over the top tv trends

Transcription

Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
OVER THE TOP TV TRENDS
OTT TV Myth #3:
OTT Is Highly Cannibalistic of Traditional TV
Alarmist statements abound
regarding the predatory nature
of over-the-top (OTT) and how it
is poaching traditional TV
viewers.
While cannibalization does exist,
the interplay between linear TV
and OTT varies depending on
the type of online content
offering.
For Myths 1-2, please see
part one of “Over The Top TV
Trends” in our Executive
Insights’ “Spotlight on Media &
Entertainment” series.
Myth
Reality
OTT is highly
cannibalistic of
traditional TV
Only somewhat
What type of OTT content is cannibalizing linear TV?
L.E.K. Consulting / June 2015
»
LEK.COM
Guess Who’s Coming to Dinner: OTT Sports Services Cannibalize
Traditional TV, Entertainment Complements TV
Sports-related OTT services (e.g.,
UFC.TV, MLB.TV, WWE Network)
show the highest cannibalization
of traditional TV consumption.
Entertainment services such as
Netflix, Amazon Prime or Hulu
Plus are used as complements to
linear TV.
While there is no certainty of a
causal relationship, recent
research from the Cabletelevision
Advertising Bureau attributed
~40% of 2014 Q3 and Q4 TV
ratings decline to a combined
effect of online video services
and measurement systems that
do not capture digital device
viewership.
Impact of OTT on Traditional Linear TV Viewing of Similar Content1 (2014)
Relative impact on traditional TV consumption indexed
to impact of online catch up services2
Percent of respondents stating online service
had no impact on traditional linear TV consumption
1.5
50
1.40
1.39
1.31
1.19
1.2
40
1.02
1.00
0.95
0.94
0.9
0.87
0.6
30
20
Base
Index
0.3
10
0.0
0
UFC.TV
MLB.TV
WWE
Network
Hulu+
Netflix
TV catch-up
services
Sports-related services
Amazon
Prime
HBO Go
iTunes
Entertainment services
Note: How has your online video consumption impacted your viewing of traditional TV over the past year?; Cannibalization indexed on the TV cannibalization from MVPD catch-up services
Source: 2015 L.E.K. Media & Entertainment Survey, Cabletelevision Advertising Bureau
1
2
So is traditional TV dead?
»
LEK.COM
OTT TV Myth #4:
Traditional TV Viewing Is Dead
TV has yet to breathe its last
breath:
• Traditional TV still remains
the largest media
consumption platform
• Consumers prefer free or
subscription-based services
(including linear TV) over
transaction-based offerings
Myth
Reality
Traditional TV
viewing is dead
Nope
What is the status of traditional TV consumption?
»
LEK.COM
TV Is Dead, Long Live…TV (!):
Traditional TV Remains the Single Largest Platform of Media Consumption
Television accounts for ~31%
of total hours spent on media
per week.
Time Spent Consuming Various Forms of Media Content1
Percent of total hours
100%
8%
Paid and free OTT online video
services have been growing but
still represent only a 10% share
of total hours consumed.
80
Movies2
Publishing
8%
Games
7%
Internet
Music
Radio
So what form of video
consumption platforms work
best with users?
23%
60
Paid and Free OTT
Online Video Services3
TV (traditional)
5%
8%
40
10%
20
31%
0
Note: 1“On average, how many hours of the following types of media do you consume in a typical week?”; 2Includes in-theater and physical purchase / rental, and includes TV show
box sets; 3Includes free video (3 hours) and paid OTT services (4 hours, mostly streaming)
Source: 2015 L.E.K. Media & Entertainment Survey
How do consumers prefer to access video content?
»
LEK.COM
A Tale of Two Cities:
Subscription Platforms Grow, While Transaction-Based Models Decline
People are watching more on
free/subscription services and
less on pay-per-view services.
Change in Consumption of Forms of Media1
Percent
30%
This chart shows an increase in
the net variance in consumption
for free or subscription-based
media, indicating a consumer
preference for “passive” forms
of billing, which either do not
require a payment or which only
require an initial set-up.
On the other hand, transactionbased media (which requires
users to make a payment
decision each time they wish to
consume) is struggling.
While this is good news for both
traditional TV and OTT services,
a question remains around the
viability of the cable bundle.
