Going OTT – Options for Pay-TV Providers

Thursday, March 27, 2014

For pay-TV providers looking to get into the OTT video space, there are a couple of options: partnering with an existing OTT service provider like Netflix; acquiring an existing service provider; or launching their own services. Two Parks Associates analysts offered a risk/incentives assessment of those options during a Webinar Thursday and addressed opportunities and challenges going forward.

Partnering is the lowest costs/risk option, said Brett Sappington, director of research. If the service isn’t working, “you can get out of the partnership without damaging your brand,” he said. The downside? The pay-TV provider wouldn’t have control over the service. For MVPDs with extra capital to play with, a benefit of acquiring a service is that “you have an established brand and customer base, as well as immediate access to market,” he said.

By launching their own OTT services, pay-TV providers can reach customers outside their footprint and provide a brand extension that could generate additional revenue streams. However, “everything has to be built from scratch” and providers “have to find that thing that sets you apart from anyone else,” Sappington said. As more streaming services get launched, the OTT pie will become smaller, so differentiation—such as exclusive content, competitive price and unique user experience (e.g. advanced content discovery tools)—will be key, he said.

A Revenue Opportunity for Streaming Services

One near-term revenue opportunity for both OTT and pay-TV providers is using transactional service to supplement subscription OTT services, John Barrett, director of consumer analytics, said. “Purchased and rented downloads alone will not satisfy the consumer’s appetite for video,“ he said. “They do, however, nicely supplement other sources including subscription OTT service,” he said. That said, transactional users watch rented and purchased downloads infrequently. Based on Parks Associates’ research, on average, those renting or buying video downloads only watch downloads 1-2 times a month. However, users of streaming services usually rent or purchase titles through their existing services: Roughly 2/3 of Amazon Instant Video subscribers do that through Amazon, Barrett said.