CenturyLink’s OTT play is about reducing content costs, subscriber scale

CenturyLink Prism triple play
CenturyLink has set a goal to have 10.5 million, or over 85% of addressable broadband-enabled units, at 40 Mbps or higher speeds in its top 25 markets by 2018.

CenturyLink appears to have come to the realization that over-the-top video (OTT) may be the better long-term service platform to deliver video service, an option that requires less capital to deploy and scale.

Glen Post, CEO of CenturyLink, told investors during its fourth-quarter earnings call that OTT video is a less capital-intensive video option.

RELATED: CenturyLink narrows broadband losses in Q4, sets new capital spending strategy

“With the over-the-top product, we don't have to make a truck roll,” Post said during the fourth-quarter earnings call. “We have a much wider availability due to lower bandwidth requirements of over-the-top. We have network-based storage for DVR.”

The service provider confirmed that it plans to start rolling out OTT video by the middle of the year.

Already in trials in four markets, CenturyLink plans to launch those markets early in the second quarter then further expand it throughout the year.

In order to effectively scale OTT, CenturyLink revealed that it is looking at various options and potential partners with other service providers.

“If we can get a better deal or we can get some of our content cost down and get the same type of service available with a DIRECTV NOW, we'll certainly take a look at that,” Post said. “We are talking to all of our service providers, looking at every possibility there.”

Content cost killers

Being an insurgent video player, CenturyLink’s main challenge in maintaining an IPTV business is content and installation costs.

Emerging video players like CenturyLink often lack the buying power of well-established cable MSOs like Comcast or Charter.

“If you look at our Prism product, content costs have really gone out of sight the last couple of years,” Post said. “We have to make a truck roll and the cost of provisioning really makes it difficult from a returns standpoint for really driving the kind of returns we expect.”

At the same time, CenturyLink is seeing a slowdown in new IPTV subscribers, a trend that was evident in the telco’s fourth quarter numbers.

During the quarter, CenturyLink only added 7,000 new Prism IPTV customers, ending the period with a total of 325,000 subscribers.

“We saw slower growth in consumer video subscribers and revenues than originally anticipated, and that obviously had an impact on our results,” Post said.

CenturyLink is hardly alone in shifting away from IPTV.

AT&T scaled back the expansion of its U-verse IPTV platform, turning its attention to the satellite-based DirecTV offering. Similar to CenturyLink, AT&T faced content acquisition and customer installation cost challenges. AT&T is mainly focusing its video service attention on two products: DirecTV and DIRECTV NOW OTT.

But even as CenturyLink moves forward with its OTT video plans, there’s no promise it will be a blazing success.

Besides facing the challenge of offering consumers a differentiated service, the telco will need to ensure they can avoid the technical issues that have plagued AT&T’s DIRECTV NOW service.

Bolstering broadband

CenturyLink may be pulling away from Prism IPTV expansion, but the service provider continues to find that the platform helps revenues. 

“We get a strong pull-through, 90% pull-through of additional services, and 50% of those customers are new customers to CenturyLink,” Post said. “But we have deemphasized that and moving more toward the over-the-top product and also focusing more on the broadband offerings we have versus the video.”

CenturyLink has set a goal to have 10.5 million, or over 85% of addressable broadband-enabled units, at 40 Mbps or higher speeds in its top 25 markets by 2018.

Within that time frame, the telco said it will have 7 million, or over 55% of addressable broadband-enabled units, at 100 Mbps or higher.

A greater focus on broadband expansion could also bode well for its OTT video plans. While the minimal requirement to support its OTT video service is 10 Mbps, CenturyLink could use the OTT product to potentially attract new customers as it moves forward with its ongoing broadband expansion efforts.