As MSOs take interest, over-the-top TV is set to break out in 2017.
Digital content delivery is widely considered the future of distribution, and a recent trend of large, well-capitalized legacy content providers embracing the business will define the OTT build-out of 2017 and beyond, sources agreed.
AT&T Inc. is positioning itself as a leader in the space with its new digital bundle, launched late in 2016 for $35 per month as part of a limited-time offer. While the product threatens to cannibalize AT&T's U-Verse and satellite DIRECTV distribution products, the company considers it a "trade-off for the future," as Ooyala principal analyst Jim O'Neill put it.
Several other legacy distributors also are developing and testing their digital content strategies. Verizon Communications Inc. is supporting its Go90 mobile platform. Comcast Corp. is testing a multichannel virtual network supported on Verizon's infrastructure, and it recently struck a deal with Netflix Inc. to include that platform on its set-top boxes. DISH Network Corp. has its digital Sling TV subscription platform. Cablevision is delivering OTT services like Hulu LLC and CBS Corp. All Access on its service. And Charter Communications Inc. is quietly testing on OTT platform in Middle America.
After several years of lumpiness in the market, the OTT business is maturing, and 2017 is shaping up to be a significant year, S&P Global Market Intelligence analyst Seth Shafer suggested in an interview.
Shafer sees the market organizing along three lines: virtual service providers that bundle digital content like DIRECTV, many of which will come from legacy multichannel distributors like AT&T and Charter; niche digital services like anime channel Crunchy Roll, and big OTT platforms with their own original content like Netflix, Hulu and Amazon.com Inc.
The rise of legacy MSOs like AT&T entering the space will likely be one of the most defining trends in the market, Ooyala's O'Neill said. Each major MSO has a digital strategy, and most are in the early stages of implementation. Comcast's deals with Verizon indicate it is considering a broader strategy than offering a few OTT channels on its set-top boxes. O'Neill is a customer of Charter's experimental OTT service, which he said could be a game-changer if the economics are right to unroll it nationally.
But it is not as easy as a pay TV provider plugging a broadband cable into their feed and delivering content online. They must also keep up with the future of infrastructure, and perhaps most notably, the shift to mobility, O'Neill and Shafer agreed. Linear cable and wired broadband could eventually become outmoded by increasingly sophisticated mobile data availability. As mobile data speeds and coverage increase rapidly, the need for wired broadband could become obsolete. While not an imminent threat, many in the industry believe it is an inevitable shift, and one that's not far off.
Shafer and O'Neill said this represents a unique opportunity for mobile service providers like AT&T and Verizon. If AT&T succeeds in making DIRECTV Now a zero-rated service, meaning it would not count against AT&T customers' data plans, the opportunity could signal an entirely new and forward-thinking OTT business solution with several layers of synergies for those companies that have access to a mobile network, Shafer argued.
"Mobile is the future for the industry, and I think if you're an MVPD without a piece of the mobile service you could be in big trouble," O'Neill said. "AT&T is beautifully positioned. Comcast is not badly positioned; they have a deal with Verizon, so at least they have access to mobile."
Verizon itself has yet to really leverage its own potential, O'Neill said. The company's 2015 launch of its Go90 mobile content platform was largely seen as a revolutionary first move in the space, but Verizon has done little with it since, and engagement with the service seems to be modest. O'Neill said Verizon is in an "in-between space" in the industry. If mobile broadband becomes the de facto standard, Verizon could find itself with an opportunity to lead the market, if perhaps a step behind AT&T, he added.