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Tapping into OTT video’s 24% projected growth is key for Pay TV

The pay TV market has been struggling with increasing customer churn and maintaining ARPU [average revenue per user], and is forecast for only 3.7% CAGR [compound annual growth rate] through 2020, according to ABI Research (www.abiresearch.com).

In contrast, OTT [over-the-top] video continues its strong growth, and should see around 26% total revenue growth in 2015, with 24% CAGR through 2019, says the research group. With the growing popularity of independent OTT services, such as Netflix and HBO Go, customers are starting to demand a similar experience from their pay TV subscriptions, including features such as content search and recommendation and mobile device support.

“Comparatively high priced pay TV bundles are losing customers to more inexpensive, IP-delivered content,” says Eric Abbruzzese, research analyst, ABI Research. “Operators can combat this with rollouts of new STB technologies that utilize IP-capable hardware to deliver similar experiences to those third-party OTT services. Operators that are first to market with new set-top box technologies can expect strong returns—as much as 10% higher ARPU than with legacy technology—while those introducing the technology later will struggle to see similar success.”

Properly supporting multiscreen features has become nearly compulsory with the ever-increasing focus on mobile device usage, and is more easily done as these more advanced IP-enabled STBs are released.

“While pay TV will continue to hold market majority going forward, the best chance for positive growth in the pay TV space lies in the implementation of OTT capability in both standalone and IP-enabled STB capacities,” says Abbruzese.

Pay TV providers can also look to pay TV Lite services to attract new customers as well as expand their current footprint. Standalone OTT services, such as Dish Network’s Sling TV and BSkyB’s Sky Go, offer live and on-demand content separate from a pay TV subscription, which allows more choice and competition in TV services, as well as allows operators to enter new geographies without incurring major costs for infrastructure expansion (seen with ViaSat’s expansion into Eastern Europe and Dish Network’s nationwide coverage with Sling TV). This potential expansion also helps to balance the financial risks associated with developing a new OTT product.

Those that have already embraced these ideas—notably Comcast, Dish Network, Liberty Global, and BSkyB—are on track to see future growth in a slowly declining market, according to ABI Research. Operators that are passive in embracing OTT face the challenge of maintaining subscriber counts even within their dedicated and satisfied customer base, while contending with other subscribers leaving in favor of progressive options.

“While pay TV will continue to hold market majority going forward, the best chance for positive growth in the pay TV space lies in the implementation of OTT capability in both standalone and IP-enabled STB [set-top box] capacities,” says Abbruzzese.

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