Tag Archives: OTT

Regulating Cable TV versus OTT

Regulation often makes no sense, particularly in times when technology is transforming an industry. There is no better example of this than the way we regulate cable TV today.

Traditional cable TV is heavily regulated at the federal, state, and local levels. The FCC website has a nice summary of the history of federal cable regulation. The industry is less heavily regulated today than it was forty years ago, but there are still a lot of federal regulations that apply to cable TV. At the local level, franchise taxes levied on cable service are a huge revenue source for local government.

The FCC website includes a definition of cable television as follows: “Cable television is a video delivery service provided by a cable operator to subscribers via a coaxial cable or fiber optics.  Programming delivered without a wire via satellite or other facilities is not “cable television” under the Commission’s definitions.”

All of the federal cable regulations are aimed at cable TV signal that enters the home via a coaxial or fiber wire. Satellite or wireless delivery of television signal is not considered to be traditional cable TV, although the FCC does regulate satellite TV under a different set of rules.

The FCC has chosen to ignore its own definition of cable TV for programming that is delivered over the web. I’ve subscribed to the online cable alternatives Sling TV, Playstation Vue, and YouTube TV. Over time those services have come to look more and more like traditional cable TV. My subscription to Playstation Vue (before it folded) included all of the same local channels that I would receive from a traditional cable subscription. The service included a channel guide, and from a functional perspective, it was impossible to make any meaningful distinction between the Playstation Vue product and the same product I might buy from a cable company.

From a technical perspective it’s hard to see the difference between the online programming and traditional cable. Both come into the home over coaxial or fiber cables. Both offer a line-up of local channels and a similar mix of national programming. Both services offer options like DVR service to record programming to watch later. If you were to show both services to somebody who had never seen TV before, they’d probably not see any difference in the two services.

But there is a huge regulatory difference between traditional cable TV and online programming, particularly at the local level. Franchise fees of up to 5% are levied onto traditional cable TV from Charter, Comcast, or AT&T – but no franchise fees are levied against Sling TV or YouTube TV. Cable companies are arguing that this difference alone gives online programming a competitive edge – and it’s hard to disagree with them.

To make matters even more confusing, there are now cable products that sit somewhere in between traditional TV and online TV. ISPs are no longer building cable headends to download cable signal from satellites. Instead they are buying cable channels wholesale. The entire channel line-up is pumped into an ISP on a big broadband connection. The channel line-ups look a lot like both traditional cable channels and online cable line-ups like YouTube TV. In the newest cable wholesale products the ISP doesn’t even need a traditional setup box and can deliver straight to smart TVs or use something like a Roku stick.

For now, most ISPs that are reselling the wholesale TV are registering as cable providers and are collecting franchise fees. But I won’t be surprised if an ISP challenges this and argues that wholesale cable service is not the same as traditional cable TV.e

From a regulatory perspective, our current treatment of cable service is closely analogous to the difference between traditional telephone service and voice over IP (VoIP). ISPs successful fought to define VoIP as a non-regulated service, although there is no functional difference between the two products at the customer level. There is no discernible difference between a telephone line provided by AT&T over telephone wires and telephone service provided by Comcast over cable wires – but the products get a drastically difference regulatory treatment. It’s hard to think that we aren’t going to soon see legal challenges by cable companies trying to avoid collecting franchise fees – and I think there is a decent chance that courts will side with them.

The Onslaught of New Content

As if cord cutting isn’t bad enough, online OTT programming is exploding with numerous new options. One has to think that these many options will lure a lot more homes to ditch traditional cable TV.

Disney+. This service is hitting the streets with huge fanfare. It’s priced at $6.99 per month or $5.83 per month with an annual subscription. Disney+ will contain the content provided by Disney, Marvel, Lucasfilm, Pixar, and National Geographic. Disney owns the Star Wars franchise and is planning a lot of new Star Wars content. There will be new content created only for the Disney+ service like a series produced by the Jim Henson Company. Disney also owns most of Hulu and will be offering a bundled package of Disney+, Hulu, and ESPN+ for $12.99 per month.

