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Changing Channels

Forget about Disney’s push to produce original movies and short videos for its new streaming service due next year. Ignore the rumors about Walmart’s expansion of VUDU to include an $8 per month subscription video on-demand option (SVOD) starting this autumn. Pay no attention to ZenithMedia’s forecast, which predicts that Americans will be watching 84 minutes daily of online video by 2020 — up from 67 minutes today.

These developments augur a seismic upheaval in how Americans consume video. Live TV is no longer the favorite option, even among former couch potatoes in the “over 55” age bracket, according to a Hub Entertainment Research report in July. Among young viewers (ages 18 to 34), only 26 percent say live TV is their “go-to” viewing preference.

“We’ve been watching live TV drop steadily as a default source since we first conducted this study in 2013,” explains Hub Entertainment Principal Peter Fondulas. “This is the first year where we’ve seen a sharp drop among older consumers too, which has huge implications for the monetization of linear TV.”

Meanwhile, streaming video has already anointed its top tier of services, as identified in comScore’s report: About 47 percent of homes use Netflix; 32 percent use YouTube; 23 percent watch Amazon Video, and 18 percent for Hulu. Stunningly, comScore’s State of OTT found that eight over-the-top services (including those four) are watched by at least 10 percent of U.S. households. Of the 70 services it tracks, about 25 attract fewer than one percent each.

Talk about fragmentation! That level of viewership makes the most arcane cable channels look robust. These reports trigger follow-on analysis about how the streaming and OTT markets are shaping up, and what’s ahead for the multiple technology and content vendors who plan to plunge into these sectors.

The Leichtman Research Group’s interpretation of “symbiotic relationships” focuses on the role of connected devices. LRG calculates that the typical U.S. home has 3.8 devices (smart TVs, tablets, handsets, computers) through which they receive digital content. That’s far more than the number of cable or satellite set-top boxes.

The ZenithMedia analysis examines how increased access to OTT will rearrange the advertising market, beyond experimental efforts. By 2020, online video ad spend will reach 23 percent the size of broadcast/cable ad buying. That’s up from 14 percent last year, says ZenithMedia, and indicates the appeal of digital advertising to marketers.

Policy-making changes also could affect the media landscape. Rep. Steve Scalise (R-LA) introduced the Next Generation Television Marketplace Act to eliminate the Copyright Act’s compulsory license provisions, including “must-carry" requirements that have created scantviewed cable bundles. Broadcast lobbyists have previously killed similar proposals. It’s hard to predict how such positions will fare with the arrival of ATSC 3.0 “nextgen” technology, which broadcasters envision as their ticket to new digital services.

Confusion Abounds

As with most transitions, the slide from linear TV to OTT/streaming is laden with consumer confusion. A recent Telaria evaluation found three-quarters of cable subscribers don't realize they could watch streaming services that offer live programs which, they believe, can only be seen on conventional linear TV. Hence, many of them are “cable keepers” — retaining their subscriptions even though they don’t have to do so.

In its report The Last Strand: The Final Obstacles to Cord Cutting, Telaria advises that, “Consumers need more education on how they can navigate the myriad streaming options. Consumer confusion is live streaming’s biggest barrier to mass adoption.”

From these developments, there’s evidence that viewers will soon change the way they get their channels. The questions will be: From whom? For how much? Through which devices?

Gary Arlen