The 10 Over-the-Top Video CommandmentsThe 10 Over-the-Top Video Commandments
TDG analysts detail the 10 ways that pay-TV providers can embrace over-the-top content and make it work in their favor
May 18, 2011
DALLAS -- TIA 2011 -- Over-the-top (OTT) video is changing the nature of the viewing experience in the U.S., where Netflix Inc. (Nasdaq: NFLX) dominates Internet traffic and the pay-TV market is reaching saturation. (See Netflix: The Internet's US Traffic King and Survey: 7% of Pay-TV Subs Will Cut Cord.)
Today, 90 million households worldwide are watching Internet video on their TVs, but by 2016, there will be 250 million OTT households, according to The Diffusion Group (TDG) . It's a trend that pay-TV operators need to embrace or at least recognize.
TDG analysts and senior partners Colin Dixon and Michael Greeson broke down the realities of OTT and what it can teach pay-TV and content providers in a four-hour pre-TIA conference Tuesday. Here are the CliffsNotes:
Follow the rule of three screens
Video today, for the most part, is still consumed on the TV, but that's rapidly changing. In the not-so-distant future, the viewing experience will be a combination of video, data and applications on every screen, in every place consumers go, TDG predicts. That's why if you're in the video business, you must be in the three-screen business, including the TV, PC and mobile. "You'll become irrelevant if you aren't," Dixon warned. (See Monetizing Multi-Screen Mania.)
Optimize, but personalize
Building a three-screen strategy is more than just porting content, however. Every viewing experience should be optimized for that particular screen size, but the one unifying element should be that they carry data about a subscriber to every screen. Every device often has its own user interface, but the experience should be the same.
Mobile TV hasn't taken off on mobile phones, but tablets that are built with video as a key usage pattern are a huge opportunity, Dixon said. "In all my years, I've never seen content providers flip like they have over the iPad," he said. And consumers' attitudes become increasingly positive the larger the screen size gets. TDG believes tablets will become a dominant second screen in the home. (See TelcoTV 2010: Apple's Cord-Cutting Fanboys.)
Carefully targeted niches are important for any company that's chasing the OTT market. Service providers or content providers with enough brand cache are looking to reach large niches like, for example, the 1.5 million Korean speakers in the U.S. This may require providing more content a la carte, but it's how certain groups of people want to consume relevant material.
Offer pure broadband TV packages
There's a large segment of the population for whom broadband is more important than pay TV, Dixon said. These customers still want TV, but in order to serve them, operators will have to offer pure broadband TV packages. Dish Network LLC (Nasdaq: DISH) has already done this with its international channels -- not as a competitive differentiator, but as a way to go after broadband-only customers with additional services.
Next Page: The Next 5 Commandments
With Internet connectivity, OTT providers can reach networks far beyond their own footprint. TDG's Greeson urged operators to think about the opportunity connectivity offers them to go international. They're only one iPad app away from an international strategy, he said. (See Boxee, Roku Predict Pay TV's Transformation and Comcast's Over-the-Top Dilemma.)
Think outside of the (set-top) box
It's not the set-top box that matters, but the application. "If you're thinking about an OTT play, it's a burden to think about selling your own box," Greeson warned. Instead of hosting your own box, cut deals with consumer electronics vendors to build a presence on the most popular boxes already in homes. "Netflix listened to this, and it has grown to 23 million," he added.
Know where devices are located and why
Along those lines, operators need to get wise to what boxes consumers are adopting and where they're located. Laptops and tablets are more often finding a home in living rooms, as is the cable modem. This is a clear opportunity for pay-TV providers to connect these devices to the Internet. (See Will Connected TVs Disconnect IPTV Providers?.)
Think gaming and Blu-ray
Right now, gaming consoles like the Xbox 360 and PlayStation 3 are the single biggest port of Internet connectivity. Operators should look to these devices to embed new services and TV applications. Blu-ray players, however, will overtake the market by 2016 as DVD players continue to decline. These are two of the most important pieces of hardware to target for the foreseeable future.
Simplify home networking for consumers
Most consumers don't even realize they have a home network and, if they do, they don't know what 802.11n means or where the video comes from. Wireless routers need to be explained more clearly. Dixon suggests a label that reads, "This box brings Netflix to all your devices."
Bonus Warning: Don't get complacent
Cord replacing, as TDG calls it, isn't happening en masse today, but that doesn’t mean it won't in the near future.
"We don't believe [cord cutting] is happening, but we do believe that increasingly it's becoming much more interesting to consumers," Dixon said. "As more content comes over the top, it will become an increasingly valid function for consumers."
— Sarah Reedy, Senior Reporter, Light Reading Mobile
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