It’s All About The Benjamins

February 4, 2016

For the longest time, talk of OTT has concentrated on the development of elegant technology, and sudden access to a cornucopia of quality content. Over the last few weeks, though, the cash-money potential of these services has taken center-stage.

At the highest level, the furor over T-Mobile’s Binge On service has, rather then dying down, taken on something of a life of its own.  This was of course partially a self-inflicted wound, as legendary contrarian John Legere (CEO of T-Mobile) called out the Electronic Freedom Foundation ungraciously, thus providing legs to his foes. The extra noise – which he could totally have done without – caused more scrutiny, with researchers at Stanford suggesting the program may run afoul of Net Neutrality rules. Why does anyone care? Because nobody running content wants to be at the mercy of an infrastructure toll-taker. For all the hand-wringing about stifling innovation, it’s the big players who are watching carefully to ensure they don’t see barriers built between them and their online audience.

Meanwhile, traditional Pay-TV providers aren’t standing pat and watching their business slowly chipped away.  From the competitiveness of their fees – relative to an ISP plus a la carte VOD fees – as reported by Strategy Analytics, to retention efforts that are slowing the demise of the cable subscriber at companies like Comcast, there is a growing recognition that, method of delivery notwithstanding, all the TV providers are competing in what is becoming a single marketplace. Note that while Comcast lost ‘only’ 36,000 subscribers in 2015 (with a notable gain of 89,000 in Q4), the real area of growth is broadband – the company added 460,000 broadband subscribers in Q4 alone. And those broadband subscribers will want some kind of TV – which it is clear Comcast is readying to sell. Perhaps the new FCC rules allowing anyone to build a set top box will mean that Comcast starts selling its standard service without the need for CPE (Consumer Premises Equipment), and turn the market upside down.

And let’s not lose sight of the actual money at stake here. According to Parks Associates, the average monthly consumer spend on SVOD services is a whopping…$6.19. Put that next to the average US cable bill of $99.10 last year, and it seems remarkably small. But the analyses that compare a classic Triple Play (Internet + TV + Phone) to simply buying a broadband connection plus OTT services are starting to arrive in droves – and the savings are, at best, limited. MSOs continue to innovate quickly, and with some pivoting in the OTT space itself (TechCrunch this week offered that ‘Netflix Couldn’t Look More Like A Global HBO’), it seems like their opportunity to wrest control back from the upstarts may have arrived. It is no coincidence that this was also the week Time Warner made it clear they wanted their current seasons off Hulu as part of an investment deal: keeping exclusive rights away from the digital-only providers promises to be a developing story for the rest of 2016.

Let’s close by examining the fascinating quandary raised by IT Wire: Cable cutting and streaming video – which will win?  The main takeaway appears to be that streaming is taking a lot of attention, but most of the money continues to accrue at the MSO offices – hardly surprising in light of the note that 61% of the survey respondents felt that traditional TV delivery is the most-used resource for accessing and consuming content. What seems inevitable is that this is false dichotomy: neither offering is going anywhere. The question is not which will survive, because they both will – the real question is where the revenues will end up.