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How OTT service providers like Netflix, Hulu etc. are contributing to the demise of Pay TV?

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Dec, 2016


The year 2020 seems to be looked at as the year when TV industry will die as the OTT players like Netflix and Hulu will take over the audience. Well, a point to ponder upon it is… While it’s true that traditional subscriber and pay TV revenue growth has gone down specifically in USA, and it’s expected to be stalled by the start of the next decade, that doesn’t mean there’s no more money to be made in television.

For the moment the report by Price Water House Coopers (PwC) says so that the worlds of online video and TV will ultimately converge, as traditional media companies finally figure out how to wring extra money from internet-only viewers and newer streaming players like Netflix reach their full potential.

How Netflix and other Streaming Apps affecting Market?


The video streaming sites like Netflix, Hulu and YouTube have ad support system hence their revenues will rise gradually and earn more than regular TV targeting the young generation who are spending lot more time on internet. It is estimated that subscription based service like Netflix will be valued at $10.4 billion a year by 2020; it already was $6.4 billion in 2015, a solid increase of about 10 percent a year. The advertising industry is also booming with these streamers, a whopping 30 percent, from $3.5 billion in 2015 to $13.3 billion in 2020.

The amount of money made from cable TV, meanwhile, is set to grow at only about 0.25 percent with in a year. Still, Pay TV companies will generate more than $102 billion a year in revenue by 2020, nearly 10 times the revenue of subscription video services due to major junk of people still not lucky enough to have faster internet services.

It’s not that only these streaming apps will make the people get hooked to them, the real thing to watch out is the arrival of internet-delivered TV that’ll be the real measure of viewership.

Apart from Netflix, Hulu etc, there are these telecoms and cable providers like Comcast who are in process to expand and provide online content hoping to catch up with their growing ondemand alternatives like Netflix, but it will take more than these efforts to appease customers who would be getting ready to sever their cable subscriptions.

The Middle Class or shall say the service class people who are Budget-conscious are  the ones who are looking forward to avoiding expensive cable-TV bundles and instead opting for less-expensive a la carte  option to access to shows of their choice offered by Web-based services like Hulu, Netflix YouTube, etc.

Cable Operators, Pay TV and the flip side:

Though companies like Comcast have to plunge into the water of web based services their service has drawbacks like it will only be available on the subscriber’s home wireless network and won’t be accessible over public Wi-Fi or via a set-top box. Streaming too is going to cost an additional fifteen dolllars per month where as Hulu services are available at $7.99 per month and Netflix at $8.99.

While viewers do enjoy services of Comcast but streamers cannot be stopped from migrating to less expensive and more convenient web based services. Poor customer service and feeling forced to purchase channels they don’t want as part of a subscription has led 53 percent of Comcast customers to call themselves frustrated and who have or are planning to shift to another provider or web based services.

Comcast and Time Warner Cable were dominating the U.S. market, but the two companies cited rising competition from online video services as a reason behind their attempted merger. But Regulators rejected their bid because of fear that it would limit options for consumers that wanted to switch to a different service leading to the providers’ monopoly.

Cable firms will lose that dominance if sites like Netflix and emerging Internet providers like Google Fiber offer the same broad list of TV channels sold through cable subscriptions.

Though Cable is an appealing option for those seeking broad choices, but that medium is no longer the only place to see original programming. Cable providers are losing the exclusive offerings that enticed people to buy bundles, including ESPN which is planning to go online by partnering with Verizon, Spotify and Dish’s Sling TV.

Cable companies, you’ve been put on notice. Cord cutting that is ditching your steep monthly cable or satellite bill and instead watching video online is on the rise. In fact, some young adults may never even pay for cable TV in their lifetimes.

Cable companies can still survive and have a market percentage if they could completely revamp their model to imitate that of OTT services, implementing a system in which channels and program slots are browsed through an interface and paid for per-use. When Consumers would be able to discover content as they can on an OTT service providers app, they would still prefer hanging on to cable network as opposed to purchasing channels ahead of time in pre-set packages.