Apple TV+. The service launched November 1 with a monthly fee of $4.99. It’s being offered for free to customers that buy an expensive Apple product like an iPhone, iPad, Mac, or Apple TV.  The company has set a goal of having 100 million customers within 3-4 years and will launch in over 100 countries. Apple is also offering new content created just for the service. They have announced partnerships for content from Oprah Winfrey, from Reese Witherspoon’s Hello Sunshine production company, and from Steven Spielberg’s Amblin TV. While not yet announced, Wall Street expects Apple to accumulate a library of older content. For now, the service doesn’t work on Amazon Fire and Roku devices, but should in the future.

HBO Max.  This is being offered by AT&T and slated for launch sometime in the spring of 2020. The company is offering this at $14.99 per month, the same price as HBO Now – which is the current online HBO offering that only carries the library of HBO content. Customers subscribing to HBO on a cable system might get the new service for free. The company will likely migrate HBO Plus customers to the new service. HBO Max brings in the vast library of content owned by Warner Media. There will be a curated revolving list of classic movies. They’ve also bought the rights to shows like Friends. The company hopes to have 50 million paying customers by 2025. This is the only online service that doesn’t care if customers buy their prime HBO content online or from a cable company.

Peacock. This is owned by Comcast and is scheduled to launch in April 2020. The service is named for the NBC peacock logo. The service will provide new content including shows from Alec Baldwin and Demi Moore. It will carry the vast library of NBC’s programming. The new offering will also tie into Olympic coverage. For now, Comcast is thinking of giving this free to every Comcast customer and may make it free to everybody.

Quibi. This is a new service created by Jeffery Katzenberg of DreamWorks. It will launch in early 2020 and contains a lot of new content. The unique thing about the service is that it will consist of short-duration content and will only be available on smartphones. The company is working with over 30 partners to create content that is aimed at younger views. The typical content will be 7-10 minutes in length. It’s attracted big names like Steven Spielberg, Kevin Hart, Tyra Banks, and Jennifer Lopez. There are plans for vignettes from traditional series like Punk’d, Varsity Blues, Vikings, and How to Lose a Guy in 10 Days.

Bloomberg. Just to show that all new content isn’t entertainment related, Bloomberg is also planning a new online offering. It will be subscription-based and will offer all of Bloomberg’s current business content plus new content. For example, there are plans for a series, Moon Shot that looks at major scientific breakthroughs. Accelerate will look at test-driving cars of the future. Prognosis will look at cutting edge medicine.

The question faced by customers of traditional cable TV is if they want to continue to pay the big monthly bills for traditional TV and also subscribe to some of this new content. There are a lot of households that are going to want to watch the Disney catalog of programming or see the new content on Apple TV+ or HBO Max. It seems likely that this flood of new content is going to convince more homes to cut the cord.

More Crowding in the OTT Market

It seems like I’ve been seeing news almost weekly about new online video providers. This will put even more pressure on cable companies as more people find an online programming option to suit them. This also means that a likely shakeout of the OTT industry with such a crowded field of competitors all vying for the same pool of cord-cutters.

NewTV. This is an interesting new OTT venture that was founded by Jeffrey Katzenberg, former chairman of Walt Disney and headed by Meg Whitman, former CEO of Hewlett Packard Enterprise and also from Disney. The company has raised $1 billion in and has support from every major Hollywood studio including 21st Century Fox, Disney, NBCUniversal, Sony Pictures Entertainment, and Viacom.

Rather than take on Netflix and other OTT content directly the company plans to develop short 10-minute shows aimed exclusively at cellphone users. They plan both free content supported by advertising and a subscription plan that would use the ‘advertising-light’ option used by Hulu.

AT&T already owns a successful OTT product with HBO Now that has over 5 million customers. John Stankey, the head of WarnerMedia says the plan is to create additional bundles of content centered around HBO that bring in other WarnerMedia content and selected external content. He admits that HBO alone does not represent enough content to be a full-scale OTT alternative for customers.

AT&T’s goal is to take advantage of HBO’s current reputation and to position their content in the market as premium and high quality as a way to differentiate themselves from other OTT providers.

Apple has been talking about getting into the content business for a decade, and they have finally pulled the trigger. The company invested $1 billion this year and now has 24 original series in production as the beginning of a new content platform. Among the new shows is a series about a morning TV show starring Reese Witherspoon and Jennifer Aniston.

