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OTT Long-Term Disruptive Effects on Pay-TV

According to the latest market study by Leichtman Research Group (LRG), 24 percent of U.S. households have a TV connected to the Internet. These connections vary from access via a video game system, a Blu-Ray disc player, an IP video set-top box or the TV set directly.

Internet connectivity is becoming a common built-in feature in consumer electronics devices, but consumers are just beginning to use this capability to watch IP video online. The upside growth opportunity is therefore huge.

Overall, just 1 percent of all adults currently watch video from the Internet via one of these devices daily, and 5 percent weekly. Usage is skewed to young men -- with 16 percent of men ages 18-34 watching video on a TV weekly, compared to 3 percent weekly use among all others.

Other findings from the market study include:

- 20 percent of households have a video game system connected to the Internet, 8 percent have an Internet-connected TV set, and 6 percent have a Blu-Ray player with an Internet connection.

- 55 percent of Netflix subscribers report that they used the "Watch Instantly" feature in the past month -- overall, 1 percent of all adults use Netflix's "Watch Instantly" daily, and 4 percent weekly.

- Overall, 3 percent of adults watch a full length TV show online daily, and 11 percent weekly.

- 5 percent of those online at home strongly agree that they would be willing to pay $9.95 per month to watch TV shows online from a service like Hulu, while 81 percent strongly disagree.

- Among all individuals online at home, 4 percent strongly agree that they would consider disconnecting their TV service to just watch video online -- compared to 3 percent last year, and 4 percent two years ago.

- In total, 0.3 percent of the overall sample are current non-subscribers to a multi-channel video service who disconnected their service in the past year and agree that they don't need to subscribe because most of what they want is available online.

"Despite speculation that consumers are 'cutting the cord' to pay-TV services and choosing to watch video exclusively online or through other alternatives, there remains little evidence of this being a trend," said Bruce Leichtman, president and principal analyst.

"Emerging video services do not necessarily create either/or scenarios in decisions to subscribe to a video service or not. Rather, they create opportunities and trade-offs in how, when, what, and where to consume the increasing video entertainment options."

I previously described a situation analysis, about the need for better market segmentation research. Once people adopt an over-the-top (OTT) service like Netflix IP video their use of traditional linear broadcast and pay-TV declines over time. The long-term trend is clear, however, flat-fee VoD subscription services -- such as Netflix -- are disruptive to the legacy TV business models (both Ad-supported and pay-TV).

Note, the Leichtman survey sample included 1,250 households throughout the United States.

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