Some Wall Street analysts are convinced that services such as Google TV and Apple TV will usurp cable and satellite services. Indeed, stock prices of media and cable firms slipped last week after Credit Suisse downgraded its media and cable portfolio and upgraded Netflix in the wake of a study that found almost 20 percent of users dropping their traditional cable/satellite services in favor of watching TV via Netflix (Nasdaq: NFLX).
But not everyone is buying into the hype. Indeed, in a research report released yesterday to investors, Wells Fargo Securities analyst Marci Ryvicker characterized reaction as misguided speculation.
Ryvicker believes streaming video services will complement, not replace, pay TV. In her report, Ryvicker spelled out why she thinks streaming video will not become the exclusive video choice of consumers. "While we cannot dispute that over the top viewing does exist, we believe widespread adoption of an EXCLUSIVE OTT (over the top) model is highly unlikely," she wrote. "Compelling content is not cheap. We estimate $3B for Netflix' current 15 million subs. At this point, we would view Netflix as just another over builder--at a higher cost with less choice." Ryvicker acknowledged the technology is evolving but said content providers can't afford to disenfranchise cable and satellite providers.
Among her conclusions:
- High definition content is limited with OTT because of technology constraints, securing digital content rights and the necessity to remaster older content into an HD format. "It is highly doubtful in our view, that homes who just spent hundreds to thousands of dollars on their HDTVs would cut the cord for lesser quality programming," she wrote.
- Bandwidth becomes constrained in an exclusive OTT model. The average bandwidth consumption per household today is 12GB, Ryvicker wrote in her report. "Based on our calculations, complete OTT viewing would require, on average 161GB in standard definition or 418 GB in high def, translating into a massive bandwidth consumption increase of 14.4x and 35.8x respectively," she wrote.
- An a la carte model becomes uneconomical for both the consumer and the content provider pretty quickly, Ryvicker wrote. "We believe that Netflix must provide compelling content to cause cord cutting--saying anything else means households will watch less TV, not more--and this goes against every statistic we could find," she wrote.
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