The company hired Jamie Erlicht and Zack Van Amburg from Sony Pictures Television to operate the new business and has since hired other experienced television executives. They also are working on other new content and just signed a multiyear deal with Oprah Winfrey. The company has not announced any specific plans for airing and using the new content, but that will be coming soon since the first new series will probably be ready by March of 2019.

T-Mobile. As part of the proposed merger with Sprint, T-Mobile says they plan to launch a new ‘wireless first’ TV platform that will deliver 4K video using its cellular platform. On January T-Mobile purchased Layer3 which has been offering a 275 channel HD line-up in a few major markets.

The T-Mobile offering will be different than other OTT in that the company is shooting for what they call the quad play that bundles video, in-home broadband (delivered using cellular frequency), mobile broadband and voice. The company says that the content will only be made available to T-Mobile customers and they view it as a way to reduce churn and gain cellular market share.

The Layer 3 subsidiary will also continue to pursue partnerships to gain access to customers through fiber networks, such as the arrangement they currently have with the municipal fiber network in Longmont, Colorado.

Disney. Earlier this year the company announced the creation of a direct-to-consumer video service based upon the company’s huge library of popular content. Disney gained the needed technology by purchasing BAMTech, the company that supports Major League Baseball online. Disney also is bolstering its content portfolio through the purchase of Twenty-First Century Fox.

Disney plans to launch an ESPN-based sports bundle in early 2019. They have not announced specific plans on how and when to launch the rest of their content, but they canceled an agreement with Netflix for carrying Disney content.

Regulating Over-the-Top Video

I know several cable head-end owners that are developing over-the-top video products to deliver over traditional cable networks. I define that to be a video product that is streamed to customers over a broadband connection and not delivered to customers through a settop box or equivalent. The industry now has plenty of examples of OTT services such as Netflix, Amazon Prime, Sling TV, Hulu and a hundred others.

While the FCC has walked almost totally away from broadband regulation there are still a lot of regulations affecting cable TV, so today I am looking at the ramifications of streaming programming to customers instead of delivering the signal in a more traditional way. Why would a company choose to stream content? The most obvious benefit is the elimination of settop boxes. OTT services only require an app on the receiving device, which can be a smart TV, desktop, laptop, tablet or cellphone. Customers largely dislike settop boxes and seem to love the ability to receive content on any device in their home. A provider that pairs OTT video delivery with a cloud DVR has replaced all of the functions of the settop box.

There are a few cable companies that have been doing this. Comcast today offers a streaming service they label as Xfinity Instant TV. This package starts with a package of ten channels including local broadcast networks. They then offer 3 add-on options: a kids and family package for $10, an entertainment package for $15 and a sports and news package for $35. Comcast also touts that a customer can choose to stream the content to any of the millions of Comcast WiFi hotspots, not only at their homes.

It’s an interesting tactic for Comcast to undertake, because they have invested huge R&D dollars into developing their own X1 settop box that is the best in the industry. The company is clearly using this product to satisfy a specific market segment which is likely those considering cutting the cord or those that want to be able to easily download to any device.

A second big benefit to Comcast is that they save a lot of money on programming by offering smaller channel line-ups. Traditional cable packages generally include a lot of channels that customers don’t watch but which still must be paid for. Comcast would much prefer to sell a customer a smaller channel line-up than to have them walk away from all Comcast programming.

The third reason why a cable provider might want to stream content is that it lets them argue that they can selectively walk away from cable regulations. The only real difference between Comcast’s OTT and their traditional cable products is the technology used to get a channel to a customer. From a regulatory perspective this looks a lot like the regulatory discussions we had for years about VoIP – does changing the technology somehow create a different product and different regulations. Before VoIP there were numerous technology changes in the way calls were delivered – open wire, party-lines, digitized voice on T-carrier, etc. – but none of the technology upgrades every changed the way that voice was regulated.

I can’t see any reason why Comcast is allowed, from a regulatory perspective, to stream their ITT content over their cable network. The company is clearly violating the rules that require the creation of specific tiers such as basic, expanded basic and premium. What seems to be happening is that regulators are deciding not to regulate. You might recall that three or four years ago the FCC opened investigation this and other video issue – for example, they wanted to explore if video delivered on the web needs to be regulated. That docket also asked about IP video being delivered over a cable system. The FCC never acted on that docket, and I chalk that up to the explosion of online video content. The public voted with their pocketbooks to support streaming video and the FCC let the topic die.  There are arguments that can be made for regulating streaming video, particularly when it’s delivered over the same physical network as traditional cable TV, like in the case with Comcast.

