paid tv's uncertain future
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The paid TV market is on the precipice of a fundamental change. Internet and mobile video are challenging traditional cable TV for the attention of viewers worldwide. Consumers are demanding more personalized, unfettered content and video service providers must deliver.TRANSCRIPT
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 1August 2010Pay TV’s Uncertain Future
Pay TV’s Uncertain FutureVince VittoreDmitriy Molchanov
August 31, 2010
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 2August 2010Pay TV’s Uncertain Future
Agenda
Business and Strategic Issues
Radical Redesign of the Home and Services
Key Takeaways and Q&A
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 3August 2010Pay TV’s Uncertain Future
• Analog cable rapidly falling and almost being replaced by digital
• IPTV growing at a rapid clip
• Satellite holding steady but some downward signs
Pay TV Market Moving Rapidly to Digital
U.S. Pay TV Landscape
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2005 2006 2007 2008 2009
Subscribers (in Thousands)
Analog Cable
Digi ta l Cable
Satel l i te
IPTV
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 4August 2010Pay TV’s Uncertain Future
The Wallet Still Rules Decision-Making
Base: 562
What could convince you to switch from your primary pay TV provider in the next year?
4%
5%
7%
7%
8%
12%
13%
16%
23%
25%
73%
1%
9%
9%
5%
5%
13%
6%
13%
24%
24%
67%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Do not know because it's not my decision
Other
Better VoD offerings
Remote programming of a DVR from the Internet orphone
Higher capacity DVRs
Better customer service
Whole-home DVR solutions
More HD offerings
Better basic channel offerings
Availability of bundling options
Lower prices
2009
2010
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 5August 2010Pay TV’s Uncertain Future
Competition Coming from All Sides
Content Owners
Hulu, NFL, MLB, NBA, NHL
Alternatives
PlayStation Network, Xbox, Google TV, Retail STBs, iPad
Traditional Competition
MSO, IPTV, DBS
Cloud-Based Content
Netflix, CinemaNow
Pay TV Operator
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Cord-Cutting: Myth or Reality?
It’s a Myth
• Pay TV revenue continues to increase
• Consumers are watching more TV than ever before
• Cable programming has crossed the chasm in terms of quality and now dominates key awards
• People love bundles, and nothing bundles programming as well as 200+ channels of content
It’s Reality
• Consumers are dedicating more time to the Internet
• Economics dictate that increasing programming costs will lead consumers to re-evaluate bills
• Competitors’ ability to target economic niches is very high
• Proliferation of devices is driving consumers to seek other options
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 7August 2010Pay TV’s Uncertain Future
Poll – Cord-Cutting: Myth or Reality?
Which of the following statements best represents your belief about cord cutting?
• Cord cutting is already happening in full force
• Cord cutting is just beginning and will continue to gain momentum
• We are still years from cord-cutting realization, and it will remain a niche market
• It’s completely myth—cord cutting will never happen
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 8August 2010Pay TV’s Uncertain Future
Cord-Cutting Attitudes
Bases: 5,306 in 2009; 1,069 in 2010
How does the availability of Internet video affect your attitude toward your cable, satellite or other subscription TV service? (N=1,069)
49%
17%13%
11%8%
2%
47%
21%
13%
7%10%
2%
0%
10%
20%
30%
40%
50%
60%
Haven't thoughtabout it
Will never cancel Didn't know itwas an option,
but wouldconsider
Consideringcanceling, but
haven't yet
Don't know Already cancelledmy subscription
TV service
2010
2009
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Economics Will Be the Biggest Factor in Cord-Cutting
• Average monthly pay TV bill is around $65 and is increasing at least 5% annually
Subscription TV Service (n=1886)
3%
22%
66%
2% 7%
I plan to cancel serviceI plan to spend lessI plan to spend the sameI plan to spend moreUnsure/don't know
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 10August 2010Pay TV’s Uncertain Future
Pay TV
• As the relationship between programmers and pay TV operators strains, there appears to be no end in sight to programming cost increases
How do you expect to reduce the cost of your subscription TV service? (Please select all that apply.) (n=206)
4%
6%
9%
10%
14%
18%
35%
36%
5%
10%
10%
10%
15%
19%
30%
43%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other
Canceling digital cable
Canceling HD service
Canceling DVR service
Renting fewer movies on VoD
Bundling with other services
Switching service providers to acheaper plan
Canceling premium channels(i.e., HBO)
20092010
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Video Game Consoles Challenge the STB
Applications
Interactive Video
Social Networking
Information
Streaming Multimedia
Exclusive Content
Sony has led the pack in bringing exclusive content to the game console world with its own reality show, “The Tester,” which airs this winter, and with exclusive content from Marvel for comic book fans.
