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Cable Technology Feature Article

August 28, 2013

Over the Top Services Destined to Win, nScreenMedia Argues

By Gary Kim, Contributing Editor

Colin Dixon (News - Alert), nScreenMedia  founder and chief analyst, says his is confident that over the top TV subscriptions will succeed in displacing traditional cable, satellite and telco TV services.

The simple fact is that such over the top services have huge operating cost, capital cost and marketing cost advantages and can offer better features.

So far, direct to consumer is not a tack programmers have been keen to adopt. But both Netflix and HBO launched direct-to-consumer video streaming services in Denmark, Norway, Sweden and Finland in 2012.

For HBO, it was the first time the company had launched a direct-to-consumer video streaming service without the partnership of a cable TV operator or other distributor. HBO Go, offered in the U.S. market, requires purchase of HBO from a video distributor.

There is a notable historical point to made about the HBO and TNT decisions to stream their channels directly to end users in some countries where delivery using the cable TV infrastructure exclusively is deemed financially suboptimal.

HBO and TNT parent TBS were the first channels to use satellite distribution in the U.S. market, revolutionizing the business by moving cable operators out of the business of “antenna reception” and into the “more choice” business.

Intel (News - Alert) Media hopes to launch its U.S. direct-to-consumer video service in 2013, though some believe the time table will slip a bit.

Assuming the Internet-delivered services are fundamentally similar to linear TV using a cable, satellite or telco TV distributor, consumers will want to know whether it might ultimately be preferable to buy Internet-delivered services, for value or cost reasons.

In addition to the Internet over the top services, content suppliers and existing distributors will be watching closely for signs that the economics are sustainable over time.

“If you are going to build a modern, 21st century television service you’re not going to use technologies that are 20 years old,” said Erik Huggers, head of Intel Media in the United States.

“You’re going to build it on modern Web-based technologies, cloud infrastructure, the most modern codecs, application environments that are of this day and age,” Huggers said.

Some think over the top services will have an operating cost advantage, and that is hard to dispute. Over the top providers do not have to invest in access networks. But there also are marketing cost advantages that could flow from that avoided network cost.

DirecTV (News - Alert) reports that its subscriber acquisition cost is $803 per subscriber. Most of that cost comes from the need to supply consumer terminals (set top boxes).

Over the top providers can rely on the consumer’s own gear. Netflix has reported subscriber acquisition costs of about $20 per new subscriber.

“There’s no installers, no boxes, no lost equipment,” said Chet Kanojia, Aereo CEO. “They can come in and give it a try for $1.”

Edited by Alisen Downey

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