This shift would help advertisers as they would be informed of the viewer’s patterns and their likes which current model does not allow them to have, creating a fertile ground for innovations to take place in the televised advertisement space. Distributors would also be under benefit as they would be able to construct appropriate pricing models, based on more accurate viewership measures.

Unbundling and Surviving:


If cable companies aren’t able to find a solution to the unbundling dilemma, then chances of it being taken over by any other player in the OTT space will have high probability. The difficulty for consumers at this point is maintaining several OTT service accounts like a Hulu account, a Netflix account and an iTunes account, etc. in order to meet all their viewing needs. When an OTT service emerges that can combine and manage other content providers, thimen the subscribers would be more happy and stay loyal to the provider as then they won’t have to maintain several accounts to watch the content they wish to.

Thus, the consumer and advertiser demand will fast-forward our transition into the new world of content.

Though the large Pay TV operators have one of the most resilient business models in any industry. They also have customer loyalty, high margins are high, the level of recurring revenues is high too at the moment but still Pay TV operators are very conservative and are very careful when they do any changes in business models or packaging. This has proven to be the right strategy in an industry where new technologies have been immature and have caused more challenges than opportunities but with the emerging OTT business their strategies might fail if not tacked smartly.

The most profitable customers have been the least innovative consumers, who just keep subscribing to a basic channel package and keep their old STB year on year. Operators who have focused on reliability and loyalty have been more successful in the industry than the innovators in each market. But with growing smart consumer who is clear about his likes, dislikes and demands the content which is best suited to him or her is the one which is creating a stir in the Pay TV Industry.

Pay TV operators will finally see formidable competition. Historically, Pay TV operators have had limited competition, may be being the only available Pay TV provider in a certain area and main competition for TV content was a limited selection of free to air broadcast channels. Now, the scenario is different. Every member of the family is different and buys different stuff and now also has choice in watching content which they love too unlike before where one program was on and whether you like it or not the whole family used to watch it.

The consumers may not go for a change overnight as they are tied to existing subscriptions, OTT offerings won’tfully replace live TV distribution, and awareness is still low among consumers. Net churn will initially be low, but ARPU will suffer more with fewer subscribers choosing the top tiers and instead spending money on a complementing OTT service.

Still what Pay TV can do and where they stand:

The way for a Pay TV operator to meet this challenge is to embrace innovation on their next generation platforms. Today, most Pay TV operators that are launching a powerful new device are using this device to enhance the traditional content offering. They add more features but this doesn’t really remove the threat of OTT services. It is just a too attractive offering for consumers for them to be satisfied with just the operator services provided by the operators. Instead of fighting these initiatives, operators should invite all OTT services to launch apps on the operator platforms as well. This includes VOD services, catch-up TV services and other seemingly competitive offerings.

Pay TV operators can still control the overall consumer experience:

The role of the Pay TV operator in a world where they invite all broadcasters, content providers and VOD providers to launch services on their platform is to guarantee the consumer experience.

Operators are perfectly suited for running such TV application programs, with integrated billing systems, knowledge about content marketing and promotions, skilled customer support and possibly the best knowledge of consumer behavior.

Future Generation Pay TV Technologies:

When IPTV was brought in as a teleivison technology over 10 years ago the grandness of internet aspect was boasted as truly rotatory and a new direction of watching TV.

Cable TV although some or few other companies were still offers analogue cable TV services, digital cable is becoming the norm in Latin America and some parts USA.

By : Ramakrishna Mashetty

Ramakrishna Mashetty is The Chief Marketing officer of SURE! (a Magnaquest product).SURE! is an internationally acclaimed player in comprehensive end-to-end Subscription Business Solutions for PayTV, Broadband and Cloud Computing businesses – through deployment of Metered Billing, CRM, Service Fulfillment, Value-Added Services, and Managed Services.

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