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How logical – watching transfers to online – so naturally TV prices rise?

A major survey from Price Waterhouse Coopers (PwC) out this week suggests that Netflix has reached a kind of penetration equality with pay TV in the US.

Bizarrely UK analyst group Ovum suggested this week that video revenue at Amazon next year will overtake Netflix to generate $5.8 billion while Netflix will only reach $5.3 billion. It reaches this conclusion by adding up Amazon  subscriptions, digital rentals, electronic sell through, including all DVD sales, and bundles of TV apps and most of Prime revenue.

Let’s dismiss the second of these claims first. Amazon is mostly growing in physical sales, by increasing its market share here, from physical retail. Amazon will suffer, along with everyone else, when physical media purchases fall by the wayside in the future in favor of streaming.

Ovum also included all fees from Amazon’s Prime bundle, but in different countries this purchases different things. In Europe most Prime members do not access Prime video at all. They may, in the future, but until more devices can show Amazon Prime on a TV screen, that will be held at bay. Prime membership in the US and Europe is perceived to be for free delivery, and the video is free if you want to watch it.

Funnily enough this week Amazon launched its app for the Apple TV in over 100 countries, and this is being heralded as breakthrough for Prime Instant Video and the Grand Tour in particular.

Amazon does not releases numbers on video viewing and until it does, all suggestions that it does lead or will lead Netflix in streaming has to be taken with a pinch of salt. The two operate very different strategies and really they are not to be compared end to end.

Back to the PwC report. Here the power of Netflix is celebrated rather than being overtaken, suggesting that as pay TV in the US falls for the first time to 73% of US homes, that Netflix too has reached 73% penetration. We’re not sure how this calculation was done either – just the results of surveying 1,986 US citizens aged 18 to 59, with annual household incomes above $40,000.

Well if you take all households, then the US has around 117 million of them, and 73% would imply about 85 million subscribers. Netflix reported just 52 million, and given that the top 4 or 5 pay TV operators report something closer to that 85 million, we’re not sure of the relevance of such a survey in a broad count like this – the data is clearly skewed and instead of hiding that skew, PwC has emphasized it. It could also mean that the $40,000 cut off is critical in making these numbers add up, and weirdly that could mean that people with household income below $40,000 tend to take pay TV instead of Netflix, and that’s not an idea we can subscribe to either.  The numbers are simply skewed towards regular online users, so presumably the interviews were online.

According to the survey 73% of respondents subscribe to Pay TV, and that number is down from 76% last year and 79% the year before. Perhaps more interesting, and rather terrifying if you are Comcast or Charter is that 82% of sports fans say they would end or trim their pay TV subscription if they no longer needed it to access live sports. Disney is planning to make that true over the next year or so by offering sports services OTT, which is very poor news for conventional pay TV.

This week Comcast gave out increased pricing for 2018. Including hikes in pay TV, internet and even its OTT service Instant TV up roughly 10% and pay TV up 5%. It even increased the price of cable modem rental. Cox is reported as following suit with rises of $2 to $4 for each internet subscriber band and a raise in pay TV as well. It looks like the scrapping of Net Neutrality has triggered a new approach – which is basically to put up pay TV prices in order to trim even more of those customers, perhaps shifting them towards skinny bundles that need the internet, and then get the money back by making broadband a little more expensive because it has inelastic demand,

Elsewhere around the world the trend in broadband pricing is universally downwards. How long can the US be out of kilter? Well how long can it ignore Net Neutrality, same question.

Is this the kind of investment that the FCC was hoping for when it cut Title II for broadband? Investment by consumers paying more to get the same poor service they had last year.

DirecTV and Dish are also thought to be preparing Pay TV increases for most packages in early 2018.

The other result from the PwC survey is that 75% of consumers suggest that they don’t want any more than 4 OTT services once they cut their pay TV bundles, because that many UIs are too confusing.

Meanwhile, the drift to OTT content is inexorable, with a 5% rise in those

watching TV over the internet in the very young, up to 87%, and a massive 15% rise from 48% to 63% among the very old (50 to 59). It just adds up to the constant pressure that conventional broadcast TV is under, and in 2018 it will no longer be worth a headline if any other surveys suggest that online viewing is going up. Of course it is.

Finally the PwC survey concluded that in order to succeed, brands should engage with users through second screen usage, by which they mean social media. Because 64% of people communicate with friends about a show while they are watching it, using a second screen, and because 55% always or usually use a mobile device while watching TV, a 19% rise over last year. Why can’t they simply advertise in the primary video?

But advertising needs to be less burdensome, more engaging

and more relevant says PwC. Focus group respondents say that many streaming services show “the same commercial over and over,” and this is “annoying,” they also prefer longer ads up front, and fewer interruptions in the content.

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