The extent to which non-facilities-based over the top (OTT) video providers take market share from the traditional cable operators and telco services such as FiOS TV will have a big impact on how public networks evolve.
The reason is simple: If enough programming is sent by alternative companies to cable’s subscribers, the established players will need to look harder for replacement revenue. This could be the catalyst that the telcos and cable multiple system operators (MSOs) need to push more deeply into new businesses such as home security and automation and commercial services.
The telecom giants already are playing in these new arenas, but sustained shrinkage of their traditional base will accelerate progress. If this does occur, cable and telephone networks likely will be the scene of more innovation, lower costs and other improvements that tend to happen when competition is keenest.
It is clear that there will be a new normal. What that normal will be, however, is still a long way from being determined. ABI Research released a report this week that OTT video surpassed the $8 billion mark last year and will more than double that – passing the $20 billion plateau – by 2015. North America, Europe and the Asia-Pacific region each enjoyed growth of more than 50 percent last year, compared to 2011.
Those are impressive statistics. A bit of context for those numbers is provided by the National Cable Television Association, which says at its site that residential video revenue in 2011 was almost $57 billion. The telco TV figure clearly would be less, but still significant. Despite the fact that it’s an apples and oranges comparison -- the ABI estimates are worldwide -- it is clear that OTT represents a steep but not overwhelming bite to the top lines of domestic cable and telephone companies.
There are shades of gray in the conversation. MSO and phone companies can and do deliver video programming to televisions, PCs and mobile devices via the wired and wireless Internet. So, in a sense, they are OTT providers as well. The bulk of the OTT providers, however, will continue to be mere tenants on the cable and telco networks.
Another element to keep in mind when sorting through all this is that OTT can mime the packaged concept of traditional cable. Instinctively, people may assume that OTT is similar to video-on-demand and features one-time events, such as concerts and movies. But OTT also can be offered in packages that approximate traditional program lineups. The bottom line is that the delivery of programming is becoming more diffuse and there will be many more players serving the content up.
Telcos and cable operators long ago recognized that they couldn’t survive as one-trick ponies. Earlier threats pushed the telcos into video and the cable operators into voice and commercial services. But the threats posted by OTT seem even greater, and big players are placing their bets. How this plays out over the next few years will be fascinating to watch.