IPTVThe over-the-top video threat, in which consumers bypass local video service providers (cable, IPTV, and DBS) for Internet based content, is well documented. Service providers fear their significant investment in broadband networks that deliver subscription based video services is at risk if enough consumers cut the video cord in favor of these ‘free’ Internet content offerings.

When studying this issue, it is important to put it into context. Nielsen recently released some interesting data with their A2/M2™ Three Screen Report. Probably the most glaring finding of this report is that 99% of all video viewing in the U.S. still happens on a traditional television. That finding seems to suggest that subscription video services are far from any immediate danger of bypass.

Viewing video on other screens is definitely on the rise, and worth noting. According to Nielsen’s data, online video viewing on a PC grew by roughly 35% in 3Q09. Much of this growth can be attributed to embedding video in social media networks. Additionally, according to Nielsen, teens are the heaviest users of mobile video, at 7-plus hours per month. There is definite growth in other viewing methods, but in the context of the overall picture, not enough to materially damage the most popular viewing choice – the television. At least not yet. Here are some other interesting Nielsen data points:

  • In 3Q09, the average American watched 31 hours of TV per week, with 31 minutes spent in playback mode with their DVR
  • In addition, each week the average consumer spent 4 hours on the Internet and 22 minutes watching online video
  • The average consumer spent 3 minutes watching mobile video each week
  • 57% of Americans with home Internet access use TV and Internet simultaneously at least once a month
  • Americans continue to use their DVRs – third quarter results show the average DVR user timeshifts more than 7 hours of programming each month, 21% more than the year before

The trends in video are unmistakable. Customers are consuming video in different ways, across multiple screens. Video service providers will need to continue to study these trends and ensure their offering adapts to these demands.

Perhaps the trend to watch is more Internet delivered video directly to the television (whereas most of it is viewed on a PC today), which could potentially impact buying decisions. Right now, the average consumer doesn’t want to deal with the technical intricacies of getting OTT video to the television. It’s just simply easier to pay the cable bill to get what they want. OTT video on the television will certainly get easier over time. As it does, a percentage of customers will cut the video cord. But smart video service providers will play a role in determining exactly how big of a percentage that is. Candidly, the subscription video business is the service provider’s to lose – Nielsen’s data suggests there is time to figure it out.

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5 thoughts on “Putting the OTT Video Threat into Context

  1. i thought you were missing the point until the end. the debate is not about what device video is watched on. its about the source of the content. the internet is a content distribution network, and over time, that content will make it to the tv. so the 99% number probably won't vary too much, but it doesn't matter if it stays 100% forever. what matters is, where is the content that is being watched on that tv come from, did money change hands to access it, and who facilitated the transaction.

  2. Not only that, Ian, but if you take three steps further back, there is either "free" or "paid." The Internet and IP are expanding the delivery options and use-cases for both kinds of content, but at the end of the day, it's still (repeat after me) "free" and "paid." And the same content owners and advertisers that participate in traditional pay TV today will ensure that consumers will get the value that they pay (or don't pay) for.

    Good article, Bernie! Thanks – Steve

  3. Good points Ian and Steve. So many variables with this OTT stuff. I couldn't agree with Steve more. Consumers love the idea of free, but don't really associate the conecept of 'you get what you pay for' with it. We love our entertainment content, but some how lose sight of the fact that it costs money to produce it. If we want quality, we have to be willing to pay for it. Free OTT is not sustainable, at least if we want to enjoy the level of quality that we currently do.

  4. Statistics are a funny thing. Last week TubeMogul posted research data showing 7% of OTT video streams encountering rebuffers and 80% of viewers quit watching at that point – or 5.6 out of a hundred. Pretty good by my current standards. That same day I had trouble with a program on digital TV, both over cable and Over-the-Air (seems fairly common now that we're all digital) so I quit watching it and turned to a movie over-the-top to my TV. It ran without a glitch. Now what are the odds of that? 😉

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