Clearly the FCC is not going to address the issue, and so the technology an lack of regulation ought to be made available to many other cable providers. But that doesn’t mean that the controversy will be over. I predict that the next battleground will be the taxation of streaming video. Comcast would gain a competitive advantage over competitors if they don’t have to pay franchise fees for streaming content. In fact, a cable company can argue they don’t need a franchise if they choose to stream all of their content.

It’s somewhat ironic that we are likely to have these regulatory fights with the cable product – a product that is clearly dying. Customers are demanding alternatives to traditional cable TV, yet the FCC is still saddled with the cable regulations handed to them by Congress. One nightmare scenario for Comcast and the industry would be if some competitor sues a cable company to stop the streaming product – because that would require the regulators, and ultimately the courts to address the issue. It’s not inconceivable that a court could decide that the Comcast streaming service is in violation of the FCC rules that define channel line-ups. Congress could fix this issue easily, but unless they do away with the current laws there will always be a background regulatory threat hanging over anybody that elect to use the product.

Some Unexpected News

In an attempt to stop the massive bleeding of traditional cable TV customers AT&T has cut the prices for cable on both the DirecTV and U-verse platforms. The company lost almost 400,000 linear TV customers in the recent third quarter.

As an example, DirecTV’s ‘Select’ bundle of 150 channels will now be priced for a two-year contract at $35 for the first year and $76 for the second year, compared to the recent prices of $50 for the first and $90 for the second. All of the other packages have similar drops of $10 to $15 in the first year and lower second year prices.

I call this unexpected news because it goes against every trend in the rest of the industry. The average monthly revenue for the 2-year Select contract just fell from $70 per month to $55.50 per month – more than a 20% discount. From what I know about programming prices it’s hard to think that AT&T has any margin at the new prices and they are clearly under water for the first year, spending more for programming than what they will collect in revenue.

This price reduction brings a couple of different ideas to mind. First, it’s clear that AT&T still wants to have traditional linear cable TV customers. Even at little or no margin they see value in that, although I honestly can’t see what that benefit might be. Certainly, one benefit might be to prop up DirecTV through sheer volumes of customers. I think AT&T envisions the future of cable TV to be more in line with the smaller on-line packages being sold as DirecTV Now. But the general public largely is not yet ready to make the shirt to totally online and so perhaps AT&T wants to keep people using its products until that is a more likely shift.

But this price drop also talks about the market elasticity of cable TV. We’ve known for years that customers that cut the cord almost all say they are leaving traditional cable TV because of the cost. That was already happening before the plethora of new on-line alternatives like Sling TV and Playstation Vue. These new alternatives products have created what is called in economic terms as a substitute. Over 900,000 households changed to one of these online cable products in the most recent third quarter, and so it’s obvious that many people now view a skinny bundle like Sling TV to be a reasonable substitute for the big cable packages.

And this makes sense. We know that most households don’t watch many different channels even on a 200-channel cable offering, and so as long as a smaller lineup has channels a household is comfortable with then skinny bundles become economic substitutes for the traditional big cable bundle.

And of course, all of this is compounded by OTT providers like Netflix, Hulu and Amazon prime that provide a huge array of online content that is another competitor to cable TV. I can tell you personally that I am far happier with having one skinny bundle (currently Playstation Vue) and access to OTT content than I ever was with the big cable bundle. I remember channel surfing through the big cable packages at 3:00 in the morning (a time I am often awake) and finding nothing but bad programming and infomercials. The choice from online programming are far better for my tastes and style of watching TV.

This change makes me wonder if we aren’t seeing the end of the tolerance of the public towards costly cable TV products. If the idea that traditional cable TV packages are no longer worth the price we could be seeing a watershed moment in the industry – one where a huge cable provider makes a last stab to keep customers.

It will be interesting to see if any of the other cable providers react the same way. This is a bold move by AT&T and one would think that those seeking a cheaper alternative might be attracted to these new bundles. But of course, every customer that takes one of these packages will probably be bailing on a traditional package from one of the cable companies. This is going to be an interesting battle to watch.

Why Isn’t Everybody Cutting the Cord?

