Northern Sky Research

Are OTT Concerns Over the Top?

Jun 9th, 2015 by Alan Crisp   More from this Analyst | Profile

OTT seems to be wearing on the minds of many these days.  DTH and Cable TV platforms are perhaps the most threatened, given the rise of OTT video products and the potential to reduce revenues for video platforms and satellite operators alike. However NSR’s latest report on the satellite video markets, Linear TV via Satellite: DTH, OTT & IPTV, 8th Edition finds that much of this concern is unwarranted, with a few exceptions.

NSR forecasts that globally, DTH channels will increase to over 26,000 by 2024, representing a 67% increase over channel counts in 2014, with similar trends for both C-band and Ku-band video distribution. This corresponds to 438 transponders of additional DTH capacity required to handle this growth with a further 343 transponders for video distribution for Cable and IPTV headends.

The plethora of options for consuming video content has never been higher, including (but not limited to):

  • YouTube
  • Netflix, now available in 80 countries worldwide, along with similar services
  • Youku and iQiyi in China
  • OTT platforms provided by DTH and cable platforms

However, NSR found the rising OTT presence represents a growing video market pie, rather than cannibalization of revenues. Instead, cannibalization is in the form of viewing time, with consumers spending less time viewing linear content and more on OTT content. However, this doesn’t correlate to cord-cutting in most instances, with the exception of the United States where a number of variables have lined up to cause subscription cancellations to occur:

  • An existing very high pay TV penetration rate
  • Pay TV is a high cost as a percentage of income for many households, whereas in many other regions, low income households have never signed up for pay TV services
  • Plethora of options for OTT platforms, both free and paid
  • A home-grown advantage for OTT, as high percentage of high quality content is produced in the U.S.

As a consequence, NSR expects leased DTH capacity growth in North America to remain fairly soft over the next decade.

However, OTT is not a major cannibalizing factor elsewhere, where there is insufficient incentive for consumers to cancel their pay TV subscriptions, as much higher quality local content is available for lower cost, and the lack of maturity of many OTT services and oftentimes broadband (a key to solid OTT). Further, as economic development expands in many developing regions, large numbers of consumers are signing up for pay TV services for the first time, boosting revenues globally. Instances of this include India, Indonesia, and Brazil, with India having overtaken the United States in 2014 for largest DTH market by total subscribers, for example.

Even with OTT acting as a form of complimentary competition, there still remains significant DTH and cable growth opportunities in most regions, which appear sustainable for a decade or more. For instance, the Pay TV market in large parts of Sub-Saharan Africa remains largely unregulated, with piracy being a major issue, particularly with STBs flowing from South African DTH platforms to other parts of the continent.

Some DTH platforms have been able to capitalize on OTT content to expand their subscriber base and overall revenues, such as Sky Deutschland and Sky Italia, and this is a trend which NSR expects to become more prominent. Sky Deutschland (for example) saw their largest subscriber increase ever in terms of total number of subscribers in 2014.

And much longer term, after Internet connectivity and OTT become much more ubiquitous, there is likely to be a trend for quality over quantity for Linear TV content, including significant added capacity from the higher bitrate UltraHD format.

Bottom Line

Although OTT is perceived as a fierce threat, in reality the overall video market pie is increasing, rather than there being cannibalization of Linear TV revenues in most regions. However, this shouldn’t mean that video platforms should stay still. Rather, video platforms will need to diversify to have an OTT product and become a part of the continually expanding video market pie. 2015 is really the beginning of the growth curve for OTT, and if traditional platforms don’t step up and offer their own OTT products, their dominance long term may be taken away by those who do.

                                             

NSR is experienced in strategic advisory and consulting efforts regarding linear TV and OTT growth across all regions, platforms and channel types.  Please contact Christopher Baugh for more information.