What Changed?
- In terms of the players in the market, the biggest change was the exit of Aereo. What might have been a leading company in over-the-top video ended up in bankruptcy after a loss at the Supreme Court that invalidated its business model.
- The impact on cable, DBS and telco multichannel subscribers played out almost exactly as I had predicted -- in a gradual attrition. The big multichannel providers lost 385,000 subscribers in 2015, about 0.4%. Cable One, a small cable operator who dropped Viacom's channels after a pricing dispute, saw its video subscriber base decline in 2015 by 19%, as it "pivoted" away from video to focus on high speed Internet service. One of the strategies related to this pivot was raising video prices by $10. None of the largest cable TV operators are following Cable One's strategy.
- The decline in cable TV subscribers is showed up in a bigger way on the programmer's side. ESPN's Nielsen subscriber count declined by 7 million in the last 2 years which did not go unnoticed by the investment community. ESPN's numbers are tied up in a few issues, falling cable TV subscribers are one part, "skinny" packages which don't include ESPN are another, and the biggest one may be that Nielsen's own estimates of cable household counts may have been too high in the past.
- The technical quality of over-the-top streaming has continued to improve. LTE has become widespread and 5G wireless is on the way. 802.11ac wifi is far more common. Gigabit ethernet to the home has also become more common, although it is hardly ubiquitous. Gigabit is coming from Comcast and AT&T, as well as pioneer Google Fiber (pioneer, that is, if you don't live in Chattanooga)
- The quality of the over-the-top content has continued to improve. Netflix and Amazon were winners at the Emmy Awards in September 2015 garnering kudos for House of Cards and Transparent, as well as a decent collection of other shows. Broadcasting & Cable described a the television production boom triggered by the success of the streaming outlets as creating "a run on talent" in a recent cover story (but put the story itself behind its paywall).
- The availability of over-the-top services would expand. They did, and in ways that I had not described -- HBO, Showtime, and Starz all went direct-to-consumer (not too suprising a development) and Amazon embraced a model to bundle individual OTT services with its Streaming Partner Program (a development that was non-obvious).
The Miss
- The availability of over-the-top services didn't happen in one form that I expected -- the roll out of Aereo to additional markets.
- I made no mention that over-the top services would expand, but they have. PlayStation Vue, Sony's over-the-top service, not mentioned in the original post, launched in a handful of markets, then went national this year. Hulu's build-out of a service with streams of linear channels would be another expansion geared to the mass market. There have also been all manner of subscription video on demand services for niches by major companies like NBC Universal's Seeso, World Wrestling Entertainment), and Crunchyroll for Japanese anime (its backers). In an earlier time, each of these would have been a cable program service.
Unclear
- YouTube's stopped highlighting its original content channels on the same day as my original post, although its interest in originals morphed into content for YouTube Red. YouTube isn't following the big name Hollywood path to video competition, it is carving out a different one. This strategy is a bit harder to evaluate -- the proof would be in YouTube's views and advertising sales. The former are transparent, but not easy to interpret, and the latter are not visible at all.
- I forecast that the convenience of OTT service would improve based on better interfaces, DVR in the cloud, better recommendation engines. There have probably been some incremental improvements here, but nothing that seems to have changed the nature of competition in a big way. PlayStation Vue reviews praise its more Netflix-like interface, but it isn't clear if this is driving its adoption. Meanwhile, Comcast has licensed its cloud-based X1 navigation software to Cox and others, improving some cable interfaces faster than OTT interfaces, in those places that actually got it.
The Innovator's Dilemma continues to be a useful lens through which to look at the development of over-the-top video, finding its purchase in markets/use cases not central to the big screen at home. Unlike other innovations, however, the role of content makes the video distribution system unique. Some holders of high profile content can make more money going direct to consumers than through the cable bundle -- adult video made the leap a long time ago. The next ones to prosper over-the-top are the new services that probably couldn't get carried by distributor's protecting their margins (Crunchyroll, WWE), followed closely by those that are already sold a la carte (HBO, Showtime, and Starz). Those left are the basic cable channels, whose play in over-the-top is focused on their library content (like Lifetime Movie Club) and may be for a long time.
