For years, analysts and prognosticators have been predicting that the world of TV was going to shift from “over-the-air” (OTA) to “over-the-top” (OTT). That is, people will go from primarily consuming their television through a cable box to consuming it through Internet streaming services — which may or may not be connected to an actual TV.
And although there is no doubt that viewers are increasingly consuming more and more content online, the big question has been, “Will the content creators actually make the jump to OTT services?”
We’re just a quarter of a way into 2015 and we’re already seeing signs that content providers are finally, finally willing to offer their services in real-time (as opposed to on demand, which has been around in various forms for a while) to users without the need for a separate cable TV subscription. The first indicator was Sling TV, Dish’s new $20 a month bundle of OTT channels. This week, we saw the early launch of PlayStation Vue and new rumors of Apple’s much-anticipated Internet TV service. And on April 12, HBO will officially launch HBO Now, it’s $15-a-month subscription offering that will bring the network’s programming to those who want to forego a traditional cable subscription.
HBO might be the biggest and most notable content company moving to the direct-to-consumer play, but they aren’t alone. Last year, CBS launched its CBS Now digital subscription service. NBC is also working on an OTT comedy channel.
So what’s happened? Why, after years of trying to avoid the conversation, have content companies started to come around to offering their content directly to consumers, either as a standalone service or in a broader OTT bundle?
Call it a mixture of the right timing, shifting consumer movements and perhaps, just perhaps, recognition from content creators that the tides away from cable TV are real.
The first reason content companies are finally starting to embrace OTT is because cord-cutting is really happening. It’s not just that more and more consumers are opting out of a monthly cable package — the amount of traditional TV viewers are watching is dropping, too.
A recent Nielsen report indicated traditional TV usage dropped 10.6% between September and January amongst 18- to 34-year-olds. That’s compared with a 4% average decline that’s been occurring since 2012. Nielsen’s figures show that primetime TV has 20% fewer young-adult viewers than it did just four years ago.
Instead, viewers — particularly millenials — are moving to subscription streaming video services in droves. A ComScore report in October 2014 showed that 24% of adults 18-24 don’t pay for traditional TV service. Those are figures that should scare anyone in the content business.
And although some in the cable TV industry may still argue that cord-cutting isn’t killing its business, the fact is that more users are ditching cable and fewer younger users are even bothering to sign up in the first place. The amount of “cord-nevers” — that is, viewers who have never subscribed to cable TV as an adult — is on the rise.
This is only going to increase over time. As analyst Horace Dediu notes, we’ve seen this before.
The same phenomenon occurred with mobile vs. fixed telephony. For several years it seemed that mobile was sustaining to fixed or that fixed was immune due to lock-ins. The fixed telephone incumbents insisted that the data was inconclusive. Then the trickle of abandonment turned into a deluge.
Dediu continues, writing, “the point when we will look back and say that cable was finished will probably come by the end of this decade.”
If content companies can admit that cord-cutting is a real thing (and it is), the silver lining is that viewers are still watching subscription content. In a decade, the next wave of adult TV viewers might be more comfortable consuming content from YouTube or Twitch, but for now, online TV viewing and streaming video services are on the rise.
According to NBC Universal’s Alan Wurtzel, subscription video viewing was up 22% year over year in 2014.
Nielsen’s latest total audience report shows 40% of U.S. households subscribe to at least one video streaming service as of November 2014.
And although price sensitivity is one reason users are cutting the cord (after all, cable TV costs have continued to increase), it’s not the only reason. Users also cut the cord and shift to online streaming services because the primary place of consumption is moving away from a shared TV set in a living room and to a laptop, tablet and smartphone.
Even for me, I pay an absurd amount of money each month for cable TV (I also pay for Amazon Prime, Hulu Plus and Netflix) and I increasingly watch as much — if not more — content on my iPad as I do on my TV. And my TV has a Roku 3, Apple TV and Fire TV connected to it in addition to its cable box.
Nielsen’s latest Total Audience Report shows that 75% of U.S. households now have broadband at home. There are similar penetration levels for mobile devices, such as smartphones and tablets.
Moreover, now that the Aereo Supreme Court case has been decided, it’s easier for networks to start looking at ways to offer their own solutions. Aereo may have lost in court, but it did change the game and the conversation.
But timing is right in another way, too: cable providers are finally starting to see that they can still make plenty of money by letting up on content providers’ abilities to sign content deals elsewhere.
That’s partially because no matter how these OTT bundles and services are sold, the services will still require broadband to deliver content. And who controls the broadband pipe? The cable companies.
But it’s more than just that. The Internet providers have finally realized they can also get a cut of the subscription offering profits if they offer to bundle those services in with Internet subscriptions.
I predicted this move more than two years ago and its finally starting to happen. Verizon started offering Netflix with its service last year in some test markets. And Cablevision will be offering HBO Now to its broadband providers, no TV service needed.
The biggest challenge some content companies faced when considering creating or making OTT deals was incurring the wrath of the cable companies. But if Comcast and others can find a way to be part of the conversation — and profit from that conversation — maybe consumers can actually get something out of it, too.
In his analysis of the cable industry Thursday, Horace Dediu discussed some of the reasons the cable industry has avoided significant disruption (until now), 20 years after it reached saturation point.
As he points out, however, the rationale for those reasons are slowly disappearing. This is fueled by the reality of cord-cutting and the timing for content creators to actually make a move.
But the bigger, unspoken reason is simple: Content companies know they have to evolve or die.
This is a lesson mass media has had to learn time and time again. The music and newspaper industries both largely failed to evolve and adopt to digital models before they were disrupted in ways that changed the underlying business structures irreparably.
Television can’t afford to do that. Already the plethora of content opportunities means that it’s harder than ever for content creators to amass huge viewing audiences (outside of major sporting events such as the Super Bowl and World Cup). The number of people tuning into live primetime TV for a hit show is far lower than the numbers from even a decade ago, and that’s only going to continue.
The reality is, if content creators don’t skate to where the puck is going to be, they’ll be disrupted by a new generation of content creators and options.
The current players might as well disrupt itself, lest they risk being out of the game entirely in the future.
Story Via: mashable.com