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The State of OTT 2014

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The MVPD, though, wants to sell you the glass of wine at 125% the cost of the entire bottle, suggesting that you’d probably be happier if you bought and consumed the entire bottle. And they’d really prefer you buy a VIP table, which comes with two bottles, even if you are drinking alone. Any bar that took that approach would probably shut its doors within just a few weeks of business, but yet the MVPD world continues to advocate a “by the cask” approach when consumers just want a single glass.

So what do MVPDs need to offer the OTT crowd to attract them traditional live-linear television? It turns out that our findings, along with additional research that’s been done in the field, indicates that consumers might just buy the whole bottle if they’re allowed to try a glass first.

We’re in the early stages of this trend, and it appears that 2013 was the year of growing pains when it comes to attracting cord-never users. One example of this misstep is from cable provider Cox. The company launched a beta of flareWatch in July, 2013, offering a $39.99 bundle of 60 high-definition channels via IPTV, complete with a cloud-based DVR.

Cable provider Cox tried to attract cord cutters and cord nevers with its flareWatch OTT service, but quickly shut it down after customer complaints.

Cox ran the flareWatch bundle for several months, then shut the program down. Consumer complaints included excessive lag time (upwards of three seconds) when switching channels, as well as the fact that the purchased DVR device—called a Fanhattan box—actively blocked Hulu and Netflix apps from the Fanhattan device. In addition, while Cox offered up to 30 hours of cloud-based DVR service, it suffered from the same fate that the Boxee TV faced: limited availability of the cloud-based DVR to just a few select cities.

“They are being careful not to canibalize [sic] their higher margin pay TV business,” wrote Paul Hamm on the TV Reinvented Blog. “I could see Cox treating flareWatch as a customer acquisition vehicle that also gives them the opportunity to upsell services to flareWatch customers. Either way, Cox must see OTT as a mechanism for expanding their video subscriber footprint and for increasing revenues through flareWatch itself and then again by cross-selling other services.”

Still, at $39.99 for 60 channels, that was far less than the average $63.98 a traditional cable customer would pay for the same programming. Yet the Cox offering also suffered from the MVPD blinder approach, as premium channels such as HBO weren’t even offered at any price. And the service was only available to Cox internet subscribers.

What’s Next for OTT?

Two challenges lie ahead for OTT advancement: technology and policy. One is addressable, but the other may be less so. As we wrap up this year’s State of OTT, let’s look quickly at each of these.

Technological Advances

The one certain path for OTT is the growing acceptance of Dynamic Adaptive Streaming via HTTP (DASH) and its close cousins in Europe, HBB and TNT. The ability to deliver both live-linear broadcasts and on-demand content via the same packaging technology has opened the door for delivery not just over-the-air (via digital terrestrial) and cable, but also via satellite delivery.

In addition, the continued advancement of a subset of DASH centered on H.264 (DASH-AVC/264) means that existing consumer electronics may have a shot at backwards compatibility to DASH with just a simple firmware upgrade. This should solve some of the issues around channel-changing lag times that have traditionally plagued IPTV, further blurring the lines between OTT and broadcast. We discuss protocols in more detail in the State of Protocols article elsewhere in this issue.

Policy Issues

One of the major debates in the MVPD industry is whether to continue on the traditional path or find ways to equally entice / force consumer back into the MVPD fold. Net neutrality, a key battlefront in the OTT world, played out its first major test in court at the end of 2013. For those content owners that don’t own the last-mile pipe to a consumer’s home, the initial rulings weren’t comforting: Verizon won a court case in which it argued it should charge more to traffic-heavy web services to deliver their content to its customers.

“Netflix could incur annual fees of anywhere from $144 million to $936 million as a result,” wrote Seth Fiegerman on Mashable, quoting from an investor note from Wedbush Securities’ analyst Michael Pachter.

The FCC has yet to determine whether it will contest the ruling, or issue similar guidance, but the game’s afoot when it comes to OTT’s challenge to the established MVPD community. We’ll keep a close eye on this throughout 2014.

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