Technology | Media | Telecommunications

Tuesday, April 14, 2015

How Over-The-Top Video Raises the Bar for Pay-TV

​Traditional pay-TV service providers in the developed markets have been reacting to ongoing customer churn. Overall growth is now forecast at only 3.7 percent CAGR through 2020, according to the latest market study by ABI Research.

In contrast, over-the-top (OTT) video services continue their strong growth, and should experience 26 percent total revenue growth in 2015 -- with a 24 percent CAGR through 2019.

With the growing popularity of independent OTT services, such as Netflix and HBO Go, customers are starting to demand a similar experience from their pay-TV subscriptions -- including features such as content search, recommendations and mobile device support.

Informed consumers will no longer accept legacy television offerings, as is. The bar of expectations has been raised by the OTT service providers that dared to re-imagine the video entertainment experience.

"Comparatively high priced pay-TV bundles are losing customers to more inexpensive, IP-delivered content," said Eric Abbruzzese, research analyst at ABI Research.

Some pay-TV operators may be able to combat the subscriber losses with the introduction of new set-top box (STB) technologies that utilize IP-capable hardware to deliver similar experiences to those third-party OTT services.

Operators that are first to market with new STBs can expect strong returns -- as much as 10 percent higher ARPU than with legacy technology -- while those introducing the technology later will likely struggle to see similar success.

ABI believes that multi-screen features have become compulsory, with the ever-increasing focus on mobile device usage, and is easily delivered as these more advanced IP-enabled STBs are deployed.

Traditional providers can also embrace lower-cost "pay-TV Lite" services to attract new customers. This potential expansion also helps to balance the financial risks associated with developing a new OTT product to the marketplace.

Those that have already embraced these ideas -- notably Comcast, Dish Network, Liberty Global, and BSkyB -- are on track to see future growth in an otherwise declining market. However, operators that are passive in embracing OTT face the challenge of maintaining subscriber counts -- even within their less-demanding customer base. Over time, even the late adopters will expect better offerings.

While legacy pay-TV will continue to hold majority market share in the near-term, the best chance for continued survival lies in the implementation of a progressive OTT service capability.