Verizon's OTT play, go90, at risk as competition moves in, capex becomes an issue, report says

Fixed-line content distributors such as Comcast (NASDAQ: CMCSA) and new mobile-first distributors like Verizon's (NYSE: VZ) go90 service all have the potential to be hugely popular OTT services, but only if they can figure out how to turn a profit on the data traffic around that service, a new report from Macquarie Research reveals.

And even though Verizon is taking a bold step into a new business model with go90, and Dish Network (NASDAQ: DISH) has an early-to-market product with Sling TV, both are at risk as new OTT competitors enter the market.

In a 96-page industry report available to its subscribers, "Global OTT: 2020 Vision," Macquarie detailed the current state of the media and entertainment industry and served up several caveats on profiting in this rapidly changing segment.

"Ultimately, we believe both fixed and mobile distributors are potential beneficiaries of OTT but only if they improve their ability to monetize incremental data traffic to offset higher spectrum and networks costs," the research firm said.  Content distributors have to be agile and rapidly adapt to a newer, software-defined network (SDN) architecture to deliver new multiscreen services, Macquarie added.

Incumbent operators in other countries also need to watch how the disruption that is beginning in the U.S. market plays out, the research firm warned, because it signals "profound changes" in the pay-TV marketplace.

A number of behind-the-scenes happenings are in play that could cause some shifts in the popularity and profitability of different OTT players' success. Take Dish Network, for example. The satellite operator bought a huge chunk of wireless spectrum during this spring's AWS auction by the FCC. There's a lot of doubt, MacQuarie noted, as to whether Dish can monetize this spectrum.

For Verizon, the additional capacity needed on its wireless network to support the data requirements of its go90 OTT service could be a back-breaker, and the carrier may need to up its capex to meet demand.  Macquarie noted that the LTE customers will use an average of 6.01 GB of data per month by 2018, up from 3.45 GB in 2015.

Macquarie placed Time Warner atop its "Longs" sheet for content and production based on the strength of its HBO and Warner Bros. studio content. It's also "one of the only media conglomerates that can go direct to consumer (with HBO Now) without threatening its traditional TV business -- or that could prosper equally well in an unbundled world."

The firm also went long on Charter Communications (NASDAQ: CHTR), Liberty Global and TiVo for distribution. Netflix topped its list of OTT services to watch, but the research firm rated it a "neutral," citing worries about international expansion and related content costs.

Macquarie went short on Viacom, noting that the company's content is low-cost, generally has a short shelf life, and can be easily replicated by online video providers.

It also sounded a warning on Dish Network as its options for being acquired, or acquiring another operator, dwindle.

Verizon also faces pressure on pricing from Sprint and may face new competition as other content and multiscreen providers jump into the OTT segment.

For more:
- visit Macquarie's website

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