Editor | 02-08-2013
Pay-TV operators feeling threatened by over-the-top (OTT) services should adopt a policy of 'if you can’t beat them join them', says leading analyst IHS.
Indeed the information and analytics provider pinpoints the flareWatch OTT service from Cox Communications as a great example of how by taking a page from Netflix and by settling for lower profit margins the entire pay-TV industry could mitigate the threat from OTT.
The service, now in the beta test phase in a select part of California, offers nearly 100 popular channels and includes a network digital video recorder (DVR), and unlike other pay-TV operators OTT offerings it is not tied to a concurrent cable TV video purchase. The service doesn't provide any premium channels and doesn't support TV everywhere solutions.
“US cable operators desperately want to return to subscriber growth,” commented Erik Brannon, analyst for television research at IHS. “Cox’s flareWatch is likely to be the first of a new generation of products from other cable operators that will take a ‘if you can’t beat ‘em join ‘em’ approach to tackling the OTT challenge, i.e., providing video service over the Internet. These types of services may be successful for the cable operators, but the accomplishment may come at the cost of significant reductions in margins.”
The analyst estimates that if Cox is paying a similar carriage fee for flareWatch as for its existing cable video tiers, then its monthly carriage fee load is more than $31 per subscriber per month. “With the carriage fees, Cox may be loss-leading its way back into cord-never homes,” Brannon added.
“Cox originally launched flareWatch at $34.99, and shortly thereafter — less than one week — increased it to $39.99, allowing for a more comfortable gap from the carriage fee load of more than $31. There is likely enough headroom to be profitable, but not on par with typical cable margins. It is likely that the company recognises that the future of video content delivery is going to be involved with the open Internet.”