The evolving value chain in the television industry : changes in pay TV delivery and its implications for the future

Abstract

This report studies the television industry in the US, and the changes that have taken place in the industry in the last decade. Specifically, it looks at episodical TV content delivery and consumption - excluding movies, sports and live programming. The study uses 2005 as a reference point, marking the end of the pre-online video era. The industry followed a "content push" model, with channels programming the content for viewers based on their understanding of viewership, timings and preferences. The study shows that the large cable TV operators enjoyed the maximum value capture in the industry. This business had a high barrier for entry due to the expensive dedicated video delivery infrastructure, and this barrier prevented new entrants into the field. Following this, a study of the current state of the TV industry is done. Online video delivery has removed the high barrier for entry, and new entrants providing Internet Protocol Television (IPTV) and Over The Top (OTT) video have entered the field. Netflix, which provides OTT video, has more subscribers than any other pay TV provider. In parallel, video consumption has become more individualized and pull-based - largely due to growth of mobile consumption devices such as smartphones and tablets. Based on the study, the major changes and the underlying drivers of these changes are identified. Analyzing these drivers further, the following implications and opportunities are presented. i. Growth of "Over the Content" (OTC) services to connect people better with on-demand content. ii. Growth of new measurement technologies for online video consumption. iii. Continued pressure against bundling, resulting in more atomized content offerings. iv. Upward integration in terms of industry activities, by the delivery companies. v. Potential downward OTT offerings by the major networks. vi. Risk of avalanche decline in traditional cable subscribers.