OTT broadcast passes tipping point as HBO and CBS leap aboard the waggon

The tipping point for OTT broadcast services was surely passed when on successive days HBO and CBS announced they were cutting their own cords with announcements of online-only subscription services. Analysts such as UK based Rethink Technologies are right to assert that these moves will start the dominoes falling not just in North America but around the world, as almost all commercial broadcasters and also pay TV operators will be under mounting pressure to come out with their own OTT-only offerings. It is no longer enough to have a TV Everywhere play so that existing customers can access their subscribed content from connected devices around the home and increasingly while on the road from smartphones, laptops and especially tablets. Now they need a separate online package to combat the brigade of pure play OTT service providers led by Netflix and Amazon, even at the risk of cannibalising their own premium services delivered by cable, satellite or IPTV.

To some extent we are talking about the US here, since elsewhere many public service broadcasters have long had linear channels available online with no commercial disincentive to do so and in fact a remit to offer access as widely as possible. In the UK the BBC introduced live access on top of previously available catch up to its online iPlayer service in 2011 and followed a year later with Live Restart so that viewers could rewind and resume from any previous point while a program was still airing.

But the moves by HBO and CBS are so significant because both networks have been stalwarts of the pay TV scene, which began in the US long before anywhere else. HBO has been credited as the founder of pay TV with its subscription service beginning in 1972, then evolving its current mix of theatrically released motion pictures and original television series, along with movies made just for cable, along with documentaries, boxing matches, stand-up comedy and concert specials.

HBO is still one of the main draws for cable and satellite TV in the US and so its OTT move realizes the worst fear for existing operators such as Comcast and Cox on the cable side, along with DirecTV and Dish for satellite. HBO Go launched as the network’s streaming service in 2010 but crucially has required a subscription with an existing operator to access – until the new OTT offering launched next year.

A major factor is that the key impediments holding back pay OTT, poor quality and dearth of content, have steadily been eroded, with the second following from the first. As quality has improved with increasing broadband bandwidth and advances in adaptive bit rate streaming, in turn providers of premium live content, notably sports, have been lured to online distribution to gain extra subscribers and revenues. In the UK Sky launched its OTT-only linear service, Now TV, in July 2012.

A key development as far as the US especially is concerned is the growing availability of popular TV shows OTT, rather than just the old movies and shows that Netflix kicked off with. Now Netflix holds a significant bouquet, including not just its own material like House of Cards and Orange is the New Black but also shows such as Breaking Bad and American Horror Story that it has bought rights for. The result is that its 36 million U.S. subscribers now watch about 100 minutes of Internet video each day, according to BTIG Research, based on Netflix disclosures about overall viewership patterns. Netflix-watching now accounts for about one third of US Internet traffic in the evening, according to Sandvine. This is a major trigger for the HBO and CBS moves, with the former especially coming under pressure from the Netflix content expansion.

Operators in turn will have to move fast in response to the HBO and CBS moves. There are millions of US households watching well under the average amount of TV but a lot of HBO material. As soon as they can access the service in 2015 without a cable TV subscription, they could at the very least shave the cord by moving down to a cheaper package and many will most likely cut the cord altogether. There is already a trend towards combining two or more of the lower cost OTT packages, such as Roku and Netflix, and now we can add HBO to the mix. There is also the immediate option of adding the online version of CBS to the mix at $5.99 per month, but here there are still some rights questions to be resolved. CBS is only making its local stations available live at present, with premium national shows coming on the day after they air. Furthermore some premium sporting events, including NFL (National Football League) coverage, are not yet available for live streaming through this new OTT package, called CBS All Access.

On this front too the foundations of traditional pay TV are shifting, as major sporting leagues around the world increasingly seek separate deals for online content to maximise revenue there, while only a few years ago they would virtually give that away. Earlier this October the US NBA (National Basketball Association) and sports channel ESPN announced they were creating a standalone streaming service, including live games and surrounding content, pitched specifically at more avid basketball fans who want to avoid paying for premium cable packages that include a lot of content they do not want to watch.

What we are witnessing then is not just a breakdown of the traditional model of pay TV distribution but also of packaging in large bundles, although for now at least there seems to be a determination to retain subscriptions rather than an unfettered pay per view approach.

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