Pay-TV and OTT providers face an ongoing and expanding challenge to attract and retain consumers as the OTT video space gets crowded and consumer video habits continue to evolve. Many companies are finding it difficult to formulate business strategies given the dynamic changes in consumer habits. Several factors are keeping those usage habits in flux:
- Regular introduction of new connected platforms and product features
- Continued innovations in user experience
- Changes in content availability
- Experimentation in business models
Even with the continuing evolution of viewing habits, TV Everywhere and OTT video services have been in the market long enough that broad trends in use are becoming evident.
The relationship between TV Everywhere and OTT services
Pay-TV providers originally developed their TV Everywhere services as a defense against OTT video services. They provide their subscribers with multiscreen access to content to discourage the adoption of (and possible switch to) OTT services. However, these services struggled at the outset due to low consumer awareness. In the U.S., only 21 percent of pay-TV subscribers are aware that they have access to a TV Everywhere feature, and approximately 12 percent use the service.
Yet, there does exist a relationship between OTT and TV Everywhere use. Almost three-quarters of TV Everywhere users subscribe to one or more OTT services. Among consumers who subscribe to OTT and are aware of a TV Everywhere feature from their pay-TV provider, over one-half use TV Everywhere at least monthly. Given these figures, many pay-TV executives ask – why do consumers still want OTT if they have TV Everywhere?
Today, TV Everywhere is unable to fully satisfy its target audience's desires for multiscreen content for a few reasons:
- The appetite for content among OTT video subscribers is more diverse than pay-TV providers can affordably address.
- TV Everywhere apps for many pay-TV providers are not available on desired platforms.
- Consumers are unable to easily choose content via pay-TV, so they are exploring OTT options that provide simpler decisions in content selection.
Providers must have a broad selection of content that is available on connected devices and is easy to navigate and locate in order to attract a large audience of OTT viewers.
The influence of children on online video spending
One factor that has a positive impact on OTT viewership is children in the home. On average, U.S. broadband households with children spend 90 percent more on OTT services and digital video than do homes without children.
Children are key drivers in online video consumption. Over 60 percent of households with kids estimate that the children watch as much or more content when compared to the adults in the home, and 38 percent say their consumption is significantly more. Over 40 percent also state that children influence household buying decisions related to video services, so child- and family-oriented services will be key offerings in the OTT video space.
Reaching beyond pay-TV and cord cutters
Several companies launching or announcing new OTT services have cited a desire to capture non-pay-TV customers as a primary factor in moving into the OTT space. Content producers, cable networks, and premium channels that have traditionally sold content and derived ad revenues exclusively through pay-TV fear that they are missing out on this untapped market. The success of Netflix and other OTT services among both pay-TV and non-pay-TV households has heightened those concerns.
In the U.S. market, approximately 11 percent of all households subscribe to a broadband service but not to pay-TV. Of these households, 65 percent, representing 7 percent of all U.S. households, currently subscribe to one or more OTT video services. This figure includes both previous pay-TV subscribers who have cancelled service and consumers who have never subscribed to pay-TV. The prospect of capturing these consumers has motivated operators including DISH Networks, Rogers Communication, Bell Canada and Sky to develop their own OTT services.
Give them what they want
OTT was a key topics at Parks Associates' recent CONNECTIONS™: The Premier Connected Home Conference, May 19-21, where key executives from service providers and content and technology companies noted that although OTT was originally seen as separate from pay-TV services, the industry is changing its perspective. Today, industry players realize that OTT is a part of the broader tapestry of video options for consumers. It is a new delivery channel for the content that consumers love. Since consumers really do not care how the content is delivered (so long that it is with good quality), OTT is set to be part of the overall landscape of video services for the foreseeable future.
At this stage, with the market still developing, providers need to experiment with different business models, such as blended subscription, transaction and ad-supported models. Consumers don't necessarily care where the content comes from. They simply want access to that content on their platform of choice.
For more information about CONNECTIONS™, and to download the summary of the 2015 conference, go to www.connectionsus.com.
Brett Sappington is Director of Research for Parks Associates.