The deal between Apple and HBO this week is likely to accelerate the drift to OTT video in the US. HBO Game of Thrones is set to launch in mid-April and this could create an avalanche of desire for the new OTT service.
This is perhaps not yet a final tipping point for OTT in the US, but it is certain that a new chapter is opening on the back of continued stagnation among US pay TV services. They continue to shed customers at the bottom end especially and content owners do not want to go the same route with their premium content.
Game of Thrones would be the pebble that stokes the avalanche and if live events ever appear on OTT, the drift away from conventional distribution could be irresistible as it is irreversible. Meanwhile major online players are seizing what they see as an opportunity to increase their base in the market and turn OTT into a full blown pay TV sector alongside satellite, cable and IPTV.
Naturally the operators themselves want to be part of the party, and yet do it without eating their own lunch and we find Dish Networks launching Sling TV in January 2015 with a direct appeal not to cord cutters, but to a new generation who would never subscribe to pay TV at a normal price – so called cord nevers. Significantly it is pitched above subscription VoD services such as Netflix, by offering linear channels, from Disney and Turner Networks among others, at a starting price of $20 a month.
It is available on a big range of Internet-connected devices, including Xbox One, Roku media streamers, PCs, Amazon Fire TV and Fire TV Stick, as well as iOS and Android smartphones and tablets. The basic bundle includes 16 channels, with the option to tack on extra bundles for specific genre such as sports, news and movies, for an extra $5 a month. There’s not yet any DVR functionality, but some of the channels themselves allow some on-demand viewing as well as up to several days catch up.
As Sling TV’s CEO put it, “Millennials don’t choose paid TV. So we designed a service based on how millennials consume content, with no contracts.” Now after little more than a month of operation, Sling TV is widely rumored to have garnered 100,000 subscribers, although in practice it may be less because the service is available for a week on free trial, after which some will surely cancel. Nevertheless we can assume the figure is not way over.
Perhaps of greater significance than Sling TV is the exclusive deal just announced between Apple TV and the new HBO Now service premiering in April, with a subscription available at $14.99 a month. This embraces all iOS devices including iPhone, iPad, iPod touch as well as the Apple TV box.
Almost simultaneously Sony is now saying that its planned PlayStation Vue service will be launched within two weeks in New York, Chicago and Philadelphia, while the CBS OTT catch up service called CBS All Access, will go from its early launch market to a US-Wide launch over the next two months. The Sony service is certainly seen as a direct rival to cable TV services although it too will be limited on the number of devices it is on initially.
HBO will take three months to put HBO Now onto a wide range of other devices, but such a long initial window suggests that Apple negotiated an early release window exclusive in return for putting HBO Now on its devices, to help regain momentum for Apple TV. It has been left adrift of updates as other devices, including numerous dongles have come along while the Apple TV module remains unchanged, apart that is from software updates, ever since the third generation came along in March 2012 bringing 1080p full HD support.
The hardware is now three years old and still runs on the A5 chip used in the iPhone 4S and iPad 2. Partly as a result Apple has fallen behind its two principle US competitors in rate of sales, Roku and Chromecast, even though it still boasts the highest cumulative total of 22 million, because it has been going so long. Roku has now delivered almost 12 million boxes at a rate of around 4 million a year, double Apple’s. But Chromecast has eclipsed them both in the US, storming to the front with 10 million units sold there in 2014 alone. It is set to overtake Apple’s cumulative total in the next few months.
Apple needed to reinvigorate its TV strategy and the three month exclusive window deal with HBO is a good opportunity, coinciding as it does with the fifth season of HBO’s popular series Game of Thrones. This has been almost as influential as Netflix’ House of Cards and should give Apple a big sales lift in the US on this device over the next quarter.
This is surely a good reason for Apple to up the ante in TV all round after chugging along for so long. Apple TV has become a low key offering by the company’s standards and has made significantly less impact outside the US. One key factor has been content, with behind the scenes friction over rights that has also bedevilled other big technology players trying to come in, including especially Intel, which pulled back with its tail between its legs.
Google has continued to advance on various fronts, especially of course on the A-VoD (advertising VoD) side with YouTube, but also making considerable impact with the Chromecast dongle.
Apple meanwhile had initially bitten off more than it could chew with its Apple TV plans during the first and second generations of the box between 2007 and 2012 and then decided to play a long game as it became clear that the whole TV and broadcasting industry was in the throes of a major transformation towards Internet based distribution. This transformation is still taking place, making it look like Apple will not make a major play in TV just yet, but the HBO deal indicates it will make tactical, rather than strategic moves in the short term, leaving it well placed for a major strike perhaps later this year with a product refresh. Part of the key to that will be unravelling of current right agreements and Apple’s ability to use its financial muscle to capitalise, bearing in mind that it recently made the biggest quarterly profit ever of $18 billion on a single quarter.
Evidence of the growing OTT tide has come from the 2014 pay TV data for the US, with a strong performance in IPTV masking continued decline in the mainstream cable and satellite sectors. IPTV operators between them added nearly 1.2 million new subscribers in 2014, with Verizon accounting for 387,000 of these and AT&T 478,000. Opinions among analysts vary over the overall pay TV total depending on how far down the list counting goes and whether to include OTT, but the general consensus is that there was at least a slight decline.
This implies a loss of 1.2 million or more to cable and satellite, which is why all these operators are themselves gambling on OTT to make up the numbers without actually accelerating churn from the main packages. With the powerful Internet players circling in, now is not a comfortable time for mainstream pay TV in the US given its saturated market. In five years’ time the TV market there will have changed beyond recognition and there is a growing sense that the long dormant tectonic plates are about to start shifting.