Last year at least two million households cut the cord. I’ve seen headlines predicting that as many as 5 million more this year, although that seems too high to me. But both of these numbers are a lot lower than the number of people who say they are going to cut the cord in the coming year. For several years running various national surveys show that 15 million or more households say they want to cut the cord. But year after year they don’t and today’s blog looks at some of the reasons why.

I think one of the primary reasons people keep traditional cable is that they figure out that they won’t save as money with cord cutting as they had hoped. The majority of cord cutters say that saving money is their primary motivation for cutting the cord, and once they look hard at the actual savings they decide it’s not worth the change.

One issue that surprises a lot of potential cord cutters is the impact of losing their bundling discount if they are buying programming from a cable company. Big cable companies penalize customers who break the bundle. As an example, consider a customer who has a $50 broadband product and a $50 cable product, but for which the cable company charges $80. When a customer drops one of the two products the cable company will charge them $50 for the remaining one. That means there is a $20 penalty for cutting the cord and thus not much savings from cutting the cord.

Households also quickly realize that they need to subscribe to a number of OTT services if they want a wide array of programming choices. If you want to watch the most popular OTT shows that means a $10 subscription to Netflix, an $8.25 per month subscription to Amazon and a Hulu package that starts at $8. If you want to watch Game of Thrones you’ll spend $15 for HBO. And while these packages carry a lot of movies, if you really love movies you’ll find yourself buying them on an a la carte basis.

And OTT options are quickly proliferating. If you want to see the new Star Trek series that means another $5.99 per month for CBS All Access. If your household likes Disney programming that new service is rumored to cost at least another $5 per month.

And none of these options bring you all of the shows you might be used to watching on cable TV. One option to get many of these same networks is by subscribing to Sling TV or PlayStation Vue, with packages that start at $20 per month, but which can cost a lot more. If you don’t want to subscribe to these services, then buying whole season of one specific show can easily cost $100.

And then there is sports. PlayStation Vue looks to have the best basic sports package, but that means buying the service plus add-on packages. A serious sports fan is also going to consider buying Fubo. And fans of specific sports can buy subscriptions to Major League baseball, NBA basketball or NHL hockey.

Then there are the other 100 OTT options. There is a whole range of specialty programmers that carry programming like foreign films, horror movies, British comedies and a wide range of other programming. Most of these range from $3 to $7 per month.

There are also hardware costs to consider. Most people who watch a range of OTT programming get a media streaming device like Roku, Amazon Fire, or Apple TV. Customers that want to record shows shell out a few hundred dollars for an OTT VCR. A good antenna to get local programming costs between $30 and $100.

The other reason that I think people don’t cut the cord is that it’s not easy to navigate between the many OTT options. They all have different menus and log-ins and it can be a pain to navigate between platforms. And it’s not easy to find what you want to watch, particularly if you don’t have a specific show in mind. It’s hard to think that it’s going to get any easier to use the many OTT services since they are in competition with each other. It’s hard to ever see them agreeing on a common interface or easy navigation since each platform wants viewers to stay on their platform once logged in.

Finally, none of these combinations gets you everything that’s on cable TV today. For many people cutting the cord means giving up a favorite show or favorite network.

If anything, OTT watching is getting more complicated over time. And if a household isn’t careful they might spend more than their old cable subscription. I’m a cord cutter and I’m happy with the OTT services I buy. But I can see how this option is not for everybody.

 

Stats on OTT Viewing

A recent study by comScore examined OTT usage in detail across the country. They studied the OTT viewing habits in 12,500 homes over time across all devices. They looked at 52 OTT services, which collectively account for virtually all of the OTT content available. Their study is the most comprehensive study of OTT that I’ve seen to date.

Not surprisingly Netflix is the largest OTT provider and accounted for 40% of all viewing hours of OTT content. I must admit with all of the hype about Netflix that I thought they would be larger. They were followed by YouTube at 18%, Hulu at 14%, Amazon at 7% and all of the other OTT sources sharing 21%.

When it came to consumer engagement, measured by the amount of time that people watch a given service, the leader is Hulu with the average Hulu household watching over 2.9 hours of their content per day. This was followed by Netflix at 2.2 hours, YouTube at 2.1 hours and Amazon at 2.0 hours per day.

