How many times have you heard this question? I have heard it on a recent webinar, and the presenter’s answer was that they will all win – but could not elaborate on why. It felt more like a politically correct answer, than a judgement based on analysis.

This got me thinking on the fundamentals that could help in answering this question. One way to look at it is to try to understand what makes a market attractive for OTT providers. This can be done from assessing three main elements, shown below by order of importance:
1. Availability of network infrastructure;
2. Consumer preferences;
3. Traditional pay-TV providers’ (for example satellite, cable and IPTV) propositions.

Availability of network infrastructure
Superfast broadband coverage is a must for OTT services to thrive, but the same can be said about some traditional pay-TV services such as IPTV. This infrastructure is key to deliver seamless high-definition video streaming. For example, the Australian market was for a long time dominated by Foxtel and Telstra, delivering pay-TV content via satellite and cable respectively (see the latest GSMA Intelligence Fixed, TV and Convergence data for forecasts of fixed broadband, voice and pay-TV connections in Australia, as well as nine other key markets).

As the National Broadband Network (NBN, Australia’s government-owned wholesale network) expanded its superfast broadband coverage, so did the take-up of OTT providers such as Fetch, Stan and Netflix.

Consumer preferences
How big is the appetite in a market for OTT services? To understand that, we need to first segment consumers based on their preferences:

  • Convenience. Measures the importance given to having a single bill, user experience (UI, QoS), customer service, ease to start and cancel subscription.
  • Willingness to spend on pay-TV services. Value for money versus minimising absolute spend.
  • Desired content: choice versus limited content.

Figure 1 (below, click to enlarge) tries to illustrate the dynamic across the three variables to identify the consumer profiles for OTT and traditional pay-TV services.

OTT customers are expected to subscribe to a limited number of services. Perhaps they only need fixed broadband, and mobile voice and data, maybe from different providers. For consumers subscribing to more services (for example fixed voice, smart home, FWA), the convenience from dealing with a single provider increases. Those are expected to be more attracted to offers from traditional pay-TV providers.

In addition, the less consumers are willing to spend on content, the more likely they are to feel attracted to OTT services. On the other hand, traditional pay-TV providers are expected to offer more choice for better value-for-money, sometimes even including the OTT providers’ offer as part of their own proposition.

Traditional pay-TV providers’ proposition
The strength of pay-TV providers’ proposition will limit the success of OTT services, at least to win the race for being the primary pay-TV service at home. The first thing to acknowledge is that some consumers will simply not have the preferences that fit into traditional pay-TV providers’ strengths. Therefore, the proposition needs to primarily cater for the needs of the consumers who do. The stronger providers will have the following characteristics:

  • Strong bundling propositions. These should deliver value-for-money and the convenience from having a single provider for multiple services. Having bundles that reduce the incentive to have a standalone fixed broadband service can make a difference in resisting the OTT offers. For example, selling the standalone fixed broadband service at a higher price than having it bundled with the pay-TV service.
  • Inclusion of OTT providers in their pay-TV service. This move offers choice for consumers, but not necessarily value. The consumer would still have to pay for the OTT’s service subscription.
  • Their own OTT service. This is another channel that can be used to reach out to consumers who may not subscribe otherwise.
  • Content choice. The priority is to have customers using the platform. This will allow the provider to learn about them and develop more customised offers.

OTT providers are here to stay, as a primary or secondary pay-TV service at home. The two main reasons for that are:

  • Superfast broadband coverage keeps growing worldwide. The rollout of 5G FWA networks should help drive this growth.
  • They cater to a customer segment that values their proposition more than the one from traditional pay-TV providers.

Traditional pay-TV providers lost part of the pay-TV market to OTT providers but are also not disappearing. They cater for the needs of a different consumer profile.

It seems like the politically correct answer I got from that webinar is aligned with this conclusion.

– Nuno Afonso – lead analyst, Multiplay – GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.