Lessons From the OTT Revolution

We are witnessing a dramatic change in the way people consume content. As TV and the internet continue to converge, the way we find, watch and share our favorite shows is evolving. And as more OTT providers gain impressive subscriber numbers with their services, pay-TV operators increasingly need to fight to retain their share of the pie. In the meantime, there are some lessons operators can learn from OTT’s widespread appeal.

But first, why not scrap broadcast TV technologies in favor of OTT? After all, it’s becoming cheaper to deliver content to consumer devices over the internet than to operator-owned devices over a managed network. While research shows that OTT TV is steadily growing, there is still a significant gap between OTT and linear TV in terms of audience and total hours watched per day. Services such as Netflix are popular and available worldwide, yet they haven’t replaced linear TV. 

There is still high consumer demand for reliable, high-quality linear TV delivered over broadcast networks. Yet, linear TV is not the sole engine of value and growth anymore for pay-TV service providers. In fact, success now requires providers to better segment the market and embrace the flexibility and choice that makes OTT so attractive while also making sure that their subscribers still value their core strengths.

Owning the managed delivery networks and the set-top box continues to offer an undeniable advantage. It enables providers to control the user experience and reliability of the service. However using cloud infrastructure–private or public–and an IP-based content delivery approach can put pay-TV providers in a better position to efficiently scale their businesses, roll-out new features, and reduce the costs of maintaining their systems. 

For these reasons, IP and cloud-based distribution look likely to increasingly power the delivery of television services. This includes moving broadcast and STB-level functions, like personal recordings, to the cloud. Such cloud-based technologies would give pay-TV providers maximum agility and flexibility to adjust their business models, capitalize on new revenue opportunities and add new services without having to invest heavily in complex customer-premises equipment.

Improving data collection through IP connectivity would also give pay-TV providers more meaningful information about consumers’ actual viewing and consumption behaviors. In turn, this gives them a head-start over OTT providers when it comes to advertising. As it stands, OTT content providers still can’t match the revenues generated by broadcast ads. But as OTT demand increases, traditional pay-TV providers can’t afford to be complacent. With better data, service providers gain the upper hand, having data as a new currency in their negotiations with content owners.

Pay-TV operators may never be as flexible as OTT providers yet they can benefit from continuing to own the end-to-end pipes and still achieve greater margins by leveraging their broadcast TV infrastructure and value chain. And by adding smart IP-based services, they can expect increased agility and, most importantly, more consumer loyalty. This makes a hybrid approach the smart option.

To do this, operators need to be visionary, ambitious and open to innovation from different sources. In the short term, the key is to work with pay-TV experts like NAGRA to make the right technology choices. In the longer term, operators who choose to augment their broadcast delivery networks with IP-based upgrades will be better-positioned for the future as consumer behavior continues to evolve.

This story first appeared on TVT's sister publication TVB Europe