It’s conventional wisdom that cable MSOs need to make a pivot to stay viable in an increasingly digital age. They’ve been doing that by focusing on higher tiers of bandwidth and rolling out smart home services and other Internet of Things strategies. But embracing over-the-top (OTT) video has not been a thing—until Cablevision decided to plunge into streaming in a major way.
CEO James Dolan said there may be more to come as it focuses more on streaming and driving interest in broadband.
The company recently announced that is ramping up its embrace of OTT by becoming the first pay-TV provider to distribute the Hulu service, as well as HBO Now, the premium network’s standalone offering. And, it’s debuted cord-cutting packages aimed at driving broadband uptake.
A Risky Change of Strategy
HBO Now is one thing, but Hulu is a significant change of strategy—and potentially a real cannibalization risk for Cablevision. Hulu – jointly owned by NBCUniversal, Disney and Fox –offers current programming from five broadcast networks as well as a back catalog, for $7.99 per month via its website and a range of apps. And in that way it directly competes with cable’s must-carry broadcast tier.
And in fact, full 90 percent of consumers are “open” to cutting the cord and cancelling cable and pay-TV subscriptions in favor of OTT services such as HBO Now and Hulu, according to research from CDN specialist Limelight Networks. It found that even though OTT service offerings are in their early stages, consumers are beginning to choose to get the content they want directly from the content owner over the Internet, rather than from a pay-TV service provider.
So wherefore the gamble? "The partnership with Hulu reflects Cablevision's desire to meet customers where they are," said Cablevision COO Kristin Dolan.
Pricing and time frame haven't yet been announced. But Hulu’s obviously pleased with the development. "At Hulu we believe users should have the ability to consume their favourite content, when, where and how they want," said Tim Connolly, senior vice president, distribution at Hulu. "Even with the rapid growth in streaming, there is a huge audience that consumes television through their cable provider, and we want to be there for them too."
But that’s not all—the cableco also recently announced that it would bundle a digital over-the-air (OTA) antenna with its Optimum broadband, dubbing it a "cord-cutting" package designed for OTT video enthusiasts looking for “real alternatives that fit new consumer lifestyles.” The package includes the antenna for OTA broadcast TV, broadband, voice and unlimited Wi-Fi at 1.1 million Optimum hotspots — with the option of adding HBO Now.
"It just more fully fills out our offerings to our customer base," CEO James Dolan said in an earnings call. "All cable and satellite companies have had issues with having very large bundles that are sometimes difficult for the customer to afford. Our ability to offer products underneath that has been limited. We see the cord-cutter package as a way of filling out that product line and offer levels of service that are less expensive than the big bundle."
A Thirst for OTT
Cannibalization risk aside, ignoring consumption trends could be riskier than attempting to thwart them. The average consumer is clearly more
interested in streaming than they ever have been—and if a pay-TV provider can enable it, so much the better.
Research from Parks Associates shows that 27 percent of U.S. broadband households now own a streaming media device while Internet access is near-ubiquitous at 90 percent. Also, more consumers bought a streaming media device than a Blu-ray player in the last 12 months.
"The paradigm is changing, thanks to the growing amount of [online video] and over-the-top (OTT) content available to connected CE, which has allowed streaming media devices to carve out a key niche in the connected home," explained Barbara Kraus, director of research, Parks Associates.
And differentiating content has quite a bit to do with that; a full quarter (24 percent) of the American adult population, an audience of 59 million, is turning to original digital video programming at least once a month, according to the 2015 Original Digital Video Study from the Interactive Advertising Bureau (IAB). That’s an uptick of 13 percent over last year's audience size of 52 million.
The survey also shows that original digital video has the distinct ability to attract new customers for the likes of Cablevision: the difficult-to-reach 18-34 year-old audience of cord-cutters/cord-nevers – a growing group, now sized at 17 million. Young cord-cutters/nevers are about twice as likely as other adults to view original digital video. 53 percent of cord-cutters and 63 percent of cord-nevers see this type of programming as "very" or "somewhat" important in their decision not to have pay-TV.
"Original digital video programming is attracting a growing audience – especially younger viewers 18-34 who are highly desirable to many advertisers," said Sherrill Mane, SVP of research, analytics and measurement at IAB. "Those who enjoy made-for-digital content are watching that programming more and more by streaming to traditional television sets."
On the Knife Edge
While Cablevision is out on the leading edge of a lot of this business modeling, it’s clear that there’s an opportunity for threading the needle between risk and reward.
When it comes to finding new revenue streams, the global digital content market is set to reach a staggering $154 billion annually by 2019, an increase of nearly 60 percent on 2014, according to Juniper Research. When it comes to content monetization, the bulk of revenue comes from app downloads, and then in-app purchases, advertising and the like. But Juniper said that an even larger opportunity lies in enabling access to content, Juniper argued.
“Increased consumer desire for 24/7 access on any device leads to greater opportunities for players that can offer subscription-based, unlimited content streaming,” said research author Windsor Holden, along with cloud-based solutions both for personal storage and premium content access.
“If consumers are tied into multiple products…those consumers becomes increasingly reluctant to churn away from one element of the brand, as he/she loses access to content across their devices,” Juniper noted.
But to accommodate the proliferation of devices and services in the home, including OTT and UltraHD, service providers’ networks will be critical. According to Rethink Research, and sponsored by MoCA, found that a home with three TVs, each with UHD capability, plus three additional video streams on smaller screens, will have a minimum requirements of 85Mbps. And, that data requirement will rise to 171Mbps by 2019.
“Home networks need to cope with peak loads generated by streaming to and from multiple devices, general increases in Internet traffic in and to the home, the emergence and adoption of UHD-formatted content, increase home automation and emergence of the Internet of things and advertised WAN or network access speeds, all at the same time,” said Peter White, Rethink Research founder.
Cablevision CEO Dolan added, reading all of these tea leaves, that the company would be focusing more on the high-margin broadband business as the video division wanes. He expects traditional video subscribers to decline another 10 percent to 20 percent over the next few years.
"A new generation of consumers is coming in and I think they use video very differently," Dolan said. "We take a look at what their customer experience is. We have great metrics about that; I think we're very good at knowing exactly what's going on with our customers. That's where you see a lot of the impetus for those changes."
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