LAS VEGAS—Despite its often unreliable, or relatively poor picture and content quality, Internet video is surging in popularity among consumers.
At the TelcoTV show here last week, industry analysts and research firms released fresh studies indicating that over-the-top (OTT) video is an increasingly large draw for consumers. As a result, cable operators, telcos and satellite TV providers will increasingly be under pressure to offer their own OTT packages and stronger competitive products or risk losing their existing customers to video cord-cutting.
With OTT video now a mass-market phenomenon, slightly more than 6% of U.S. TV households have either cancelled their pay TV subscriptions or have never subscribed to a traditional pay service, according to the latest study by Altman Vilandrie & Co. Further, Altman Vilandrie found, another 20% of TV households admit to “cord-shaving,” or downgrading their pay TV subscriptions.
Other studies indicate that consumers are attracted to OTT video because of its wide range of viewing options and generally low costs. A new survey released by Parks Associates, for instance, found that consumers ranked Netflix’s Watch Instantly service higher on several customer satisfaction scales than premium broadcast channels because of Netflix’s greater viewing flexibility and lower retail cost. The Netflix service also topped pay-TV VOD on the cost scale.
“Consumer can pay for a month of Netflix for about the same amount as for two pay-TV VOD movies,” said Brett Sappington, director of research for Parks Associates. “Consumers know the quality of the OTT service is not comparable to pay TV quality, but the cost-benefit comparison is enough to affect their purchase decisions.”
The research firm also found that 16% of U.S. broadband consumers now consider switching to an OTT subscription service instead while watching movies on VOD. Similarly, 17% of viewers considered switching to Netflix instead while watching HBO or another premium channel.
“Netflix is competitive against VOD and premium channels because it has a decisive edge in cost,” said John Barrett, director of consumer analytics for Parks Associates. “Its greatest weakness is picture quality, but there are times when the consumer will sacrifice quality for other considerations. Pay TV providers should emphasize their inherent advantages in content and picture quality but also need to develop alternative services that counter Netflix’s advantages in cost and flexibility.”
On a TelcoTV panel last week, analysts urged independent telcos to look at ways to deliver a better video product than OTT providers. They suggested that service providers consider offering such differentiating features as guaranteed quality, greater personalization or high school sports and other popular local content.
"Part of this becomes a marketing question — can you extract more revenue for a better video experience?" said Bernie Arneson, managing partner of Pivot Media. "Windstream, if you look at their Merge product — that's exactly what they're doing."
In fact, video quality is a key reason why people change pay-TV providers, according to a survey conducted by Heavy Reading in September. The study found that one in eight consumers would change TV providers solely because of video quality. "Just poor quality for Internet video is enough to get them to consider switching ISPs," said Aditya Kishore, a senior analyst at Heavy Reading. "That definitely is something to be concerned about if you're a broadband service provider."
– Cartt.ca staff
