Without a doubt, high-quality content is the most important differentiator for strengthening any social community. Top industry players have always known this. Examples over the years include Google (Nasdaq: GOOG) leveraging YouTube to attract users to its other services, Apple Inc. (Nasdaq: AAPL)'s walled garden approach to content purchases and cable providers themselves offering more on-demand/on-device solutions.
So how much of a threat are these new challengers to traditional cable providers, and what should cable giants be doing?
Pay-TV isn’t dead; it's transforming
Despite the many proclamations, I maintain that pay-TV is not dead, but evolving at such a pace that it might be difficult to recognize or define by traditional means in the long term. Will the terms "satellite," "cable" and "OTT" even exist in the years to come, or will we just have digital, personalized entertainment experiences? It sure feels like we're moving to a more fluid environment where these labels will disappear.
OTT-only households will continue to increase
There is no denying that OTT-only is a reality. SNL Kagan predicts that US pay-TV providers will lose 10.8 million subscribers between now and 2021, while 18% of households will rely solely on OTT for TV services. (See Pay-TV Space: More Fragmenting & Facebook .)
In the video space, we've seen providers turning to acquisitions to try and offset OTT competition. Industry giants are bringing content in-house to bundle with their broadband or mobile services and lift their brands. AT&T Inc. (NYSE: T)'s purchase of DirecTV and proposed acquisition of Time Warner Inc. (NYSE: TWX), as well as Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s purchase of NBC Universal several years ago, are prime examples of this trend. We're also seeing various moves worldwide, such as international MSO Liberty Global Inc. (Nasdaq: LBTY) investing in the streaming service iFlix, and Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY) creating the streaming platform, HOOQ, through a joint venture with Sony Pictures Entertainment and Warner Bros. Entertainment Inc. (See Does AT&T Deserve Time Warner?.)
The move to mobile
With pay-TV becoming, to a degree, an endangered offering, this could be why we're seeing players like Charter Communications Inc. and Comcast moving in to the wireless space. Without a doubt, the commoditization of cable and fixed-line services has encouraged the likes of Comcast to invest in mobile, as well as transform their systems to provide subscribers with a digital experience rivaling those of the OTT players. The move to mobile is also a key way for cable providers to extend the reach of their content and keep their customers tethered with a comprehensive experience.
Embrace OTT as a way to improve consumer ecosystem
Cable providers should look to integrate key OTT services into their set-top boxes, as we know consumers are using multiple OTT offerings at one time. Comcast has demonstrated this well through the integration of Netflix and other apps right into its X1 set-top box offering. Content aggregation and the expectation of a personalized experience via recommendations and user profiles are what will truly move pay TV from a couch-based experience to a personalized one.
Re-evaluating the bundle
I believe we'll continue to see traditional cable providers offering or investing in OTT services with customizable viewing packages via bundles to combat the likes of Sling TV and Hulu with Live TV. CenturyLink Inc. (NYSE: CTL)'s just announced OTT "skinny bundle" package plans to do just this, and in the UK Sky offers a similar proposal with OTT service, called Now TV. This is a way to expand footprint beyond given regional territories, and also offer a new bundle as the traditional triple-play package loses ground. We'll also see bundles shifting more to wireless and connected home services, in addition to OTT. (See CenturyLink Joins Streaming Parade.)
The advertising opportunity
We've witnessed some big moves in the telecom space to break in to media, such as AT&T's purchase of DirecTV. While the consumer benefits are clear, this also creates advertising inventory to monetize wherever viewers are conducting their current viewing binge. The advertising business is going to be a key revenue stream moving forward, and I predict we will see more targeted, but less frequent, commercials in broadcast, in response to the consumer perception that content should be commercial-free.
One threat among many
There is an opportunity here for traditional pay-TV providers to emerge as dominant players in this new mix of content offerings. It requires moving in to new areas, re-evaluating existing offerings and understanding that consumers have more options than ever before at their disposal. Facebook by itself isn't a threat to the pay-TV market, but an additional concern as we continue to see non-traditional players move into video.
— Gary Miles, Chief Marketing Officer, Amdocs