Increased
somewhat (5-10%)
Increased
significantly (>10%)
Decreased
significantly (>10%)
Free / subscription based
Decreased
somewhat (5-10%)
Transaction based
20
Net variance2
13%
11%
14%
10
8%
8%
6%
(6%)
(5%)
(5%)
(5%)
0
(7%)
(10)
(7%)
10%
8%
6%
9%
3%
4%
4%
4%
(7%)
(7%)
(7%)
(6%)
(9%)
(10%)
TV Series
(purchased /
rented
physical
discs – e.g,
DVDs)
Movies
(purchased /
rented
physical
discs – e.g.,
DVDs)
(5%)
(9%)
(20)
Pay
Television
Paid OTT /
online
video service,
streamed
Free online
video service
Paid OTT /
online video
service, rented
or downloaded
Movies
(in-theater)
Note: 1“Compared to last year, has your weekly consumption (in hours) for different types of media increased, decreased, or remained the same as current?”; 2General internet net variance
was 36% in 2010 and 27% in 2009
Is the cable bundle going away?
»
LEK.COM
OTT TV Myth #5:
The Cable Bundle Is Going Away
Multichannel video
programming distributor
(MVPD) subscriptions have
grown slightly at 1.4% per year
from 2011-14.
Myth
Reality
The cable
bundle is
going away
Maybe in the
long term
but not in the
next five years
But new virtual MVPD services
such as Apple TV or Sling TV are
potential substitutes to
traditional cable subscriptions.
These services could contribute
to a drop in the share of
households subscribing to
traditional MVPDs from ~89%
currently to ~70% in 2019.
What is the status of traditional TV consumption?
»
LEK.COM
Don’t You Forget About Me:
MVPDs Have Continued to Grow Between 2011-14
Overall cable, satellite and
Internet TV subscriptions (MVPD
subscriptions) have grown 1.4%
per year even as OTT services
have proliferated.
Newer video operators such as
AT&T (U-verse) and Verizon
(FiOS) are continuing to
penetrate the market (growing
at 17.4% and 10.6% per year,
respectively between 2011-14)
and are sustaining overall MVPD
expansion compared to the
stagnant/declining footprint of
more traditional cable and
satellite operators.
Key Provider Subscription Rates (2011 – 2014)
Millions of subscribers
Verizon
80
76.0
AT&T
Time Warner Cable
DISH Network Corp.
77.4
77.9
2012
2013
DIRECTV
Comcast Corporation
79.3
70
60
50
40
30
20
The bottom line: MVPDs are not
going away anytime soon.
10
0
2011
2014
Source: SEC Filings, L.E.K. analysis
Are virtual MVPDs a disruptive force?
»
LEK.COM
Clear and Present Danger: Virtual MVPDs Are Potential Substitutes
for Traditional Cable Subscriptions
Several new “virtual MVPD”
platforms have been announced,
such as Sling TV (Dish),
PlayStation Vue (Sony) and
Apple TV. These platforms
represent direct substitutes for
traditional MVPD services as they
provide live streaming of linear
channels.
Our recent survey of U.S.
multichannel respondents
yielded an ~18% take rate (after
overstatement adjustment) for
a virtual MVPD service similar to
those recently announced.
Interestingly, the take rate was
greatest among non-Millennials,
highlighting the crossgenerational appeal of
these offerings.
How likely would you be to subscribe to a service (described to be similar
to PlayStation Vue) at a price that you would consider reasonable?
Take rate1
100%
Current multichannel subscribers
90
Current non-multichannel OTT viewers
80
70
60
Surprisingly, non-Millennial current
multichannel subscribers reported a higher
take rate for the new OTT MVPD service
50
40
30
24%
22%
18%
20
21%
20%
12%
10
0
Millennials / Gen Z2
All Respondents
Non-Millennials
Note: Take rates are normalized by a 70/30/10 adjustment; Millennial / Gen Z category includes those under 35 as of 2014
1
2
How great is the risk for the traditional multichannel ecosystem?
»
LEK.COM
Brave New World: By 2019 Virtual MVPDs Could Drive Multichannel
Share of Households Down to About 70%
Without new virtual MVPDs, not
much will change. MVPD share
will be comparable (dropping
from ~89% to ~86%) if you
project demographic shifts to
2019 and apply the current
growth rate of subscription
video on demand (SVOD).
