Mexico. Since their introduction, the online video-on-demand subscription platforms better known as Over-The-Top (OTT, e.g. Netflix, Blim, Claro Video, etc.) have gained ground among the preferences of consumers of audiovisual content compared to traditional platforms (open television and pay TV).
According to the latest report by The Competitive Intelligence Unit on the subject, from the point of view of the audiovisual content industry these platforms have been recognized as a complementary technological development for the distribution of film or television productions. Likewise, in the pay-TV market, efforts have been focused to address this with competitive and attractive strategies for consumers, for example, by incorporating an offer of OTT platforms parallel to its primary work of distributing content through cable or satellite.
However, the growing preference and popularity of content through OTT platforms means that, at present, they represent an option that competes and even directly replaces restricted television for a specific consumer segment. This circumstance has already been identified in different countries, such is the case of the United States, in which there are already indications about the decline in pay-TV subscriptions in favor of the growth in the number of users to OTT platforms.
Subscriptions to OTT Platforms and Pay TV in Mexico
In the case of Mexico, the accounting of subscriptions amounts to 6.7 million, equivalent to an annual growth of 39.6%, since its introduction into the market in 2011 at the end of 2016. A figure that indicates that more than a fifth of households can access a catalog of video-on-demand content at the time they want, wherever they want.
It is important to note that in the above statistics only OTT subscriptions of licensed video content are considered, that is, they grant access to a movie, television series, or some other content through the monthly subscription payment.
In contrast, the pay-TV service recorded 20.8 million subscriptions at the end of 2016, a figure that results in an adoption of just over six out of ten Mexican households. It is worth mentioning that pay TV took about five decades to reach this amount of users, while the accounting of subscriptions to OTT services already reaches the vicinity of a third of the households with that service in just over five years.
Substitution or Complementarity?
To what extent has pay-TV service been replaced by OTT platforms? While it is often said that content is practically no longer seen on television (open or pay) to only do so through digital platforms, data obtained by The Competitive Intelligence Unit indicate that 88.9% of households with pay TV intend to continue with their subscription or even consider hiring a premium package in the next six months ("cord-keepers").
While, among the remaining proportion, 6.0% plan to migrate to a lower cost monthly package ("cord-shavers") and only 5.1% would cancel their Pay-TV subscription ("cord-cutters"). Among the latter, only 7 out of 100 would migrate to a subscription to an OTT platform.
Therefore, it could be concluded that in general terms OTT platforms are not considered an absolute substitute for the consumption of video content through pay television.
However, when segmenting households that have an internet connection, it is obtained that 67% have a subscription to both services (OTT and Pay TV), that is, they complement their consumption of television content with those of internet platforms. Meanwhile, the remaining proportion (33%) privileged the consumption of video content through OTT platforms than through pay TV, that is, the former turn out to be a substitute for the latter for these households.
In terms of market accounting, this translates to 12% of subscriptions (just over two million) to pay TV were displaced due to OTT platforms. Considering that cable operators usually also offer internet service, users could hire only this and get an account on one of the available OTT platforms without acquiring any Pay-TV package.
Main Reasons for the Replacement of Pay TV by OTT Platforms
One of the main advantages of accessing content through OTT platforms is the possibility that users can select the type of content they prefer at any time of the day.
In this way, users of OTT video platforms have at their disposal a catalog of all kinds of content among which are films and television series, concerts, documentaries, music, sports and news, compared to linear and pre-selected programming that is transmitted through pay television.
It is therefore coupled with the affordability in price and the best user experience that identifies OTT platforms that for internet users is a substitute for pay TV.
From all the above, it can be said that OTT platforms already represent a competitive option and in some segments of the population with connectivity as substitutes in the consumption of audiovisual content. The growing preference and eventual widespread adoption of these services will result in pay TV such as OTT services being considered as parallel markets, that is, they can become perfect substitutes for the general population. With a proportion of households with internet approaching 45% of the total and a progressive development of networks with high-speed, low-latency data transmission capabilities, this scenario might not be so distant.
Text written by Radamés Camargo, from The Competitive Intelligence Unit.
