OTT Shift Could Affect Revenue, Content, Analysts Say

A video industry shift toward over-the-top delivery could lead to unbundling of content and a decline in revenue for video providers, said Needham & Co. analyst Laura Martin at a Technology Policy Institute panel Friday. CBS's announced plan to offer OTT content (see 1410160058) will cause it to lose ad revenue and some of the money it receives as part of cable bundle, in exchange for the likely smaller amount of money customers will pay to watch its content online, Martin said. “It's a shitty trade.”

Former FCC Chief Economist Steven Wildman disagreed, saying the economic incentives toward bundling mean OTT content will be part of its own bundle, and that an industry shift online won't lead to revenue loss. The growing importance of OTT content is part of a “fundamental shift” toward on-demand content that has been going on for years, he said.

Wildman, Quello Professor of Telecommunications Studies at Michigan State University, pointed to DVR use and the increasing popularity of Netflix and other on-demand services as evidence of a shift toward OTT, and an FCC draft NPRM on circulation that seeks comment on bringing OTT video within the definition of multichannel video programming distributors. The FCC is considering the rule change because the OTT business model is “coming to the fore,” said Philip Verveer, aide to FCC Chairman Tom Wheeler. “More and more entities” are looking to get into OTT offerings, Verveer said, saying the FCC is “anxious to avoid and eliminate various regulations that might limit cooperation.” Since the definition change would provide OTT services with access only to content they negotiate individually for and won't include a compulsory content license, it's not expected to have “enormously dramatic effects,” Verveer said.

Though cable companies profit from OTT services using their pipes, the DBS industry will be hurt by programmers removing their content from bundles to show it online, Needham's Martin said. Dish Network's contract with CBS is up Dec. 1, she said. Dish may punish CBS for its OTT plans by blacking it out “as a warning to everyone thinking of leaving the bundle,” she said. Tight net neutrality rules could combine with a shift toward OTT video to discourage cable investment in broadband infrastructure, she said. Since the heavier use of OTT video would increase data usage and ISPs would be constrained from charging more to transmit it, infrastructure improvement would stop being a worthwhile use of funds, she said

There's no economic logic for TV networks to exist in an OTT world, Wildman said. Networks package content in a sequence, but the video market will shift toward on-demand content, he said. The lack of importance of sequence will also affect content, he said. Programmers invest heavily in content designed to be shown in prime time, while using cheaper content such as game shows for less desirable times of the day, Wildman said. If the industry shifts to on demand OTT, content will be divided by whether it's produced for broad or niche consumption rather then when it's shown, said Wildman. Martin suggested that this circumstance would create a disincentive for companies to invest heavily in content, leading to a decline in quality , she said.