Smaller TV channels could make cost-effective transition to OTT-only delivery in five to 10 years

USA: For many individual channels that have small- or medium-sized audiences, a switch to over-the-top (OTT) streaming as their sole means of video delivery could become an option over the long term.

However, it’s currently not cost effective for television channels with large numbers of viewers to move to OTT-only video delivery, according to an IHS Screen Digest Insight report.

An analysis of the U.K. television market reveals that about two-thirds of the country’s major channels potentially could afford to switch to a unicast OTT-only delivery model five to 10 years in the future. Of the 192 channels rated by the Broadcasters' Audience Research Board (BARB), only 58 have such large audiences that moving to a pure-OTT approach would be cost ineffective for the foreseeable future.

Even so, the remaining 134 are candidates that could eschew traditional pay-TV platforms and move to OTT delivery in standard definition (SD).

Channels for which the cost of unicast OTT streaming would be 1.5 times or less than the cost of satellite broadcast are all candidates to make the transition. These 134 SD channels carry a weekly content delivery network (CDN) cost of 10,000 euros per week or less, as presented in the figure below.

“For large consumption channels—i.e., channels with large audiences—the economics of OTT streaming remain highly unfavorable, with the cost in some cases hundreds of times greater than broadcast on satellite,” said Guy Bisson, research director for television at IHS.

“However, for channels with a low to medium viewing share, scaling for OTT may not be such an issue. It’s true that high-definition (HD) makes OTT unaffordable for any channel regardless of its audience size, and that any discussion of moving away from traditional satellite, cable and terrestrial and to OTT is academic at the current time. Nonetheless, as television business models change and subscribers’ viewing habits evolve, there could be a gradual move among smaller SD channels to begin to investigate OTT unicast and multicast as a substitute for traditional broadcast during the next decade.”

Perils of OTT
OTT provides many advantages compared to traditional broadcast. It provides consumers with greater choice and flexibility in programming, platforms and location.

However, OTT is not free. As OTT scales to larger audiences and to HD content, it is not cost effective and represents an onerous incremental cost.

At present, OTT streaming costs are incurred in addition to broadcast costs, just as channels are usually simulcast in both SD and HD for a period after the launch of the HD channel. With the exception of very specialized niche channels, no channel owner with an established model built on carriage and advertising would today take the decision to end satellite or terrestrial carriage in favor of OTT only. Any OTT consumption by viewers, therefore, currently piles on cost rather than substituting costs in the broadcast space.

In addition, current on-demand consumption patterns suggest that a shift to unicast OTT delivery from broadcast today would also impact viewing market share, further reducing the value of the channel and its business model.

Extra-terrestrial value
It may appear that given the high cost of terrestrial broadcast, unicast OTT streaming would be more cost effective. In fact, the opposite is true.

The uplift given to viewing by transmission on the terrestrial network means that to deliver the actual programming consumed on a weekly basis via OTT would be more expensive for most channels.

OTT overreach?
The reality is that any channel’s transition to OTT-only transmission is unlikely until a fundamental shift in television business models occurs. The fact that unicast could be cheaper for the vast majority of UK channels means nothing, if a shift to OTT streaming as a substitute for broadcast means losing audience share, brand power and reach. And today, it undoubtedly would.

Before a channel can even consider a shift to unicast streaming as a primary or majority form of delivery, two major changes will need to occur.

First, there will need to be a consumer-facing OTT platform with significant reach, which acts as the primary means of television delivery in the majority of homes that it touches. Second, there must be a larger shift in consumer behavior away from linear scheduled television.

Without these two changes, the costs of unicast delivery will remain an additional expense with traditional broadcast.

Planting the seed
The seeds of both these changes have been planted in the United Kingdom.

On the platform side, Youview, Sky’s Now TV and British Telecom’s evolving Vision service all have the potential to realize the first fundamental shift.

The second shift—consumer behavior—cannot occur without the first taking place. Because of this, the consumer shift is likely to take longer.

Thus, the move to OTT will not be a near-term change but a gradual evolution instead, and the transition will not come as a big bang. Signs of the transition will appear when the smaller channels begin to investigate unicast and multicast as a substitute for broadcast. Over what time scale this will occur is difficult to predict, but it is certain to be longer than five years.

Source: IHS iSuppli, USA.