Like the Berlin Wall two decades ago, the garden wall of conventional pay TV services looks like it will be dismantled quickly once the first breaches have been made. The signs are that the opening up of pay TV devices to online distribution could happen faster that many analysts have been predicting, quite simply because consumers are demanding it. At least younger viewers are, and as they grow older they continue to expect the ability to watch content on whatever device they choose, leading to an ongoing increase in the number of hours per person spent consuming content away from the living room. So while, as we keep being told, traditional linear TV will never be displaced, it is likely to account for an ever diminishing proportion of TV hours, slimming down to major live events such as sporting finals.
The seeds were sown for this shift at least five years ago with the first blockbuster YouTube videos, such as "Lazy Sunday," the song and video by American comedy group The Lonely Island, released in December 2005. This was watched by 5 million on You Tube, almost as many as saw it when originally aired on NBC. This led to the acquisition of YouTube by Google, and the formation of Hulu as a legitimate source of online content, followed later by the hugely successful Netflix as an independent online source of movie and other content.
The point is that many among the millions of teenagers who lay behind YouTube's initial rise to fame and fortune are now subscribers to pay TV services and, having recently become owners of iPads, are expecting access to their content on that. Pressure is also being exerted on pay TV operators on the content side, as movie studios are reaching their audiences after the theatrical release window is over online rather than just within walled gardens. Further evidence of this trend has just come from Europe, where UK-based LoveFilm, now the continent's largest online video rental outlet, extended its operations from its existing UK and Scandinavian base to Germany after striking a major deal with the Walt Disney Company.
This allows German LoveFilm customers to rent and stream a selection of titles from Disney's movie portfolio. The German deal comes soon after the LoveFilm subscription service became Disney's first major UK VOD provider outside the pay TV window in April 2011.
Significantly, Disney said the move reflected its desire to make movies available more flexibly for customers on a wider range of platforms. Such messages have not been lost on pay TV operators, including some in Europe that were initially slow to wake up to the challenge.
One that has decided it must embrace OTT distribution wholeheartedly is Stofa, Denmark's second largest cable operator, which launched a Web TV extension to its service in November 2010, allowing subscribers to access their TV channels around the house on PCs, mobile phones and iPads. Stofa said this came in response to growing demand from its customers for access to content around the home without having to install new wires.
Consumers do not want to install additional STBs either, according to Stofa, which is delivering its DVB-C services to TVs incorporating a Common Interface (CI) Plus module, which in effect incorporates STB functionality in a TV, or indeed other CE (Consumer Electronics) device.
Indeed, some operators are now looking at other non-TV devices, notably games consoles, as alternative distribution points for their pay TV service. The games console is attractive because it addresses a potentially huge market and is already capable of displaying HD content. While the world's largest pay TV services have on the order of 20 million customers, in Europe alone there are over 150 million games consoles installed, of which 114 million are latest machines with superb display capabilities and are already in effect connected to HD TV sets, according to the International Data Group (IDG).
The message here is that operators should adopt flexible OTT platforms capable of embracing all conceivable viewing devices including games consoles, with the ability to deliver apps and enforce content rights.