The growth of subscription OTT services has been driving the changing trends in the Pay-TV landscape. OTT video services have attracted hundreds of millions of subscribers worldwide, causing pressure on traditional Pay-TV operators.
This OTT growth trend is expected to continue, reaching a subscriber base of 400 million in 2018, according to ABI Research’s Service Provider OTT Services and Set-top boxes Update report.
OTT video services offer less expensive alternatives and no long-term contract features compared to existing Pay-TV offerings that are driving an increasing number of Pay-TV customers to switch to these OTT services. In markets such as North America and Europe, Pay-TV operators have jumped into the OTT market to improve churn by providing less costly video service. DirecTV’s Now, Dish Network’s Sling TV, and Sky’s Now TV are among the operators which offer Virtual Multichannel Video Programming Distributor (vMVPD) services, linear channels via an internet connection.
“vMVPD services offer live TV packages as low as US$10 and customized packages are attracting cost-sensitive customers,” said Khin Sandi Lynn, Industry Analyst at ABI Research. Dish Network’s Sling has secured more than 2 million subscribers in the two years since it launched. Similarly, DirecTV Now has gained 1.2 million subscribers within one year of its launch, offsetting the subscriber loss of its satellite TV platform. “Pay-TV operators recognize the consumer demand for vMVPD services and are trying to expand their OTT offering by providing more content choice to compete against other subscription OTT services such as Netflix,” Lynn noted.
Despite the low cost of basic vMVPD packages, the availability of live sports packages and customization features contribute the higher ARPU compared to other subscription OTT services. Hulu and YouTube launched live streaming packages in 2017 creating more competition in the vMVPD market. “As competition intensifies, content and quality of service are crucial to win the OTT war,” concludes Lynn.
ABI Research forecasts that OTT video services will put more pressure on traditional Pay-TV services especially in the developed markets with high broadband and Pay-TV penetration. The worldwide OTT video market is expected to grow at CAGR 10% to generate US$51.4 billion in 2022.