Some common rules of thumb about changes in application demand are so entrenched it is hard to envision other outcomes. Consider the impact of over the top video on linear video subscriptions, or the impact of over the top messaging services on text messaging.
The conventional wisdom is that over the top video (Netflix, YouTube and others) is cannibalizing linear video subscriptions. The conventional wisdom is that OTT messaging is eroding text messaging revenues.
Both those characterizations are true, to some extent. The issue is how much impact the upstarts are having on legacy services. And there, the data is more nuanced than you might suppose.
Deloitte predicts that by the end of 2014, up to 50 million homes around the world will have two or more separate television subscriptions, with the additional subscriptions generating about $5 billion in revenues. Perhaps another 10 million homes will get video as part of their subscription to another service.
By the end of 2015, 20 percent of homes in selected markets will have three or more video subscriptions, Deloitte predicts, with a typical pattern being one household video subscription from a cable company, Telco or satellite provider, and the other two being over the top streaming video subscriptions.
In other words, it isn’t necessarily clear that OTT video cannibalizes linear video.
Since consumer spending tends to be stable from one year to the next, the logical question is what spending is reduced, where, to accommodate the additional two streaming subscriptions. Some might argue it is premium channels that get dropped. Others might argue pay per view or DVD purchases are the likely losers.
The potentially disruptive development is what happens if as many as 20 to 24 current providers of cable networks decide to launch their own branded streaming services. In many cases, consumers might be able to buy a few to several such discrete subscriptions and then actually consider getting rid of the linear video service.
Consider OTT messaging. Text messaging will generate more than $100 billion in 2014 revenue for mobile service providers, about 50 times the total revenues from all MIM services.
Granted, the volume of OTT messages is substantial. Deloitte forecasts that 50 billion OTT messages will be sent every day, compared to 21 billion text messages. But, as with everything Internet, volume and usage is not revenue.
To be sure, some observers have estimated that OTT messaging in 2013 cannibalized $32 billion in SMS revenues. But such estimates necessarily rely on indirect estimates of reduced SMS growth because people used OTT messaging instead. And it’s always difficult to quantify something that did not happen.
Also, the countervailing thought is that use of OTT messaging encourages users to buy mobile Internet plans, thereby spurring some amount of data access revenues.
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