Internet video viewing accounted for about 8 percent of all video consumption on the TV at the end of 2011, Parks Associates' research found. New consumer viewing habits favor even greater adoption of online video as OTT service providers, Internet service providers, telcos, consumer electronics manufacturers and others compete for a share of this growing market.

Online video generally offers lower-priced alternatives to traditional pay-TV subscriptions, making such services attractive to cash-strapped consumers and increasing the risks of cord-cutting and cord-shaving. Netflix now has a larger subscriber base than Comcast, the largest cable operator in the United States.

Consumers generally recognize that pay-TV services such as premium VOD offer higher quality and greater selection than OTT options, Parks Associates research shows. However, services such as Netflix are easily the most affordable, stirring a cost-benefit analysis that affects consumers' purchase decisions.

OTT providers have the opportunity to gain significant market share against pay-TV providers, both in subscriptions and transaction fees. (Why pay US$3 to see a new movie on VOD, for example, when you can watch reruns of a 1980s sitcom that come with a Netflix subscription?) To combat this loss, operators not only need to emphasize their inherent advantages in content and picture quality, but also need to develop alternative services that counter Netflix's advantages in cost and flexibility.

From the article, "The Smart TV Transformation Is Under Way" by Pietro Macchiarella.

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