OTT Providers Must Seek Differentiation to Succeed, Park Association's Sappington Tells NAB 2018

The days when a content provider could simply roll out a new over-the-top (OTT) video service and watch the customers (and cash) roll in are over, Brett Sappington, senior director of research at Parks Associates, told attendees at NAB 2018 in Las Vegas.

Sappington discussed the new paradigm for OTT based on data from two new Parks Associates reports: “360 View: Access and Entertainment Services in U.S. Broadband Households” and “360 View: Digital Media and Connected Consumers”.

Sappington said winning strategies for OTT providers now are recognized as high-value content brands, such as HBO Now; online pay TV services or vMVPDs, such as DirecTV Now, and OTT providers such as Netflix and Amazon that invest in producing original content.

Parks Associates says 10 percent of U.S. broadband households switched, downgraded, or cancelled their pay-TV service in past 12 months -- primarily because of a negative perception of the service value. By comparison, 77 percent of U.S. broadband households currently subscribe to pay TV, a drop from 81 percent in late 2016.

“Poor perceived value is the leading factor driving cord cutting, downgrading services, or switching providers,” Sappington said. “It is a primary reason for consumer interest in online pay-TV services, which are typically available at a much lower price than traditional pay TV. Operator strategies to counter subscriber loss could include promotional options, including bundling OTT video services or the offer of free or subsidized CPE. Cord Cutters and Cord Shavers indicate these types of offers could entice them to keep their traditional pay-TV subscriptions.”

U.S. broadband households report their average monthly expenditure on video entertainment outside of a pay-TV subscription has dropped from $29 in the past two years to $23 in the last half of 2017. Parks Associates notes spending on Internet video has held steady at roughly $9 per month for several years, while reduced spending on cinema tickets and DVDs/Blu-ray discs contributed significantly to the overall decline.

The new research also shows a decline in multiplatform usage among households, as use rates on individual screens declined despite the fact that overall video viewing has held steady.

"The number of overall consumers viewing video on a connected device remains steady at 92 percent of U.S. broadband households, but viewers are using fewer devices to access that content," said Brett Sappington, Sr. Director, Parks Associates. "This finding indicates that consumers are starting to settle into particular viewing habits. They are focusing more on their favorite screen and connected devices and are reducing time spent on other video screens."

The research firm also notes that many viewers want access to their OTT services through their pay-TV set-top box. Currently, one-fifth of pay-TV subscribers have the ability to access online video services through their set-top box, and one-third of pay-TV subscribers say access to OTT via a pay-TV UI or channel guide is appealing.

"Users are experimenting less with multiple connected devices, but they continue to experiment with multiple OTT video services," said Hunter Sappington. "Many consumers now see OTT video as complementary to both other OTT video services and pay-TV services, rather than a replacement. Today's OTT market is much more about bundling and partnerships than it is about winning subscribers from direct competitors."

(For more information visit https://parksassociates.com/).