Growth of Netflix Competitors Could be Positive for Pay-TV Providers

Netflix is unquestionably the king of OTT video today: With 81.5 million subscribers worldwide, including 40% of US broadband homes, it is single-handedly responsible for nearly 40% of peak downstream traffic in the US. Earlier this year it launched in 130 additional countries, making it available in 190 countries in total.

However, as a recent article in The Guardian reports, its competitors are also finding success. HBO's HBO Now streaming service is benefiting from the success of Game of Thrones, and fellow premium pay-TV channels Starz and Showtime have also launched their own streaming services. Amazon has also been spending millions on original programming.

Perhaps significantly, US downloads of HBO Now, Amazon Video, Hulu and Showtime apps taken together exceeded those of Netflix for the first time in April 2016. The article does point out that Netflix is still ranked highest for free app downloads and is the top-grossing app in the App Store, but HBO Now is now second. And Hulu and Starz both rank in the top ten.

Netflix may be well ahead of OTT competition, but as these providers fragment viewership and subscribers, there will be an opportunity for an aggregator. Netflix subscribers interested in watching hit content from HBO or Amazon will have to subscribe to multiple services, which will become increasingly frustrating and expensive. Pressured by increasing content acquisition and development costs, Netflix is rolling out more price increases this year. And while there are many reasons for cord-cutting, the rising cost of a pay-TV package has certainly been a factor. Over time, Netflix's price rises could have a similar result.

This could create an opportunity for pay-TV operators to step in and provide an aggregated service with a broad selection of content available. Pricing and packaging is obviously going to be a challenge, given the number of moving parts in this equation. But there will be a need for an aggregator of desired services and content for consumers: Analysis of consumer data over nearly 15 years has shown that demand for a single provider charging a single bill has been very consistent.

That's why encouraging Netflix rivals could be very useful for operators in the long term. Even if they don't catch up, as long as they fragment the market sufficiently to encourage potential cord "re-joining," the operators benefit.

— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation