Connected TVs, OTT offer pay-TV operators opportunities to grow business

Jim O'NeillLAS VEGAS--The Consumer Electronics Show had a number of story lines but, for service providers, few are likely to have as much impact as will the increasing percentage of connected TVs and devices in what already is a booming connected home market. Samsung, LG, Sony and almost every other CE manufacturer with a toe in the water jumped in last week, and they're far more committed to taking a piece of the connected home--of which there are some 270 million globally--than they were to experimenting with 3D, although there were plenty of new 3D entries rolled out last week.

But connected TVs and devices are expected to become part of the home far more rapidly than are 3D TV sets. Connected devices made up some 25 percent of TV sales last year; Parks Associates vice president and principal analyst Kurt Scherf anticipates they'll make up three-quarters of all sales by 2015, about 350 million units.

"Content options are finally catching up to the hardware innovations, and growing libraries of on-demand movies and TV available are starting to unlock the potential of connected TV devices as multifunction online entertainment and communications platforms," Scherf said.

That growth, and the increasing numbers of connected homes create immediate opportunities for service operators. "About 10 percent of U.S. households already connect their computers to the TV, that's a mass market," he said. "And it's creating new value added services opportunities for service providers."

Among them, he said, providing support for consumers. Research shows, for example, that consumers are happiest when premium tech support is available 24/7 from service providers.

With more content coming online--Scherf forecasts transactional revenue from online video will increase to $8 billion by 2015--more consumers will be looking for OTT content, another area of opportunity for providers. Studies show that certain aspects of pay-TV service scores high with consumers (aside from price, see this related story), things like consistent picture quality, VOD features, and electronic program guides. Those are all areas in which pay-TV operators can continue to provide an edge, and could leverage with managed OTT delivery.

"The bottom line is if operators don't provide it, consumers will find someone who will," Scherf said. "The risk from OTT is great, but so are the potential rewards for service providers. Do-it-yourself solutions like Roku are flying off the shelves, more and more consumers will access things like VOD through connected devices."

Steve McKay, CEO of Entone, which produces a hybrid TV product for pay-TV operators called Fusion TV, agrees and says the key to service providers thriving in an OTT environment is the retention of a broadband relationship.

"Cord cutting is an over-blown reality," he said. "It is real in that consumers are cutting the cord, but the fact is that 90 percent of consumers subscribe to some form of pay-TV service. And, they're demonstrating a desire to continue to subscribe to a pay-TV service; services are simply changing and evolving."

That, he said, gives service operators a big window for innovation with what he calls "TV's Middle Class," that group of consumers between the 10 percent of the market that are cordless and the 30 to 40 percent of premium consumers... those with whole-home DVR, HBO and other bells and whistles.

"Fifty to 60 percent of the market in the middle is virtually underserved," he said. "They're not willing to cut the cord, but they're grouchy about what they're paying for their cable bill."

It's a market he doesn't believe operators can afford to ignore.

"I say to operators, if you don't offer an alternative, somebody else will," he said. "If you don't offer it, somebody will buy a $70 Roku box and ravenously consume over-the-top content."

Cord cutting may remain a contentious discussion, but the reality is that there's a new generation out there that doesn't feel they should have to pay for programming, and they're continuing to look for new ways to access it. Overall, consumers have fallen in love with VOD, time and place shifting and are intrigued by the possibility that they can get more of what they want by going over the top. Operators who can provide them with OTT functionality, great support and quality are going to be the ones who win. -Jim