• The Virtuous Cycle of Broadband, CTV and OTT Will Accelerate

    Over the past few years a powerful virtuous cycle of wired broadband Internet access, connected TV and over-the-top premium content has taken hold, disrupting the traditional TV and pay-TV industries. This virtuous cycle is going to accelerate going forward, causing further instability for established providers and significant opportunity newer entrants.

    Robust broadband is the foundation of the virtuous cycle. Today Leichtman Research Group reported that U.S. homes subscribing to broadband cracked the 100 million level for the first time. Big cable TV operators, who have been offering broadband for 25 years, are the winners, now accounting for 67% market share, vs. 33% for big telcos. That’s up from a 64%-46% split 2 years ago in Q3 ’17. Big cable TV operators continue to gain subscribers (830K in Q3 ’19, up 14% vs year ago) while telcos continued to lose them (down 225K in Q3 ’19, the biggest quarterly loss in over 3 years).

    Over the years broadband has become better, faster and more feature rich, making it an ideal conduit for high-quality video. No surprise then that tens of millions of homes have responded by buying one or more connected TVs (either inexpensive devices, smart TVs or other games consoles, etc.). In separate research a few months ago, LRG found that 74% of US TV homes had at least 1 CTV, up from just 24% in 2010. 31% of adults in U.S. homes watched TV via a CTV daily, up from just 1% in 2010. No doubt homes with multiple CTVs (like mine) will further become the norm after the upcoming holiday season.

    CTVs have been the most popular way to view OTT content for several years, and their dominance is growing. For example, in its Q2 ’19 Video Marketplace Report, FreeWheel found that 55% of premium video ad views occurred on CTVs, up 48% YOY. That dwarfed mobile (17%, up 3% YOY), set-top box video (14%, up 3% YOY) and Desktop (14%, down 2% YOY). The Freewheel data was roughly consistent with Extreme Reach’s Q2 ’19 Video Benchmark report, which found 50% of video ad impressions were delivered via  CTV.

    CTV devices have always been relatively inexpensive, fueling their adoption. But they’ve also gotten a lot better, with more variety. A perfect example is cross app searching and recommendations, which breaks down content silos, allowing viewers to avoid having to remember which of the many services a particular program is on. Another example are smart soundbars, which simultaneously provide video access and improved audio. Then there are the multitude of inexpensive sticks, which set up easily in minutes.

    To date, OTT premium content video content on CTVs has tilted toward paid, ad-free experiences (e.g. Netflix, Amazon Prime Video, Hulu, etc.). The billions of dollars they’e invested in programming has shown through, with Hub Entertainment research recently finding that 63% of TV viewers cite “online” as their main source of their favorite TV show.

    New ad-free services like Disney+ and Apple TV+ will reinforce this trend. But ad-supported services like Peacock, virtual MVPDs (e.g. YouTube TV, Sling TV, etc.), HBO Max’s ad-supported tier, YouTube, The Roku Channel and countless others are going to drive a new dynamic in CTV usage, especially as viewers suffer from subscription fatigue. CTV ads are exploding as Q3 earnings reports from The Trade Desk, Roku and Telaria made clear last week.

    Regardless of business model, paid vs. free, ad-supported, the sheer volume of premium video coming to CTV is going to be staggering, and an accelerant for the virtuous cycle. As ad monetization firms up, content providers will have even more incentive to commit to the CTV path. None of this is to diminish the incredibly important role of mobile devices and delivery, which have also driven the industry forward. But for good old lean-back, group viewing, CTV via wired broadband (and WiFi by extension) is going to dominate.

    When it comes to focusing on how the TV industry itself will be most disrupted, broadband, CTV and OTT are the critical ingredients, and a virtuous cycle among them is going to accelerate. All of this means cord-cutting will continue to increase alongside ongoing industry uncertainty.