Over-the-top video can be telco TV friend, not killer

SAN JOSE, CALIF. – Most pay TV provider won’t admit that video cord-cutting has affected their business. But, for most, it has – or it soon will. Those consumers mulling cutting the cord typically have an over-the-top video service in mind as the alternative, but that’s no reason for pay TV providers to fear content riding over-the-top of their networks. According to The Diffusion Group founding partner Michael Greeson, pay TV providers should embrace OTT and find a way to incorporate it into their offerings.

Speaking at TDG’s pre-conference to the Over-the-Top Video Conference yesterday, Greeson explained that pay TV providers might label cord cutting as churn, but they don’t like to acknowledge it in any magnitude. And they are justified for the most part, because cord cutting is minor today, Greeson said. It is, however, significant that the number of broadband households without any pay TV has doubled since early 2009. According to TDG’s latest research, 13% of broadband households do not have any pay TV service, up from only 6.9% in early 2009. TDG also found that 8.4% of pay TV subscribers are to varying degrees likely to cancel their service altogether at some time in the next six months.

From its surveys, TDG identified four types of consumers – replacers, supplementers, OTT optimals and non-OTT consumers. The replacers are those likely to do away with their pay TV service entirely in favor of OTT broadband. Supplementers might keep their pay TV service, but they will augment it with an OTT offering. OTT optimals could do both – they are interested in replacing and supplementing their pay TV service with an OTT video service at different price points. Non-OTT consumers aren’t interested in either route.

Age also matters for cutting the cord and the proclivity to adopt OTT, as well as the causation between the two, Greeson added. Consumers age 18 to 32 believe their viewing of TV has a direct effect on TV, whereas companies like Nielsen and comScore that blend age-related metrics and set-top box level data tend to take the view that OTT hasn’t affected TV at all. In actuality, TDG maintains that these metrics providers will cry online video induced cord-cutting within the next two years – a trend that TDG is observing right now.

“At the end of the day, from a consumer perspective, they don’t give a damn where they are getting the content,” Greeson said. “It’s about price versus purview.”

Even so, free won’t cut it for OTT services. Greeson said that all OTT services will eventually move to a subscription model, an evolution that Hulu, YouTube and others are already considering. TDG’s research suggests that the majority of consumers would pay $25 for a replacement TV service that includes elements of a la carte programming, on-demand and online video – as long as that provider offered the service with the breadth of content and quality of service that was promised. Service providers could do this themselves if they disaggregated bundles, Greeson said.

When replacement service was repositioned as a supplemental service, consumers still indicated a willingness to pay. If it were to cost $25 extra per month, there would be an addressable market of 15% of broadband households and create a whole new way to think about OTT, Greeson said. For many consumers, giving them the big broadcasters’ content supplemented with Web content is enough to make them happy.

“It’s not about cord cutting,” Greeson said. “Don’t let people trash over-the-top, because they trash cord cutting. They just don’t understand OTT. Not that there’s not a cord-cutting option, but the largest opportunity is in supplementary services. OTT content strategy should not believe that one size fits all. The flexibility the Internet gives you in terms of content is substantial. OTT, by virtue of the fact that it’s an IP-based medium, can offer consumers a choice of the 20 channels they want and deliver it to an audience of one.”

TDG senior partner Colin Dixon recommended that pay TV providers, aside from participating in some form of TV Everywhere, use the Internet to make subscribers’ lives easier, starting with their often sub-par video on-demand interface. In general, they need to modernize the TV service – create favorite skews, simplify search and clean up their portal. Dixon said that pay TV providers should also move away from thinking about whole-home DVR to focusing on whole-world DVR.

“Ask vendors to get you there,” Dixon advised. “Sling services anywhere, and leverage the Web….Instead of thinking of OTT as an enemy, co-opt it as your friend.”