Targeted Advertising
Microsoft’s Advertising Business Group has partnered with Nielsen to begin researching ad placement through Xbox LIVE. Honda and Sprint have invested $1 million in advertising opportunities.
3-Screen
Both Microsoft and Sony are leveraging their consoles’ well-developed online communities to bring their content outside the living room with PSN and Zune Video.
Cloud
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Regulatory Concerns
• Impact of Comcast/NBCU• Likely to pass but with significant restrictions
• Exclusivity on the endangered list• A la carte looming?
• How deeply will Congress get involved in disputes between programmers and operators?
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 13August 2010Pay TV’s Uncertain Future
Agenda
Business and Strategic Issues
Radical Redesign of the Home and Services
Key Takeaways and Q&A
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 14August 2010Pay TV’s Uncertain Future
Proliferation of Household Devices
n=5,804
Percentage of households with at least one of the following devices:
69%
64%
63%
57%
46%
40%
38%
26%
18%
7%
83%
5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Desktop
Laptop
HDTV
Console
STB without DVR
DVR
External Hard Drive
Digital Camcorder
Digital Photo Frame
Blu-Ray Player
DMA
Place-Shifting Device
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Watching Video Frequency
Base: People who own the device (Asked in Wave 1)
How often do you watch video on your… (by video, we mean anything from TV, films, YouTube clips, etc.)?
4% 9% 3%18%
35%44% 43%
63%77%74%
41%
20%
31%16%
15% 12%
14%5%12%
34%
37%
24% 20%18% 18%
9% 7%
0%10%20%30%40%50%60%70%80%90%
100%
Live TVn=1,223
TVprogramsrecordedon DVRn=599
TV/VoDn=369
PC/laptopn=1,235
Videogame
consolen=793
Digitalaudio
player orMP3
playern=586
Handheldgame
consolen=465
Mobilephonen=986
-Retail settop boxn=757
At least once a weekAt least once a dayNever/I can't do this
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These Trends Mean Three Things
• Consumers demand a seamless experience across devices• Consumers expect their content to “thread” across devices
—Amazon’s Kindle pioneered dropping a book on one device and picking up where you left off on another
• Home networking will expand drastically• But consumers need help getting their devices connected. • New standards like G.hn that extend across coax, phone and
powerline will help; so will diagnostic tools from operators like Verizon
• Opportunities for operators to act as intermediaries• Operators can leverage strong marketing and brand spend, billing
tools and consumer data to fight back against cord-cutting and deliver premium services
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 17August 2010Pay TV’s Uncertain Future
Familiarity and Convenience Are Highly Desired
On a scale of 1 to 10, how interested are you in the following services from your subscription TV service provider? (n=1,031)
17%
18%
19%
32%
35%
45%
37%
26%
50%
16%
17%
18%
23%
19%
19%
23%
19%
21%
17%
18%
20%
15%
18%
14%
17%
18%
12%
50%
47%
43%
30%
28%
22%
24%
37%
17%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Chat with friends through the TV
Connect to social networks through the TV
Make and receive phone calls through the TV
Internet browsing on the TV
Internet video on the TV
Whole-home DVR
Network DVR
Place-shifting
Start-over TV
High (10,9,8)High-Medium (7,6)Low-Medium (5,4)Low (3,2,1)
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TV Takes on More Responsibility
Applications
Interactive Video
Social Networking
Information
Targeted Advertising
Home Monitoring
Videoconferencing
Streaming Multimedia Distance Learning
Network Management
Home Health Care
2010 2015
ServicesApplications
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Smartphones Get Even Smarter
Mobile Devices Will Interact with Home Networks
Home Network
2010
Remote DVR
Place-shifting
2015+
Home Network
Media Sharing
In-Home Input Devices
Remote Home Monitoring
Remote Elderly Care
Both AT&T and Verizon are leveraging smartphones and tablets to control home devices
Alcatel-Lucent TeleHealth Manager has been cleared by FDA
QCOM’s Skifta application allows users to share their media through their phone when on a friend’s LAN
FrontPoint security and Alarm.com applications monitor home security systems
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Devices Move Into the Cloud
Gaming
OnLive and Playcast experiment with Cloud Gaming: 1 Mbps for 640 x 480 resolution.
