The evolutionary process of the media has shown that one medium does not end another. In the end, OTTs are going to coexist with cable operators, particularly in video-on-demand.
Richard Santa
OTT and on-demand video platforms have been a concern for subscription TV operators, who see their business continuity threatened in the coming years. But what are the options they have in the future? What are they doing to ensure their continuity in the business?
TVyVideo+Radio spoke with Gabriel Levy, an expert in the sector with extensive experience in the countries of Central and South America, who made an x-ray of what is happening and what is, in his opinion, the solution they could implement to guarantee their survival. The road is not easy.
He commented that "the cable operator has been an important ally for the creator of the contents, of which he distributes and markets them. At the same time it has been a headache for those allies. To the big networks such as HBO, Fox, among others, the cable operator is the one who has allowed to bring the content from the satellite to the end user, is the one who collects a monthly payment and pays the channel. But in some cases, in that process the cable operator generates underreporting, the transition is not efficient, they do not reach agreements and cut the signal, that has generated a traumatic relationship. "
He added that with the emergence of new internet-based technologies, content creators are experimenting with reaching the user directly as an added value to cable, with services such as HBO Go, Fox Play or TNT Go. But the reality is that they are experimenting to reach the user directly in the future and jump to the cable operator. That becomes the biggest threat.
The big question is what is the cable operator doing? For Gabriel Levy, they are trying to understand that change, slowly migrating their networks to the internet, and the equation is very disastrous for them because the only move they have left to save the business is to dedicate themselves to offering internet services. And dedicating yourself to offering internet services has three main components: Having a very good network infrastructure, making that profitable and scalable.
The first is achieved by making a very large investment, the second goes against the current model of the flat rate, charging the same for any demand for the service, which is killing the cable operator. And that affects the third variable that is quality, because the cable operator has to make large investments, his collection is limited and the way he distributes the content affects the business.
"What are they doing? Very little. Beyond the first variable, they are doing nothing. I don't see the cable operators meeting saying how they're going to end the flat rate, talking to MinTic to allow them to create a new tariff model. They do not even know in detail the consumption of their network, they only know how much they spend but they do not know how they spend it, they do not identify which users are the ones who consume the most and those who consume the least, that is deadly for your business. They are very unprepared," he said.
Swimming against the current
In Colombia the phenomenon of OTT is still second screen, it has not replaced the first screen that is traditional television. So far, the only thing that OTTs have affected cablers is the congestion of their data networks. There are no more service cancellations for an OTT than for the bad service of themselves.
In countries such as the United States, where the impact of OTTs has been significant, the process is being reversed due to two reasons: the first because television is an entertainment service and people do not want to decide what to watch and the second because millennials cut the cable when they went to live alone and stayed with OTT, but when they start to start a family they return to cable, because it offers them certain solutions such as children's channels.
Gabriel Levy stressed that cable operators must understand that they are not going to block Netflix, just as they are not going to block Uber, nor did they block Gmail because it affected Adpostal or Skype because it affected Telecom. The way out is not to go and tell the government to block. The most the government is going to achieve is to put one or two taxes on Netflix and demand that it open an office in Colombia to serve users and, suddenly, demand a screen quota so that 20% or 30% of the content is Colombian. That's the ceiling of what the government can do with OTTs.
"Cable operators in general are among the industries that I see most anchored to a comfort zone. That is, it is a very profitable model in which they squeeze the cow and continue to survive a model that has changed almost nothing since the 80s, "he said.
The real threat
For cable operators, the real threat is that paid channels will skip them and offer the user directly online services that have no difference with what a Pay-TV operator offers in a village. That is the next stage that will be lived. This is exactly the same situation in all Latin American countries.
"The real threat is when pay TV as we know it starts coming online, because television is going to remain the same, what's going to change is the medium of transmission. The channels will not want to continue selling to the cable operator so that it does not underreport them but they will want to sell from the United States directly to the user, removing the intermediation of the cable operator and carrying even more channels, with signal in 4K, "he said.
The role of regulators
The impression that remains in the different forums in which this issue is discussed is that cable operators only blame governments for the situation. But the reality is that there is a general agreement to respect net neutrality, for which many agreements have been signed in this regard, endorsed even with free trade agreements.
Governments and regulators are looking at what to do about it, respecting net neutrality agreements. Gabriel Levy gave as an example the case of Brazil, a country that found in the fissures of the system the way to charge taxes to OTTs and digital services through the collection with a credit card issued in Brazil. Being cards issued locally, the state has the right because they are using banks and local currency. In addition, it requires that any service that has been collected with cards issued in Brazil, must have a local office that attends the quality of the service to users.
He explained that "in the case of the European Union, the position is that the important thing is the service and not the medium, but they are pointing out that in the coming years they will break the rules of net neutrality and are thinking of declaring that there will not be a terrain in which the state cannot intervene. The Australian government is being bold in interpreting the rule while Latin American countries are lost trying to understand what is happening. And the U.S. government is being almost an arbiter in the fight between large corporations in the sector. In general there are great asymmetries, there is no global trend in regulation."
Finally, Gabriel Levy pointed out that this situation of uncertainty for the industry is going to occur until three things happen: 1. They join as an industry, 2. Put an end to the flat rate, and 3. They have the capacity to put conditions on traffic on cdNs. The state must also regulate them, because cable companies today have large infrastructure cost overruns, a very low profit margin in operating the service and a threat in the only one that is giving it profitability that is cable television. These are the three variables that will cause a tipping point.
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