Can OTT players really beat pay TV operators at their own game?

By Tony Brown

With the “over the top”-content game attracting IT giants, such as Apple and You Tube, huge regional players, like Tudou and Yukou in China, and many other global media brands, it’s not hard to imagine that the world’s pay-TV operators could get pushed aside in the battle for consumers’ wallets.

That is, until you take a step back from the hype and talk to hardened pay-TV executives, who say OTT players are in for a mighty shock if they think that getting subscribers to part with their hard-earned dollars in return for access to video content is anything but hard work.

“This idea that some of the OTT players are going to come in and part the waves and suddenly start pulling in billions of dollars in online-subscription revenues is laughable,” an executive at a successful local IPTV operator told Informa Telecoms & Media.

For a start, the operator says, the likes of You Tube and other global video sites have been able to make a name for themselves only by giving away content, a large amount of which they don’t own, to viewers.

“If we went out into the market and gave our product away for free with virtually no revenue model in place, then we would go out of business,” the executive says.

“The hard part about pay TV …. is getting people to pay for the content, and none of these guys, with the obvious exception of Apple, have been able to do that or even look like they have any idea of how to do it.”

“People hate paying for things online,” he says, adding that the young people who consume the most video are the most resistant to paying for content – assuming they can pay at all.

The executive says that, despite the hurdles, OTT players will nonetheless have no alternative but to pursue subscription-based rather than advertising-based business models, because “we have already seen that advertising-based OTT players do not work.”

As a result, the executive says, OTT players are gradually getting pushed into an area where they are “just another pay-TV operator” and will experience the same frustrations that have been felt by pay-TV operators since the industry’s inception.

Rude awakening

Another local pay-TV executive, this time from a cable-TV operator, also says that OTT players face a rude awakening once they get down to the hard work of extracting money from subscribers.

“The only way to really run a pay-TV operation is to have a guaranteed level of income every month – and that means getting subscribers to pay a set monthly subscription over a fixed term,” the executive says.

“That is not an easy thing to do because people are naturally resistant to getting drawn into contracts. But you have to figure out a way to do it or you won’t have a business.

“If people have to try and survive mainly on a VOD revenue model, then it becomes very difficult, because you will have very little idea what your revenues are going to be from month to month, and that creates uncertainty.”

The executive says that this is where the physical assets employed by a pay-TV operator, such as retail stores and trained sales staff – neither of which is available to OTT players – are invaluable in helping build subscribers’ trust enough so that they take out annual contracts.

“We spend an awful lot of money on sales and marketing to bring subscribers on board,” the executive says. “Are the OTT players really willing to do that? I don’t think so.”

In addition, the pay-TV operators say that in a market environment in which subscribers increasingly want to be able to access content on multiple viewing platforms, only operators with established technical resources will survive.

“It costs us an awful lot of time and money to make our content available across all of our different delivery platforms,” the IPTV executive says.

“There is a huge amount of back-end technical work that goes on to make sure that content appears in the best-possible quality across the different platforms, and that is not something that can be done by just anyone.”

Let’s be friends

The bottom line for those grizzled executives of the pay-TV industry is that OTT players are kidding themselves if they think they can generate more subscription revenues online than pay-TV operators already do over cable, DTH and IPTV.

“This business is all about capturing exclusive content, which costs a lot of money, and then packaging it right so that people become willing to pay for it,” the cable-TV executive says.

“What kind of content do these guys [OTT players] really have on board that they think people are going to pay for on a regular basis?”

Instead, say the operators, OTT players should acknowledge the hurdles they face and seek to work with pay-TV operators by looking at building their offering into a pay-TV operator’s platform and hammering out a revenue-sharing deal with the operator.

Such a deal would obviously be problematic given the different backgrounds and competitive needs of OTT players and pay-TV operators. But it is clear that collaboration between pay-TV operators – the gatekeepers of the market’s pay-TV riches – and expansion-hungry OTT players might be worth considering for all parties.