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Why Pay-TV Needs OTT Video Now

Alan Breznick
6/22/2018
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Given the growth of cord-cutting and the streaming video market, it's no longer a question of whether pay-TV providers should incorporate OTT video services into their overall video lineups. The real questions are how many OTT video services should be incorporated and how quickly can they be incorporated?

Of course, this is all easier than done. But, as several reports and conference findings this week make clear, it's imperative that cable, satellite and telco TV providers fully embrace OTT services if they wish to remain competitive in the subscription video space.

Consider the latest OTT video study from Parks Associates . In a report released Thursday, Parks found that more than 85% of US millennials in broadband homes now subscribe to least one OTT video service. That's far more than the percentage of millennials that subscribe to traditional pay-TV services.

Diving deeper into the results, Parks also found that more than one-fourth of those millennials subscribe to three or more OTT services. Plus. more than half take at least two subscription OTT services. So pay-TV providers that don't offer Netflix, Amazon, YouTube and Hulu are clearly at a disadvantage here.

On the flip side, these numbers also suggest that the millennial market for OTT video may have reached the saturation point, indicating that OTT churn rates, which are already pretty high, may climb even further. "Overall penetration of subscription OTT video services among millennials has topped out, suggesting that those households that want such a subscription already have one or more," said Brett Sappington, Parks' senior director of research, in a statement. "The more interesting and important question is how many subscriptions they will keep."

But that's cold comfort for traditional pay-T providers, who are generally losing subscribers by the bucket right now.

Moreover, it's not just millennials who are flocking to OTT video. As Parks Associates also found, more than 70% of all US broadband homes now have an Internet-connected entertainment device. Plus, the OTT penetration rates for baby boomers and older generations surged more than 10% between 2016 and 2017. "For consumers, self-aggregating content is simply part of the entertainment experience, particularly millennial households," said Hunter Sappington, a Parks Associate researcher (ed. note: and yes, Brett's son).

So what's a poor, beleaguered pay-TV provider to do? Get with the OTT program, of course, as such pay-TV stalwarts as AT&T, Comcast, Charter and others have started to do. That's what the research from a recent pay-TV confab hosted by Nagra strongly recommends.

Releasing the findings from its 2018 North American Pay-TV Innovation Forum earlier this week, Nagra reported that participating industry executives identified five important priorities for pay-TV providers. Chief among them: Managing the rollout of a more diverse range of video products.

As the research study, conducted by international research and strategy consultancy MTM, found, the long-time pay-TV business model is basically collapsing. In response, pay-TV providers are now trying to make the tricky transition from selling big-channel bundles to pitching multiple smaller content packages, such as skinny bundles and direct-to-consumer services.

The challenge here is that neither the existing pay-TV business model nor the contractual agreements that service providers have with content owners were set up to support such a quantum shift. As a result, service and content providers need to adapt both their content contracts and business models to offer the flexibility that consumers are increasingly demanding.

Fortunately, though, as the competitive landscape keeps getting more and more fragmented, there's hope for pay-TV providers to make a comeback, according to the MTM research. Namely, there's a major opportunity for traditional pay-TV providers to offer "a user-friendly re-aggregation of an increasingly complex range of content and services."

In other words, pay-TV providers can take command of the streaming video market by becoming the ultimate aggregators of all video services, no matter what the source. Viewers don't care where the content comes from, they just want it all in one place.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
6/22/2018 | 6:24:09 PM
Purchase functions
Major players like Comcast already do this -- at least, to some extent.

Part of the problem, to my mind, is the "purchase" function of non-free on-demand content, however. Because it's not actually a purchase -- you just have the movie or TV show as long as you subscribe to your provider. When you buy content on, say, Apple TV, however, you own that content on your device -- even if you never give Apple another dime ever again.
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