Cord Cutting Grows Up
I’m no Millennial but I’m finally cutting the cord. The tipping point was the arrival of YouTube TV into my living room. YouTube TV launched in April 2017 and is already approaching a half-million subscribers. This despite the fact that its release was (initially) geographically limited as was its support of living room devices. But, unlike its clunky competition, it has managed to truly replicate the cable TV experience attracting all the networks and major cable channels. Its growth has been slow and steady to date but its increased availability points to even greater traction in the months to come. And, given that it represents a real, seamless cost-saving alternative to the cable box with no live TV workarounds necessary, the cord cutting revolution is about to truly take off.
YouTube TV’s ascent in what is called the vMPVD (Virtual Multichannel Programming Distributor) market only adds to the gloomy outlook facing the TMT sector — to say nothing of the troubles facing traditional, mature cable networks. Cord cutting shows little signs of slowing down. U.S. cable, satellite and telco operators lost between 3.1 and 3.5 million subscribers last year, which is ominous considering they “only” lost 1.9 million in 2016. In fact, since 2010 it’s estimated that 13.5 million users have left the pay TV ecosystem while the Big 5 vMVPDs (Sling TV, DirecTV Now, Hulu Live, Sony PlayStation Vue and YouTube TV) finished the year with around 4.6 million subscribers after adding 2.6 million more in 2017.
But these numbers represent just a fraction of what’s to come.
Now that there is a real, seamless alternative to cable, the profile of the typical cord cutter will also begin to change. They’ll look more and more like me. It won’t just be about Millennials any more. Average, middle-aged Americans looking to save money will increasingly flock to vMPVDs, like YouTube TV, particularly when the only notable difference between their experiences is a monthly bill that’s less than half of what they’re used to. I’m clearly not alone in this belief. One need look no further than Nancy Dubuc’s recent departure from A&E for Vice Media; a move which suggests that the proverbial writing is on the wall for the best and brightest in the executive TV ranks as it relates to the turbulence the TMT sector and cable channels now face.
The obvious correlative to mass adoption of vMPVDs is an uptick in the kind of digital disruption that should lead to an OTT arms race and, ultimately, industry consolidation. That’s why, now more than ever, I’m bullish on enterprise B2B platforms and SaaS solutions for OTT. Companies like Spectrum and Cox will be on their heels in 2018 while the Netflix and YouTubes of the world will be out in market big game hunting. And while behemoths like Disney, Fox, Time Warner and AT&T may steal all the headlines with their M&A activity, there is real opportunity for those smaller companies who had the foresight and did the hard work to enable this OTT revolution. These are companies that are not, perhaps, household names but represent the guts and rigging of the OTT and vMPVD space.
Zype, a video business platform that Revel first invested in in 2016, is a perfect example. They target content creators, big and small, and provide them with the plumbing to get in on the OTT revolution offering everything from analytics and encoding to multicasting and distribution all within a single SaaS platform. On the content side fuboTV has been able to carve out a market for itself in the incredibly competitive arena of sports by targeting passionate fans, live events and local markets. And, in what is surely a sign of things to come, OTT and IPTV software solutions provider, Anevia, recently acquired video compression software expert, Keepixo, to boost its content-aware encoding capabilities vital to consumer satisfaction with OTT content. As another perfect case in point, just this past week Endeavor acquired streaming provider NeuLion for $250 million.
These sorts of companies powering the ecosystem or owning niche content markets will become increasingly valuable as the market becomes more saturated, winners and losers are declared and the attrition TMTs and cable companies face becomes unsustainable. Those pay TV companies on their back heels will need these enterprise B2B platforms and SaaS solutions to compete. Beyond that, these same platforms and technologies will be well positioned when consolidation arrives.
It doesn’t seem so long ago that companies like Cablevision and Time Warner were the only game in town, but with the likes of YouTube TV and others now gobbling up my fellow cord cutters, the pressure is on. And with that pressure comes real opportunity for those who’ve shown foresight in the OTT space.
