The Battle for Over-The-Top (OTT) Video: Disruption Expected in the Video Entertainment Industry

written by: Richard Kastelein

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Instat has come out with a new study on the future of the video industry, encompassing theater box office, home video, pay-TV, premium TV channels, broadcast networks, online video, and video disc rentals. The report, interestingly, does also claim to debunk many of the popular myths circulating in the industry with regard to video cord cutting, and the demise of video entertainment business models. But Instat says they also present insightful solutions for industry participants to grapple today’s market challenges.

Whether cord cutting is a 'fantasy' is highly debatable as even Verizon's CEO Ivan Seidenberg sees the writing on the wall:

"Young people are pretty smart. They're not going to pay for something they don't need to," he said at the Goldman Sachs Communacopia conference today, sending a strong message that Verizon believes that the cord-cutting trend being reported is more fact than fantasy. "Over the top is going to be a pretty big issue for cable."

In September 2010, he told a group at Goldman's media conference that the cable bundle is going to go the way of the wireline telephone business. That is, the next generation of consumers won't have any interest in paying for it.

On the other hand, Comcast CFO Michael Angelakis has the exact opposite stance, saying:

"When people say there's cord cutting, we really just don't see it. And when we think about cord cutting or the flavor of the day, we look at that as primarily competition to our VOD business, not to our core business."

Having said that, he's not taking any chances and followed with the fact that Comcast is not that confident noting that it has launched its own over-the-top play, Xfinity.

It is interesting to note that it was not long ago that Credit Suisse downgraded its outlook for a number of media companies, primarily because it saw pay-TV share eroding as more younger consumers turned to over-the-top delivery options like Netflix. It found that 37 percent of Netflix users between the ages of 25 and 34 use Netflix streaming services instead of pay TV, and another 30 percent of subscribers between 18 and 24 also have cut the cord.

As large media companies begin to report third-quarter earnings, there could be some more revelations and if media giants such as Comcast, Time Warner Cable and DirecTV report further declines in TV subscribers, it will provide new evidence that cord cutting is a growing trend.

"One of the biggest themes you will hear is all about cord cutting," said David Bank, an analyst at RBC Capital Markets told Variety Magazine yesterday.

Carriage disputes like the protracted battle going on between Cablevision and News Corp., in which Fox stations have remained off the air, will just fuel subscriber ire toward cable companies, said Harold Vogel, a media economist and founder of Vogel Capital Management. "These kind of fights will only accelerate the cord-cutting instinct," he said.

Back to the report from Instat. Device manufacturers, retailers, content producers, and service providers are all positioning themselves to capitalize on the anticipated rapid growth of OTT video. Within five years, In-Stat predicts that two-thirds of US broadband households will be accessing OTT video, generating over $20 billion in revenue. But what kinds of services will consumers favor? Will it be downloading or streaming video content?

This report examines the market for paid OTT video services to the home. The research is based on data collected from a recent In-Stat primary research survey. The report quantifies the number of current OTT video households in the US, the devices being used, sources of online video and how the content is being acquired. OTT video service providers are profiled. The market data is segmented by age group for added clarity. The report also provides five-year OTT video household and revenue forecasts, segmented by acquisition method (download/streaming).


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