As well as posing a long-term competitive threat, the rising tide of over-the-top (OTT) alternatives to pay-TV programming may be providing benefits to pay-TV service providers, according to new market research from TNS. “The quantity and diversity of video content entering the home via paid programming sources appears to be growing, resulting in healthy demand for the industry as a whole,” TNS states in a press release.
Over the past year, about one in six pay-TV subscribers (16 percent) adjusted their level of video service by either upgrading to a higher tier or downgrading to a lower tier. Pay-TV households that also stream content via the Internet are more than twice as likely – 25 percent compared to 12 percent – as non-streaming households to have changed their pay-TV service level, according to TNS’s latest quarterly survey of nearly 25,000 U.S. households, which was conducted by ReQuest.
Propensity to Upgrade Pay TV
Streaming households are more likely to upgrade (16 percent vs. 6 percent) as well as to downgrade their pay-TV service levels (9 percent vs. 6 percent). “Moreover, service upgrades are considerably more common than downgrades among those streaming households,” according to TNS.
“These findings suggest that streaming is contributing to an overall rise in consumer appetite – and demand – for video content, instead of simply stealing a finite share of Pay-TV programming,” highlighted TNS Vice President Frank Perazzini.
“Growth in the frequency of service upgrades is being driven almost entirely by households that also consume streaming video, leading to stronger ARPU performance by cable, satellite, and fiber television providers.”
Streamers that adjust their pay-TV service levels tend to be younger, particularly those who upgrade, TNS notes. Adults under 30 make up less than 20 percent of all pay-TV subscribers with streaming technology in the U.S., but they represent one-third of households that recently bought more channels and/or features from their traditional video provider.
“Younger consumers are especially proactive and indulgent in their viewing habits having come of age in a world of unparalleled variety and choice in video content,” Perazzini commented. “They know what they want, and also how to get it.”
Subscription-based OTT video service providers, such as Amazon and Netflix, are thriving along with free service providers such as YouTube. The percentage of U.S. households that streamed video in the month prior to the survey rose to 34 percent in 3Q 2014 from 30 percent in 3Q 2013 and 27 percent in 3Q 2012, according to TNS data.
Those that paid for streaming video in the month prior to the survey rose to 26 percent in 3Q14 from 23 percent in 3Q13 and 16 percent in 3Q12. The percentage that subscribed to a traditional pay-TV service dropped one percentage point, to 81 percent in 3Q from 82 percent in both 3Q13 and 3Q 2012.
According to TNS, “The spread of streaming video, through both paid and unpaid providers, has so far had minimal impact on the incidence of traditional Pay-TV subscriptions. This implies coexistence – rather than a competition – of video alternatives within many U.S. households.”
That said, “Although this symbiotic relationship between traditional and emerging subscription video providers has mutually benefited both groups, there are portents of change that could further transform the customary business model for video delivery,” Perazzini cautioned.
“In particular, the expansion of higher-speed broadband Internet access has opened doors for streaming video to reach more homes than ever before, and programming providers may move to engage these viewers directly. For example, HBO’s recent announcement of the launch of ‘a la carte’ OTT distribution for their content in 2015 could signal a shakeup among top cable, satellite, and fiber carriers as this strategic shift by a leading programming supplier would dilute one of Pay TV’s primary differentiators, weakening their competitive advantage.”