Personal Media
Ultraviolet creates new open standard for digital lockers backed by Warner and Microsoft. Disney also pushing “KeyChest.”
Streaming Multimedia
Brick-and-mortar retailers entering digital distribution: Walmart acquires VUDU, Barnes and Noble invests $140 million in e-book distribution.
Cloud
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 21August 2010Pay TV’s Uncertain Future
Applications Moving from Passive to Interactive
Cu
sto
mer
Att
ract
iven
ess
Interactivity
HIGH
LOW HIGH
Standard Def
VoD
UGC on TV
Social Networks
Webon TV
Catch-UpTV
InteractiveTV Content
DVR
AdvancedEPGs
ExclusiveContent
3-D TV
ApplicationStores
NPVR
T-Commerce
High Def
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App Store for the TV?
Consumer pays for app via iTunes
Apple takes 30% of the revenue
Apple sends 70%to developer
on a monthly basis
In the iPhone world In the video world
Consumer
ContentOwner
Rights Holder
App Developer
Operator
Consumer
Talent
Sports Leagues
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 23August 2010Pay TV’s Uncertain Future
3-D TV Wheel Has Begun Turning
• Television Channels: ESPN, Discovery, Sony and Imax all working on 3-D channels
• Recording Equipment: Panasonic pushing AG3DA1 line of inexpensive 3-D cameras
TV Sales 3-D Content
Peripheral Hardware Sales
Consumer Demand
• Price: Panasonic 3-D sets priced at nearly a $500 premium over similar HD sets; price decreases as TVs scale
• Glasses: Active shutter glasses currently $100; manufacturers developing auto-stereoscopic displays
• Blu-Ray: Panasonic bundling 3-D Blu-Ray player with 3-D TV for roughly $3,000
• Game Consoles: PlayStation 3 introduced 3-D through firmware upgrade; Nintendo 3DS demoed
• Apps: Motorola ensuring that STB applications are visible in 3-D
• Consumer Survey: 34% of consumers think 3-D is “highly important” to their next TV purchase decision
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 24August 2010Pay TV’s Uncertain Future
How HDTV Content Is Viewed
Base: People with an HDTV set at home; asked in Wave 4
How do you view HD content on your TV? Select all that apply.
13%
2%
13%
13%
16%
27%
53%
15%
6%
7%
15%
16%
17%
53%
0% 10% 20% 30% 40% 50% 60%
Don't know (n=810)
Other (n=810)
Download or stream HD content from the Internet andwatch it on this TV (n=810)
Access free HD over the air through an antenna (n=810)
Never used HDTV set to watch anything in high definition(n=810)
Watch Blu-ray discs (n=810)
Subscribe to HD channels (and pay extra) (n=749)
2009
2010
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 25August 2010Pay TV’s Uncertain Future
Agenda
Business and Strategic Issues
Radical Redesign of the Home and Services
Key Takeaways and Q&A
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 26August 2010Pay TV’s Uncertain Future
Key Take-Aways
• The pay TV market is on the cusp of radical change as new forms of competition put pressure on traditional business models
• Cord cutting already is appealing to a small niche audience and will grow with consumer recognition of alternatives
• The TV will be the most important screen in the household and will take on new roles
• Gaming consoles and the associated networks represent the greatest threat to traditional pay TV
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 27August 2010Pay TV’s Uncertain Future
Q&A
Vince Vittore, Principal AnalystService Delivery Architecture, Broadband, RegulationBlog: http://blogs.yankeegroup.com/author/vvittore/Twitter: @vvittoreRecent research: “A Tale of Two IPTV Telcos, Revisited” & “Service Providers Put Interactive TV Advertising to the Test”
Dmitriy Molchanov, AnalystAccess Devices, Converged Consumer Applications Blog: http://blogs.yankeegroup.com/author/dmolchanov/Recent research: “Mobile Broadband's Next Big Push” & “2010 Anywhere Device Index: Identifying the Next Game-Changer”
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