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Pay-TV Crisis: an Over the Top Video Threat

According to The Diffusion Group (TDG), PayTV operators must execute three specific tactics in order to survive the threat of emerging competitors and take advantage of their legacy position in the video entertainment value chain.

TDG believes that PayTV operators must:
- Push existing cable network TV programs online;
- Deliver today's Internet-only content and bonus material directly to the television; and
- Offer broadband TV services without requiring a traditional PayTV subscription (as a stand-alone service).

By executing these three strategies, PayTV operators will enhance their defensive position, gain the attention of the Internet generation, and find an additional $2 billion in annual revenue by 2013. Well, that's if they can move past their current denial of the apparent market trends.

Colin Dixon, senior analyst with TDG points to the emerging threat from Over the Top (OTT) video services as the primary reason why PayTV operators must aggressively pursue online video strategies.

Pent-Up Market Demand
"More than half of adult Internet users are interested in an OTT broadband TV service," notes Dixon. "So much that they would consider canceling their existing PayTV subscription if the OTT service was priced appropriately."

According to Dixon, it will not be long before a variety of companies including consumer electonics OEMs, web-based aggregators, and pure-play OTT providers look to tap into this interest and compete more directly with PayTV operators.

As TV-based web connectivity becomes more prominent, and as web-based content providers more fully exploit these new connections, the local cable company becomes just one of many conduits serving the TV screen.

Dixon notes that this multiplicity of access points has already allowed providers such as Netflix to economically introduce streaming functionality directly to the TV without the burden of proprietary hardware.

"Content providers such as Netflix and Amazon are partnering with CE vendors to deliver their content directly to the TV, going over the top of incumbent set-top boxes. As this happens, these simple services evolve to something more akin to premium movie services at a far more economical price than current Pay TV offerings."

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