Video market battling change on multiple fronts – Industry Voices: Sorensen

Eric Sorensen

Traditional pay TV companies are switching to streaming to combat the rise of OTT. As they enter the streaming market, they join more than 300 direct-to-consumer streaming services in the U.S. market alone. 

There has been substantial innovation over the years, but streaming’s debut changed the trajectory of the modern video service industry. The evolution of streaming video has given consumers immense choice in how, when, and what they watch. The ease of trialing, subscribing, and canceling services has created new dynamics and challenges for content companies and service providers.

International research firm, Parks Associates, reveals that pay TV subscriptions and revenues continue to decline as consumers embrace OTT streaming services. The firm forecasts that traditional pay TV will decrease to 76.7 million households by 2024, the lowest penetration in a decade and a 27% drop from 2014.

While OTT subscription growth slowed over 2021, 2022 has seen that growth resume – and traditional pay TV subscriptions fall sharply. This gap between traditional pay TV and OTT subscriptions is widening faster than in any period before. Consumers are now not only comfortable with online video consumption but also comfortable with trying many different streaming services to satisfy their needs, including AVOD and FAST services. This has accelerated the decline in pay TV subscriptions that was already occurring.

Parks Associates pay TV adoption

With a wide selection and no long-term contracts for streaming video services, churn across all OTT service providers is increasing, and services are struggling to retain their viewers. The firm’s research indicates that OTT subscription services averaged a 48% churn rate in the first quarter of 2022, which is a 10% increase in just two years.

As hybrid business models continue to gain traction, service providers are experimenting with new price models, binge content vs. weekly drops, including a mix of ad-based and subscription-based offers, and password sharing models. However, content is still king and is the core differentiator of the service. As competition increases and the streaming wars have intensified, several providers are trying out hybrid business models to capture market share and expand their user and revenue bases. Additionally, SVOD services are increasing testing live streaming content as added value and sports media rights that have traditionally been held by linear television are moving online.   

To counteract saturation in established OTT video markets, more providers are expanding worldwide and boosting their foreign offerings. OTT services seek to expand their subscriber bases by targeting regions outside of North America and Europe in order to drive revenue from new emerging markets.

Consumers continue to experiment with OTT video services and effectively are building their own bundled service or “service stack.” In North America, consumers are no longer exclusive to large services, and service-stacking is at an all-time high. In the first quarter of 2022, 50% of U.S. internet households subscribed to four or more OTT services. Of the 50% who have four or more services, 20% have between 5-8 services and nearly one-fourth of internet homes have nine or more services. These averages have more than doubled in the two years since the end of the third quarter of 2019.

Highly comparable content offerings and pricing from other large services, and the continued adoption of mid-size and smaller services to fulfill niche content needs, have contributed to this growth in service stacking. Additionally, adoption of the conventional Big 3 services has slowed, and acceptance of newer service offerings continue to grow. Further, managing multiple video service subscriptions – rather than just a single pay TV service subscription in the legacy model – is a pain point for consumers, who are increasingly turning to aggregators to provide a more unified experience.

There will be a saturation point where households will no longer be willing to add another service and may look to trim back on their number of subscriptions. Service providers are anticipating this and looking to expand worldwide with content and coverage to boost their global offerings. This global push led to a bidding war for the exclusive streaming rights to the Indian Premier League cricket event, where Mumbai-based Viacom 18 beat out Disney. All providers are looking for new avenues to expand their global appeal.

vMVPDs represent a small but growing percentage of the total pay TV market, and over time will become a significant method by which “pay TV” is sold and consumed. Online pay TV overall, including vMVPDs, is poised to overtake traditional pay TV over the long term.

COVID-19 has merely accelerated the pace of trends that were already taking place across the TV landscape prior to the pandemic, and re-acquainted many with TV services, albeit via a different medium – the Internet. While traditional pay TV subscribership continued to fall, streaming service adoption and viewership rose. Broadband subscriptions have continued to grow over the same period that pay TV has declined. While cellphone sales continued their slow decline, smart TV sales still grew strongly in North America over 2020 and accelerated during COVID-19. OTT video’s overtaking of traditional pay TV in U.S. household adoption has thus itself been accelerated. These all point to a future where OTT delivery will be a preferred delivery medium, particularly as the growth in mobile video consumption resumes apace.

This future will also be one where simply delivering traditional pay TV packages and prices over a different medium will not be a recipe for success for either vMVPDs or the ecosystems around them. Implications and possibilities to consider for traditional pay TV and broadband service providers.

Parks Associates forecasts more acquisitions and bundles of smaller services to reach a larger audience and continued experimentation with hybrid business models to capture market share and expand their user and revenue bases. Acquisitions have become one of the only options for streaming firms to compete for limited accessible material. As a result, traditional media conglomerates are combating big tech by consolidating. The writing is on the wall for the “bundle of services”, only this time it’s not discounted phone, internet, and TV, it’s the best OTT streaming bundle that may win out.

Parks Associates is hosting Future of Video: OTT, Pay TV, and Digital Media in 2022 to examine these trends and explore new strategies with industry leaders and visionary speakers. Future of Video features an in-person conference on December 12-14, 2022, at the Marina del Rey Marriott, sponsored by Adeia, FPT Software, Symphony MediaAI, Comcast Technology Solutions, and Metrological.

Link to register for the event: Future of Video: OTT, Pay TV, and Digital Media

Eric Sorensen, contributing senior analyst at Parks Associates, is an accomplished sports and news media executive with extensive knowledge in developing live streaming and Digital Media strategies. Diverse background includes; business management, product development, digital ad sales, videogame development, social content strategies, sponsorship development, and TV production. Eric spent over 15 years at ESPN helping pioneer the launch of WatchESPN, The Longhorn Network, and SEC digital network. Prior to joining Parks Associates, Eric served as director of advertising and digital and social content for the Houston Astros.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce Video staff. They do not represent the opinions of Fierce Video.