Here are some other interesting statistics generated by the survey:

  • 51 million homes in the US watched OTT content this past April. That is 41% of all homes.
  • The growth of OTT watching is exploding and only 44 million homes watched OTT in October 2016.
  • As you would expect, there is a substantial number of cord-cutters that watch OTT. The types of OTT viewers include 44% that also have a landline cable subscription, 22% that also have a satellite TV subscription, 18% that are pure cord-cutters, and 16% that mix OTT content with free content received through rabbit ears.
  • The average home watched OTT content 49 hours in a month. That viewing was spread on average across 15 viewing days – meaning that most homes don’t watch OTT content every day.
  • As you would expect, cord-cutters households watch OTT for more hours monthly than other households. For example, cord cutters watched Hulu 37 hours per month while other households watched 29. Cord cutters watched Netflix for 36 hours per month compared to 27 hours for other households.
  • OTT viewing largely matches regular TV viewing in that there is a big spike of viewing in the evening prime time hours.
  • However, OTT viewing differs from traditional cable with big spikes on weekends, largely due to binge-watching.
  • The survey shows that 10.1 million households use network TV apps (apps from a programmer such as HBO or ESPN).
  • There is an interesting correlation between the size of a household, the amount of OTT viewing, and whether a family has cut the cord. For cord cutting families, the smaller the size of the household the greater the amount of OTT viewing. But for families that still have a paid-cable subscription it’s reverse.
  • Single-member households are almost 50% more likely than average to be a cord cutter and 24% more likely than average to be a cord-never.
  • Cost of cable subscriptions have always been shown in other surveys as a factor in cord cutting. This survey shows a strong correlation between income and cord-cutting. The survey shows that hourseholds making less than $40,000 per year are cutting the cord at 19% more than average while households making between $75,000 and $100,000 are at 87% of average.
  • Their survey also was able to detail the devices used to watch OTT content on television screens. Of the 51 million homes that watched OTT in April, 38 million homes used a streaming stick / box like Roku, and 28 million homes used a smart TV.
  • The study also detailed penetration rates of streaming boxes / sticks for homes using WiFI: 16% own a Roku, 14% have Amazon Fire; 8% own Google hrome and 6% have AppleTV.
  • Samsung and Vizio are the big players in the smart TV market with shares in WiFi-connected homes of 33% and 30%. LG and Sony were next with 10% and 7% penetration with all other manufactures sharing the remaining 20% of the market.

The survey also analyzed Skinny bundles. They show that 3.1 million homes now have a skinny bundle. 2 million of those homes have SlingTV, with DirecTV Now and PlayStation Vue having most of the other customers. The survey shows that homes with one of these services watch the skinny bundle an average of 5.3 hours per day.

The main takeaway from this survey is a demonstration that OTT viewing has become mainstream behavior.  OTT viewing is now part of the viewing habits of a little over half the of homes in the nation that have an in-home WiFi connection.

 

The Myth of OTT Savings

One of the reasons touted in the press for the recent popularity of cord cutting is the desire of people to save money over a traditional cable TV subscription. But as I look at what’s popular on the web I wonder if the savings are really going to be there for people who like to watch a variety of the best content.

There has been an explosion of companies that are pursuing unique video content, and this means that great content can now be found at many different places on the web. Interestingly, most of this great content is not available on traditional TV, other than the content provided by the premium movie channels. But considering the following web platforms that are creating unique content:

  • Netflix. They are the obvious king of unique content and release new shows, specials, movies and documentaries seemingly weekly. And they seem to have a wide variety of content aimed at all demographics.
  • Hulu. They are a bit late to the game. But the newly released The Handmaid’s Tale is getting critical acclaim and will be part of a quickly growing portfolio of unique content.
  • HBO. HBO has always had a few highly popular series with Game of Thrones still drawing huge audiences.
  • CBS All-Access. CBS has made a bold move by offering the new series Star Trek: Discovery only online. It’s bound to draw a lot of customers to the online service.
  • Amazon Prime. The company says they are going to invest billions in unique programming and are aiming at overtaking Netflix. Their recent hit The Man in the High Castle is evidence of the quality programming they are pursuing.
  • Showtime. They have historically created limited amounts of unique content but are now also looking to create a lot more. Their new show Twin Peaks has come out with high reviews.
  • Starz. This network is also now chasing new content and has a hit series with American Gods.
  • Seeso. Even services that most people have never heard of, such as Seeso are creating popular content such as the comedy series My Brother, My Brother and Me.
  • YouTube Red. The industry leader of unique content is YouTube which has allowed anybody to create content. While most of this is still free, the platform is now putting a lot of great content such as the comedy Rhett and Link’s Buddy System behind a paywall.

