directly to consumers, either as a standalone service or in a broader OTT bundle. Providers are jumping on the OTT bandwagon– willing to offer services in real-time to users without the need for a separate cable TV subscription. The goal: to reach consumers cutting the cord on cable and satellite services or those unwilling to sign up for pay-TV in the first place.

One big indicator of this movement is Dish Network’s new Sling TV, a $20 a month bundle of over-the-top channels. Dish surprised the cable industry when it announced it would launch the OTT subscription, and Sling TV officially debuted in February 2015, offering 14 cable channels including ESPN,ABC, CBS, NBC, Fox, and soon AMC.

Another major surprise in the OTT space was HBO’s announcement that it will officially launch HBO Now, a $15-a-month subscription offering that will deliver HBO programming to those who want to forego traditional cable. Signing an exclusive deal with AppleTV for the first 3 months, HBO Now will launch next month, timed to the season-five debut of “Game of Thrones” on April 12, 2015.

Last fall, CBS rolled out “CBS All Access,” a subscription service for $5.99/month, offering current and past seasons of shows as well as live TV in its local-station markets. President and CEO, Leslie Moonves, said their subscription OTT service has attracted users “beyond our projections” and has done “extremely well.” Meanwhile, Showtime has announced it would launch a standalone SVOD service later this year too.

NBC is also planning an OTT subscription comedy channel called Grins and Giggles, launching later in 2015. NBC’s comedy SVOD service could potentially offer a roster of original series as well as full episodes of shows like “The Tonight Show Starring Jimmy Fallon” and “Saturday Night Live,” but decisions about the programming are still being finalized. We’re even seeing specialized content going OTT. This March, Viacom’s Nickelodeon officially revived Noggin, their channel aimed at preschoolers, as an SVOD service for only $5.99 a month. The network said it was in discussions with cable and satellite providers about offering the service as a premium add-on for subscribers. Additionally, Fox is also looking to meet consumer’s multi-screen demands with a direct-to-consumer offering. COO, Chase Carey said OTT is a big priority and “consumers want this choice, and we have to play a direct role.”

Even well-known consumer electronics (CE) brands are hopping on the OTT bandwagon with bothrumors of Apple’s much-anticipated Internet TV service and the early launch of Playstation Vue.Playstation Vue offers 85 channels at $49.99/month, and is currently available in New York, Chicago, and Philadelphia, with rollout to other major US cities planned. The service is available in three tiers with users being given a 7-day free trial to give the service a whirl.

This dynamic shift to OTT is partially due to the fact that more consumers are cutting the cord. ComScore reported in October 2014 that 24% of adults 18-24 don’t pay for traditional TV service. A recent Nielsen report indicates traditional TV usage dropped 10.6% between last September and January among millennials 18-34 years old compared with a 4% average decline that’s been occurring since 2012.

But, the silver lining is that viewers are watching subscription streaming services. NBC Universal’s Alan Wurtzel stated that their subscription video viewing was up 22% year-over-year in 2014. Nielsen’s latest total audience report shows 40% of U.S. households subscribe to at least one video streaming service as of November 2014.

Digital TV Research confirms that over-the-top revenues are significantly growing, while pay-TV revenues have begun to drop. Their study says OTT revenues are on pace to surpass $10 billion in 2020, up 52% from $6.85 billion last year. Meanwhile, pay-TV revenues will decline to $90.71 billion by 2020, a 12% decline from its high of $102.86 billion in 2013. As pay-TV household penetration continues to fall, in turn, the growth in over-the-top revenue will likely come from existing pay-TV subscribers as they transition to procuring their content through broadband services.

According to those in the know, the content companies might as well disrupt themselves, lest they risk being out of the game entirely in the new generation. “You are getting the cord-cutters, people who want mobility, and superfans,” CBS President and CEO, Leslie Moonves, said. “The cord-cutters can’t be ignored.”