With back-to-back reports this week that both Hulu and YouTube are prepping streaming skinny programming bundles, cable operators will soon face a re-invigorated "storm" of OTT competition, said MoffettNathanson analyst Craig Moffett.
And with recent decisions by operators including Comcast not to pursue publicly unpopular usage-based pricing strategies in regard to broadband services, these MSOs are facing this bad weather in video economics without their "umbrella."
"It's hard not to see this as simply the calm before the storm," Moffett said this morning in a note to investors. "This week's announcement that Hulu will offer its own live stream OTT cord-cutter package was for many a lightning bolt, a declaration of war directly from its programmer owners who, after all, can call the shots at Hulu in putting together whatever product they really want. Before the end of the year, we'll also be seeing new services from DirecTV and Amazon. Oh, and let's not forget YouTube's Unplugged, which will at long last bring Google's long-awaited and long-feared entry into the OTT space."
Usage-based pricing (UBP) is a hedge against this, not a deterrent Moffett said.
"If and when the rains come, cable operators won't have the umbrella of usage-based pricing," he added. "We've always described UBP as an insurance policy, not to forestall OTT video but simply to make cable operators economically indifferent to it."
The ability to weather this cord-cutting storm will be even worse for the satellite guys, Moffett points out.
"If cord-cutting is scary for cable MSOs, it's downright terrifying for satellite TV providers, for whom video is their only business," he said.
Moffett also noted results from the recently reported first quarter, in which the top cable operators mainly reported video subscriber gains, and Dish Network (NASDAQ: DISH) and AT&T (NYSE: T) U-verse reported sizable losses.
"Cable is winning the couch potato war," Moffett said. Satellite and telco TV are losing."
Programmers, Moffett added, face a tough choice.
"Do they fully embrace an OTT model that may or may not preserve ad revenues and may or may not accommodate the annual price increases to which we, and they have become accustomed?" he asked. "And what will happen to affiliate fees from their traditional distributors if they do?"
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