Media Subscription Rates Over Time:
Demographic Shift + Existing SVOD Growth + New Offerings (2014E-19F)
Percent of adult broadband population
New "Virtual MVPD" offerings
100%
Broadcast
OTT standalone
5.2%
4.9%
6.0%
9.7%
The predicted share gains for
virtual MVPDs assume that the
products actually work. They
might fail if the services have
too many bugs and/or cannot
get complete channel lineups.
17.2%
4.9%
80
However, virtual MVPD services
could deliver a step change in
OTT penetration and drop the
multichannel share to ~70%
by 2019.
Multichannel
7.5%
60
88.8%
85.5%
40
70.4%
20
0
2014E
2019F dem. shift + existing
SVOD growth
2019F dem. shift + existing
SVOD growth + new OTT MVPDs
But does this mean that even premium bundles are at risk?
»
LEK.COM
OTT TV Myth #6:
Premium Networks Will Be Extinct
Increasingly traditional premium
TV networks such as HBO are
experimenting with standalone
OTT offerings, by-passing their
existing operator relationships.
The bulk of premium networks’
revenues will continue to be
driven through traditional
multichannel distribution in the
short term. But as the share of
the broadband-only population
increases, premium networks
need to develop alternative
platforms, likely through new
partnerships with device
manufacturers and tech
companies such as Microsoft,
Google or Apple.
Myth
Reality
Premium networks
will be extinct
Not yet
(but they will
need to go
on the offensive)
This approach should help these
networks hedge their bets.
How resilient are premium offerings to OTT?
»
LEK.COM
Staying Alive: OTT Versions of Premium Networks Could Drive
Significant Shifts in MVPD Subscriptions
Consumer Actions if Premium OTT Network Was Available1
As both an offensive and
defensive move, HBO has
introduced HBO Now, a
standalone OTT offering of
HBO, which will target
consumers who only receive
content via broadband.
Percentage of responses
100%
No change
Cancel movie package
Cancel full TV subscription
80
46%
While HBO executives see the
initiative as a means to go after
“low hanging fruit,” customers
who currently only receive video
content through broadband, it
may generate pushback from
MVPDs.
60
40
36%
According to our proprietary
survey, a premium OTT network
analogous to HBO Now could
potentially cause ~54% of
respondents to modify their TV
subscription.
Overall 54% would cancel their
movie package or full TV subscription
20
18%
0
Note: 1“What impact would such a service have on your existing premium pay TV subscription?”
Is live sports the only thing holding the cable system together?
»
LEK.COM
OTT Myth #7:
The Cable Ecosystem Is Disintegrating
Access to live sports content is
a fundamental aspect of the
multichannel video
programming distributor
(MVPD) bundle offering.
Sports leagues recognize the
value of their content and have
been able to extract significant
domestic rights fees from
operators.
Bottom line: live content, and
sports in particular, is the glue
holding the MVPD ecosystem
together and a “killer app” in
slowing cord cutting.
Myth
Reality
The cable ecosystem
is disintegrating
Live sports is
holding it together
Can sports content protect the multichannel
ecosystem from the threat of cord cutting? »
LEK.COM
The Last of the Mohicans:
Live Sports Is a Key Barrier to Cord Cutting
Live sports is a key driver of
consumers’ willingness to
subscribe to cable. What’s more,
27% of survey respondents
would trim or cancel their TV
subscription if the ESPN channels
were OTT-only. Third-party
studies confirm the role of sports
in preserving MVPD subs:
• According to a 2013 Harris
Interactive poll, 43% of U.S.
adults cited live sports as a
reason for not cancelling
cable
• According to a Frank Magid
Associates’ 2014
survey,1.4% of ESPN
watchers were “very likely”
to cut the cord in the next 12
months compared with
2.9% overall
Consumer Actions if ESPN Channels Were Only Available in OTT Format1
Percentage of responses
100%
No change
Cancel sports package
80
60
Cancel full TV subscription
73%
40
20
8%
19%
27% would cancel their sports
package or full TV subscription
0
Note: 1“What impact would this have on your existing cable / satellite TV subscription?”
Source: 2015 L.E.K. Media & Entertainment Survey; Frank Magid Associates, 2014; Harris Interactive, June 2013
L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of
their respective owners.
© 2015 L.E.K. Consulting LLC
Is OTT only relevant in mature TV markets like the U.S.?
»
LEK.COM

over the top tv trends

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