Subscribing to the above online services with the minimum subscriptions costs $79 per month (and that’s without figuring in the annual cost of Amazon Prime, which most people buy because of the free shipping from Amazon). The above line-up doesn’t include any sports and you’d have to buy a $30 subscription from Sling TV to watch ESPN and a few other popular sports networks. ESPN recently announced that they still don’t have any plans to launch a standalone web product but are instead pursuing being included in the various skinny bundles.

Not considered, though, in the above list are numerous other less-known paid OTT subscriptions available on line. As listed in this recent blog there are dozens of other platforms for people who like specialized content like Japanese anime or British comedies.

Of course, one thing the above list shows is that there is a world of content these days that is not being created by the major networks or the traditional cable networks. There is likely more money pouring into the creation of content outside of the traditional networks.

So OTT doesn’t seem to save as much as hoped for people that wish to enjoy a variety of popular content across different providers.  But there are other benefits driving people to OTT programming.  One of the great benefits of OTT programming is the ability to subscribe and cancel services at will. I have been trying various OTT networks and it’s really tempting to subscribe to each for a month or two until you’ve seen what you want and then move on to something else. I’m starting to think that’s the way I will use these services as long as they continue to allow easy egress and exit.

And OTT programming allows for non-linear TV watching.  As long as somebody lives near to a metropolitan area a cord cutter can still view the traditional network channels using rabbit ears. But what a lot of cord cutters are finding is that they quickly lose their tolerance of linear programming. I know that when I travel and have TV available in the room that I only watch it if I want to catch a football or basketball game. I can no longer tolerate the commercial breaks or the inability to pause linear TV while I want to do something else. And that, perhaps more than anything, is what will bring down traditional cable TV. As much as cable companies tout TV Everywhere, their basic product is still showing content linearly at fixed times. There is such a huge volume of great OTT content available any time on any device that it’s not hard for somebody to walk away from the traditional networks and still always have something you want to watch.

The Future of OTT

Level3 Just released their third annual report titled OTT Video Services, where they asked a wide array of industry experts about the future of OTT. The report posed a variety of questions about the OTT industry to 486 ‘media industry professionals,’ who were 70% from the US with the rest scattered in the rest of the world. These kind of exercises are not surveys and you can’t attach any statistical significance to the results. But since the respondents are in the industry I don’t know if there is any better way to understand where the industry thinks OTT is headed.

The most interesting finding (and the one that spawned a few headlines) is that 70% of the respondents think that OTT viewership will bypass traditional television viewership no later than 2022. That is an amazing prediction considering the huge difference today between TV and OTT viewing. While this year it’s expected that about two-thirds of US homes will watch at least one OTT broadcast per month, total OTT usage this year is expected to deliver only about 20% of the total hours spent by adults watching video content.

I can understand why Level3 would sponsor this report each year. The bandwidth required to support an OTT industry that grows from 20% of all of the hours spent watching video up to 50% is going to stress networks everywhere. About a quarter of respondents thought that OTT content would grow year-over-year as much as 25%, with almost half of the respondents thinking that growth rate would be between 30% and 50% per year.

This growth represents huge bandwidth growth on the backbone networks that Level3 operates as well as on all of the local networks that ISPs use to support residential customers. If you think your broadband slows down now in the evening, wait just a few years where there will be a lot more video on your local network.

The experts did foresee some major challenges for the OTT industry. Their biggest concern was the ability of local ISP networks to deliver a high-quality signal to customers. This concern was partially due to a concern that customers would not have enough bandwidth, but also represented concerns about the backbone networks and the interface between OTT providers and ISPs. It was disagreements between OTT players and the ISPs that prompted the last FCC to get serious about network neutrality. And since it looks like network neutrality will be scrapped that concern is back on the burner.

They are also concerned that the OTT industry might try to follow the path of traditional TV and begin inserting too many ads. The experts see ads as one of the major factors today driving people from traditional programming to OTT programming.

