We're witnessing a dramatic shift in the way people consume content. As television and the internet continue to converge, the way we find, watch, and share our favorite shows is evolving.
By Simon Trudelle*
The more impressive the numbers of subscribers that OTT providers get with their services, the more pay-TV operators have to fight to keep their share of the pie. In the meantime, there are some lessons traders can learn from the broad appeal of OTT.
But first of all, why not discard TV technologies in favor of OTT? In the end, it is becoming cheaper to distribute content to consumer devices over the Internet than to carrier-owned devices over a managed network. Although recent research shows that OTT TV is growing steadily, there is still a significant gap between it and linear TV in terms of viewership and total hours watched per day. Services like Netflix are popular and available worldwide, but so far they haven't replaced linear TV.
There is still a high consumer demand for reliable, high-quality linear TV distributed over broadcast networks. However, linear TV isn't the only driver of value and growth for pay-TV service providers. In fact, success now requires providers to better segment the market and embrace the flexibility and choice that make OTT so attractive, while also ensuring that their subscribers value their strengths.
Owning the managed distribution networks and set-top box continues to offer an undeniable advantage. It allows providers to control the user experience and service reliability. However, using cloud infrastructure (private or public) and an IP-based content delivery approach can put pay-TV providers in a better position to manage their business growth efficiently, implement new features, and reduce the maintenance costs of their systems.
For these reasons, IP and cloud-based distribution tend to increasingly drive the provision of television services. This includes moving broadcast and STB functions, such as personal recordings, to the cloud. Such cloud-based technologies would give pay-TV providers maximum agility and flexibility to fine-tune their business models, capitalize on new revenue opportunities, and add new services without having to invest heavily in complex equipment at the customer's premises.
Improving data collection (big data) through IP connectivity would also give pay-TV providers more meaningful insight into consumers' actual consumption and viewing behaviors. In turn, this would give them an advantage over OTT providers in terms of advertising. In its current state, OTT content providers still cannot match the revenue generated by broadcast ads.
But as demand for OTT increases, traditional pay-TV providers can't afford to be complacent. Service providers gain an advantage by having better data, being able to use it as a new currency in their negotiations with content owners.
Pay-TV operators may never become as flexible as OTT providers, but they can benefit from remaining end-to-end owners of the distribution channel and still achieve higher margins by leveraging their broadcast tv infrastructure and value chain. And by adding intelligent IP-based services, they can expect greater agility and, more importantly, greater consumer loyalty. This makes a hybrid approach the smart choice.
To do this, operators must be visionary, ambitious and open to innovation from different sources. In the short term, the key is to work with pay-TV experts to make the right technologies chosen. In the longer term, operators that decide to increase their distribution networks with IP-based upgrades will be better positioned for the future as consumer behavior continues to evolve.
*Simon Trudelle is Senior Director of Product Marketing at Nagra.
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