Over the top access revenue topped $11.9 billion in 2017, a 41 percent increase over the prior year and is expected to maintain that momentum for the foreseeable future, according to a Convergence Research Group study, The Battle for the American Couch Potato: OTT, TV, Online.
According to Convergence, OTT revenue (based on 55 providers, led by Netflix) is expected to reach $16.6 billion in 2018, a 40 percent gain over 2017, and $25.6 billion in 2020.
At the same time, U.S. cable, satellite and telco TV access revenue grew just 1 percent in 2017, to $107.6 billion, and should slip in the coming years. Convergence estimates that traditional pay TV revenue should dip to $107.4 billion in 2018 and $106.9 billion by 2020.
Pay TV lost an estimated 3.66 million subscribers in 2017, up from 2.2 million in 2016, and should lose another 3.72 million in 2018, according to Convergence. The growth in OTT services – Convergence gathered data from about 55 different over-the-top providers for the study – is again the culprit.
Convergence estimates 32.13 million US households, or 26.1 percent of homes, did not have a traditional TV subscription at the end of 2017, up from 27.56 million (22.6% of homes) in 2016. The researcher forecasts 36.76 million (29.6 percent of homes) will not have a “The gloves are off,” Convergence said in its report, adding that the industry is being transformed by deep-pocketed tech players like Amazon, Apple, Facebook and Netflix who appear to be willing to spend billions of dollars on original, licensed and sports content.
“We expect especially for the US market going forward fewer content deals between programmers and independent OTT providers: 2017 saw Disney choose not to renew with Netflix and embrace OTT, HBO not renew with Amazon in the US, Hulu (which is spending more on content on a per US subscriber basis than Amazon or Netflix) continue to bolster its offerings compete & more directly against TV access providers, and A+E, AMC, Discovery, Scripps, and Viacom back & supply Philo,” the report said.
Traditional pay TV providers have managed to keep revenue growing mainly through price increases, but that isn’t expected to last. Convergence estimates that TV access revenue will decline going forward. And programmers, who have relied on rising affiliate fees and advertising rates in the past are preparing for the new age of skinny bundles and lower monthly price points by going direct to consumer themselves.
“Programmers have read the writing on the wall and have already gone, or are in process of going direct to consumer, again at competitive price points,” according to the report.
At the same time, while cable continues to expert its dominance in the broadband arena, its growth is slowing too. Convergence estimates that about 2.33 million residential broadband subscribers were added in the U.S. in 2017 down from 2.66 million additions in 2016, while revenue rose 7 percent $56.8 million. Convergence estimates that broadband additions will grow slightly to 2.57 million in 2018, and revenue will rise 6 percent to $60.5 billion.
This article originally appeared in Broadcasting & Cable.