Pay-TV to inch upwards while OTT rockets over next five years

DetailsJoseph O'Halloran | 07 April 2015

The time for pay-TV providers to act against aggressive competition is now, says ABI Research in its latest study warning of big changes in the TV delivery stakes.

Sky mobileThe analyst says that just as the pay-TV market has been struggling with increasing customer churn and maintaining ARPU, and is forecast for only 3.7% CAGR through 2020, over-the-top (OTT) video will likely see around 26% total revenue growth in 2015, with 24% CAGR through 2019.

ABI added that with the growing popularity of independent OTT services, such as Netflix and HBO Go, customers are starting to demand a similar experience from their pay-TV subscriptions, including features such as content search and recommendation and mobile device support. This means that operators need to combat this growth with rollouts of new STB technologies that utilise IP-capable hardware to deliver similar experiences to those third-party OTT services. "Comparatively high priced pay-TV bundles are losing customers to more inexpensive, IP-delivered content," explained ABI research analyst Eric Abbruzzese. "Operators that are first to market with new set-top box technologies can expect strong returns as much as 10% higher ARPU than with legacy technology while those introducing the technology later will struggle to see similar success."

Examining further ways in which pay-TV operators can respond, ABI advised pay-TV providers to look at so-called 'lite' services to attract new customers as well as expand their current footprint. It noted that standalone OTT services such as Dish Network's Sling TV and BSkyB's Sky Go offer live and on-demand content separate from a pay-TV subscription, which allows more choice and competition in TV services, as well as allowing operators to enter new geographies without incurring major costs for infrastructure expansion. Such potential expansion, it argued, could also help to balance the financial risks associated with developing a new OTT product. Making its case, ABI cited the fact that Comcast, Dish Network, Liberty Global and BSkyB, all of whom have acted in such a way, are on track to see future growth in a slowly declining market.

"While pay-TV will continue to hold market majority going forward, the best chance for positive growth in the pay-TV space lies in the implementation of OTT capability in both standalone and IP-enabled STB capacities," added Abbruzzese.