Value chain dynamics and evolving consumer demographics in the American television industry

Abstract

The American television industry has always been one of very fast 'clockspeed,' characterized by the rapid pace of innovation and the emergence of new business models. This has never been truer than now. The entrance of low-cost, viewer-tailored, subscription-based Over the Top (OTT) video-streaming services has shaken up the complex, vertically integrated television distribution industry that has long been dominated by the traditional Multichannel Pay TV (MCPTV) providers - cable, satellite, and telco operators. As a result, industry watchers have become fond of proclaiming the end of the MCPTV industry. What viewers, in particular the youngest generations (Millennials), want in their television viewing experience has also changed in recent years. The entrance of OTT, along with industry changes - like new net neutrality rules governing ISP behavior - has coincided with a permanent change in television viewing behavior. This raises the question: "What will happen to the distribution of subscribers, and hence value, in the television market as the preferences and demographics of the consumergroup evolves?" How the dynamics between OTT and MCPTV, in light of continuous industry change and evolving preferences, will effect the distribution of subscribers in the market, and therefore the success of either the entrant or incumbent, is the focus of this thesis. This questions has been explored using a system dynamics model of the attributes that affect the relative attractiveness of either OTT or MCPTV, and hence subscriber distribution. The key lessons that emerge for firms include: the attributes that consumers value most have a significant impact on the attractiveness of the product, and should be of primary importance to firms; high consumer price sensitivity does not effect OTT and MCPTV equally; and, should net neutrality be completely done away with, MCPTV providers, in their dual roles as ISPs, have powerful strategic tools, in the form of control over internet price and speed (which directly affects OTT price and speed), at their disposal. Based on the results, and empirical observations of industry dynamics so far, co-existence, in some form, between the incumbent and entrant is the most likely outcome (in the Incumbent's Dilemma framework).