Another concern of the OTT industry is the ability of OTT companies to acquire desired programming. There are still some popular cable networks that none of the OTT providers have been able to purchase. There is particular concern about the ability to acquire regional sports networks, something that is a major draw for a significant proportion of customers. And there is concern about acquiring local network feeds and today the few OTT providers largely show content from a few major urban markets.

In looking towards the future, there are a number of OTT providers keeping an eye on acquiring virtual reality content, although none of the OTT services carries such content yet today. Of a higher priority to most OTT providers was the ability to beef up their networks in order to support both higher frame rates (HFR) and high-dynamic ranges (HDR) and most providers are working towards supporting both options. These technologies can improve delivery of sports content today and will situate OTT providers to offer VR content in the future.

There is also a lot of interest in OTT providers to be able to carry more live events other than sports content. They know that there is high customer demand for watching live events like the Emmys and other award shows, live concerts and other live content.

There is also a lot of interest from OTT providers that carry live network feeds (traditional cable channels shown linearly) to also be able to offer a library of video-on-demand content, in the same manner as Netflix. I’ve been a subscriber to Sling TV for a while and some of their network now offers a lot of VOD content on the service.

It’s going to be an interesting industry to watch. There are around 100 OTT services available in the US today, but only about half a dozen of them have any significant number of customers. I note that even though industry insiders foresee huge growth for the sector, that’s only going to happen if the OTT providers can find a way to offer what people want to watch.

Video Trends for 2017

RCA_CT100-hdFollowing are the major trends in video going into 2017.

Skinny Bundles. Last year at this time the industry talk was all about cable companies offering skinny bundles to keep customers from bailing. But this never panned out. Dish Network has a true skinny bundle option but almost nobody else has done so. Comcast entered this market last month by adding Sling TV to their X1 settop box lineup. The big companies aren’t talking and it’s hard to know if this changed due to market research about customer desire for such products or if this was due to problems with programmers assembling the right packages. But for now skinny bundles offered over cable systems seems like a dying idea.

OTT Options Exploding. DirecTV Now joined Sling TV and Sony Vue as the three providers of online skinny bundles. Hulu, Amazon and YouTube are launching similar packages in 2017 and sources at programmers report there might be as many as a half dozen other companies getting ready to join the OTT fray. Additionally there are a number of programmers directly entering the market such as the CBS package that will feature the new Star Trek: Discovery starting in January and available only online. ESPN is rumored to soon be launching an a la carte offering. This is going to turn into a crazy year for online programming and it’s impossible to believe this many entrants can succeed.

Cord Cutting Continues. But nobody knows how fast. The best I can tell from the numbers is that there is a lot more cord trimming with households paring back to less costly packages than actual cord cutting. You can find estimates of annual US cord cutters between 1 million and 4 million and only the cable companies know the right answer. But even if the number is at the bottom of the range, traditional cable companies are facing real problems. Eyeball time watching cable networks is way down and is expected to continue to drop in 2017 as people watch OTT content.

Some Networks in Trouble. It looks like ESPN will lose over 4 million customers in 2016. The same is happening to a number of other channels, but analysts track ESPN closely since it is the costliest network. Some of the more popular channels are making up for us losses by overseas sales, but sports, weather and other US-specific content has no market outside the country. By the end of 2017 I expect to hear rumors of smaller networks folding.

Continuing Rate Increases. All the big cable companies recently announced their rate hikes for 2017. Rate increases seem to be as large as recent years. But more of the rate increases are being buried in ancillary fees and equipment charges rather than as direct increases to cable packages.

No Break in Programming Cost Increases. And those rate increases are being fueled, in part, by the continued increases in the cost of programming. Many of those increases are baked into 3-5 year contracts, but even new programming programming contracts being approved in 2016 continue to include significant future cost increases.

Flood of New Content for OTT. The market is being flooded by new content at an unprecedented rate. Netflix is the king of new content and is producing most of the highly-rated alternatives to traditional cable. But there are dozens of companies now making content with the hope of grabbing a piece of the giant revenues earned by the most popular content.

New Bells and Whistles. Comcast is the industry leader in introducing new features for the home video product. Probably the best new one is the ability to talk to the settop box and eschew the remote. It’s hard for smaller companies to keep up with the numerous improvements.