Growth in OTT and VoD start-ups challenging pay-TV dominance

The surge of online video entertainment, driven by video-sharing sites and over-the-top (OTT) on-demand services, has placed under threat the dominant revenue model installed by traditional pay-TV providers. LoveFilm, a VoD service driven by London corporate finance before its acquisition by Amazon, is a good example of how quickly online providers have grown. Both cable and satellite TV companies are being forced to adjust to anew online reality by making acquisitions in the online OTT and VoD markets and expanding their reach in less developed economies where online is not yet a mainstream viewing channel.

The web has provided a major disruption to the TV environment in developed economies, with younger generations spending more time than ever viewing their PC and mobile screens. Cable and satellite TV players are struggling to compete with services offered by the likes of US OTT players Netflix and Hulu that can be moved across screens and even accessed from different locations. The immobility of traditional TV systems is a major weak point for tech-savvy, device-friendly consumers. Cable TV has been especially impacted by this trend, with many consumers not interested in paying more for a wider menu of cable channels. Instead, consumers want to pick and choose.

The surging popularity of OTT services has come quicker than pay-TV players expected, but it not an unexpected scenario for most. Laying the groundwork for a business model that can be adapted to a future more web-based digital TV landscape is key.

The role of the television is set to be significantly diminished, discarding demand among many consumers for cable boxes and satellite dishes. Unless traditional pay-TV operators can make the move to mobile, their position on the market is on borrowed time.

A strategy adopted by such players has been the route of acquisitions: purchasing OTT, Video-on-Demand and IPTV providers in order to mitigate risk and diversify revenue channels. Similarly, providing triple-play bundles that include broadband packages and mobile subscriptions to consumers has been another form of keeping homes connected. The ability to provide more than just a video-viewing experience is an advantage that satellite and cable providers will look to leverage over video-only players like Netflix. Both cable and satellite TV also have a practical monopoly on the transmission of popular sports such as soccer and cricket in emerging markets, with OTT providers focusing largely on films and original programming.

Traditional pay-TV providers in mature telecom markets such as the USA, UK and Japan will continue to lose subscriptions going forward, with the multitude of digital TV offerings driving more competitive pricing. To counterbalance this, players in such markets will look to enter more dynamic and pay-TV-friendly emerging economies, like China and Brazil.



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