The American pay-TV sector continues to underestimate the lasting impact of alternative video entertainment options that are priced significantly lower than the primary service providers.
According to the latest market study by ABI Research, nearly 20 percent of online consumers consider the growing availability of streaming video -- via the public internet -- as a viable replacement for legacy pay-TV services.
ABI believes that their latest findings represent a significant risk to the traditional TV operator business of as much as $16.8 billion in the U.S. market.
With the U.S. pay-TV household penetration set to decline by approximately 0.5 percent per year through 2017, ABI Research says that this slow migration will continue -- even with an economic recovery as people have additional entertainment choices, such as low-cost over-the-top (OTT) video experiences.
To offset this, pay-TV service providers should proactively build a business that leverages OTT components. This will be critical and doing so requires an understanding of the current and future customer target.
Clearly, this is a work in progress for most pay-TV providers.
Dish Network acquired Blockbuster with the goal of capturing online market share against Netflix. However, they failed to license adequate content and have admitted that, in hindsight, their strategy was flawed.
Verizon is the next U.S. operator to target this hybrid approach, based on their Redbox Instant partnership.
European providers, including ViaSat’s Viaplay offering and Sky’s recently launched NOW TV are also looking at value-based pay-TV offerings.
"While many OTT services focus on movies, the goal of lightweight pay-TV packages should be to introduce customers to the brand and tease customers with premium content offerings," says Sam Rosen, practice director at ABI Research.
Their study also notes a larger longer-term opportunity -- the 30 percent of online consumers that already have pay-TV and the foundation in place for using OTT services. Many don't yet see the value proposition for online video. But there is no reason why legacy pay-TV operators must wait for others (i.e. Netflix) to educate this group.
ABI says that this market segment should be the target customer for building and positioning new hybrid service offerings. The time to act is now -- while the window of opportunity is still open.