There's no doubt that the growth of over-the-top (OTT) video services has given a lot of credence to the idea of severing ties with pay-TV. First came Netflix, offering thousands of Hollywood movies, followed by Hulu offering a similar number of television shows. But neither of these services, nor the slew of competitors that followed, really provided a definitive reason to "cut the cord."
However, then such networks as HBO, Showtime and ESPN took notice and began to offer their content directly to consumers outside of the traditional cable subscription. Even sports entities have been taking notice, launching their own offerings such as MLB.TV and NHL Center Ice.
It didn't take long to saturate the market with à la carte offerings. Nor did it take long for the market to respond with the likes of SlingTV and Sony PlayStation Vue, which offer "bundles" of OTT content, in essence providing a cable-less content subscription and elevating the status of Internet-sourced video.
When it comes down to it, viewers can go one of two ways when embracing Internet-sourced video -- they can either subscribe to individual OTT offerings directly from a content owner such as CBS or Showtime or they can find a service provider that has a bundle of their favorite channels like SlingTV. But this strategy isn't going to unseat the cable providers, who are responding in kind.
From Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s Xfinity service to the former Time Warner Cable Inc. (NYSE: TWC)'s on-demand offerings, many cable providers are offering both OTT and TV Everywhere services, so viewers can watch live, linear broadcasts over the Internet. In fact, some service providers, including Verizon Communications Inc. (NYSE: VZ), are offering their own content bundles as consumers complain about having to pay for channels they never watch (one of the primary reasons, next to rising costs, why some cut the cord).
Now, what's going to bring the cable companies to their knees is what OTT has enabled -- the sudden availability of niche content. Whether it's Dramafever, a service streaming South Korean dramas, anime- and mango-focused Crunchyroll, or gardening content provider HortusTV, a host of new content owners have sprung into the market appealing to specific needs. And it seems easier than ever to launch your own OTT service with the help of companies like Vimeo LLC , which recently acquired a white-label video subscription platform to help content creators build out their own distribution networks.
While these niche OTT audiences may be smaller than those sported by Netflix Inc. (Nasdaq: NFLX) and Hulu LLC , their viewers are fanatical about the content. And when average consumers have a limited number of subscription dollars to go around, it only makes sense that they would seek out content that appeals directly to them, rather than the generic content provided by most OTT operators.
In fact, analyst firm MTM published a report titled Prospects for Premium OTT in the USA, which predicts that niche content will be responsible for cutting Netflix's OTT market share from 85% to 50% by 2018. What's more, niche content is particularly problematic for traditional cable operators as they look for content with the widest possible appeal. If it's too niche, too few people are going to watch it, which means too few ad impressions, which means too small margins, which eventually means cancelling the channel.
Niche content could very well be the linchpin in the collapse of the pay-TV subscription model. As OTT gains more popularity -- because it embodies the choice and control that consumers want -- viewers will flock to the content that appeals to their individual tastes and needs. Consumer expectations will keep all OTT providers on their toes, as the viewer experience will be more important than ever amongst this fierce competition.
A recent study by Deloitte found that Millennials, on average, subscribe to three OTT services. I'm sure at least one of them is Netflix or Hulu. But the other two? Probably niche. Cable operators are officially put on notice. As it becomes easier to bundle together à la carte OTT services from content owners (just wait, meta OTT services will spring up to meet this need), there will be less need for a pay-TV subscription… and less need for cable operators.
— Jason Thiebeault, Senior Director, Content Marketing, Limelight Networks