OTT Stuck Between Steep Demand Curve, Target Audience Issues, Moffett Says

Over-the-top video offerings face a particularly steep demand curve, with demand dropping sharply as prices increase, which creates a problem considering the estimated programming costs faced by Hulu as it looks to launch a virtual multichannel video programming distribution service next year, MoffettNathanson analyst Craig Moffett wrote investors Thursday. Meanwhile, the most likely subscribers for more-expensive OTT services aren't the target audience of cord-cutters and cord-nevers but households looking to trim their monthly pay-TV spending, the result being cannibalization, Moffett said. "On an absolute basis, 10 million subscribers could be perceived as a very successful launch ... but that success could be cold comfort if it's achieved only by accelerating traditional Pay TV subscriber losses by 7.3M." Cord cutting is more prevalent -- and accelerating fastest -- among younger viewers, but older viewers are more likely to pay for an OTT service, he said, saying a "sweet spot" of $40-$45 monthly might be optimal but pricing at that level might not be feasible.