Technology | Media | Telecommunications

Thursday, February 18, 2010

Disruptive User-Centric OTT Video Services

According to the latest market study by TDG Research, almost two-thirds of Netflix customers that subscribe to a home broadband service are now viewing the 'Watch Instantly' online streaming video service.

One-third of broadband-enabled Netflix subscribers view this streaming video exclusively only on their PCs, 8 percent view the content exclusively on their TVs, and 24 percent use both their PCs and TVs.

"Netflix is now the archetype for over-the-top (OTT) streaming video services," notes Michael Greeson, TDG founding partner and director of research. "Not only has Netflix eclipsed its immediate competitors in terms of online DVD rental, but it has quickly become the 'gold standard' for new OTT streaming services."

The implication is significant: one-half of broadband-enabled 'Watch Instantly' users now view streaming video on their TVs -- a phenomenon unimaginable just a few years ago.

Several factors are critical to this early success:

- Netflix built a sizeable base of loyal service subscribers prior to launching its streaming service.

- These subscribers had already demonstrated an ability to think beyond traditional content distribution schemes -- renting a DVD at the local video store. They were predisposed to try novel, unproven methods of video delivery -- in this case, online DVD rental.

- Netflix was able to establish proof of concept by delivering streaming video to the PC before it tackled the more costly and uncertain issue of TV delivery.

- Though initially dependent upon a dedicated set-top box (Roku), Netflix moved aggressively to embed its streaming solution in a wide array of traditional CE platforms, thus reducing the consumer risk associated with trying an unfamiliar and unproven delivery method.

As Greeson explains, "In combination, these factors laid the groundwork upon which Netflix could build a successful OTT video distribution business. And that's precisely what it has done."

We have moved beyond the early-adopter stage of OTT market development. I believe that the freedom to view any video content on-demand, combined with a TV remote-control that's designed to simplify the content selection and viewing experience will be the key to continued momentum.

Traditional pay-TV service providers have unintentionally opened this window of opportunity for emerging OTT services, such as Netflix. While their online user experience is not perfect, it's apparent that Netflix placed the customer at the center of their design process.

In contrast, legacy pay-TV service providers are inherently content-owner centric -- that's why we continue to see inflexible channel tiers that force-bundle unwanted content and the total refusal to embrace a-la-carte channel selection.