The Coming Disconnect

March 17, 2015 2:03 pm
Disconnect

There is a standoff looming between two potentially opposing trends. Depending on how things evolve, the result will either be more content choices for consumers and better viewing experiences, or frustration and untapped potential. We call it The Great Disconnect.

I am talking about the growing availability of unbundled TV content vs. ever-improving video standards, and the Internet that sits in-between. Will current technology deliver on the promise of more choices – or will a disconnect compromise user experience and slow cord cutting growth?

The Growth of OTT and Decline of Cable TV

What started as a trickle of streaming TV is now becoming a flood, even a Tsunami. Just a few months ago, these kinds of announcements where here and there, and sounded more like the big players just testing the waters with all sorts of OTT business models.

But now, this density of strategic moves such as the launch of Sling TV in January (by Dish Networks – a traditional Satellite TV provider), followed by deals like the HBO / Apple TV exclusive, and then even old school broadcast plays like CBS fearlessly jumping in the game, it is becoming a completely different story: OTT is going mainstream and becoming a real threat to traditional cable TV.

It is no longer just the young, ambitious Internet companies like Netflix and Hulu trying to disrupt the market, but now the heavy hitters are fully in the game too, assuming huge risks to their own traditional broadcast, cable and satellite TV businesses, which still account for much of their revenues.

The fact that the trend is now becoming a watershed became clear following last week’s Wall Street Journal story Streaming Services Hammer Cable-TV Ratings, which said: “The primary reason for the steep fall-off in viewership {across many cable TV networks]… consumers are spending more time watching subscription streaming-video services like those from Netflix Inc., Hulu and Amazon.com Inc.

Rich Greenfield, of BTIG Research, says the average Netflix home is watching more than 100 minutes of the service a day. There’s ‘no doubt overall video consumption is growing,’ but subscription video-on-demand “viewing is eating into TV ratings,” he said.”

The Rise of 4K TV

On the consumption side, it is clear that standards are improving – consumers want more high quality, high resolution content. The industry is all too eager to push this trend. The research firm Strategy Anlytics just issued a report which predicts that One in 10 US homes to own 4K TVs by 2016. The growth of 4K (see our earlier post) is one of the major trends in the TV space, that will reach 50% of TVs sold in 5 years (2020) in the US (and, in some other countries even more), and that it is clearly growing and here to stay – like where 1080p was 5-7 years ago.

Can the Internet Deliver?

The Internet was designed for “best-effort” communications, not as a high-speed video delivery network. True, it has evolved, and broadband speeds have increased, but so have the challenges, especially when it comes to ensuring the best user experiences for all those HD and UHD OTT services.

Rony Klein addressed this in his post about Going the Extra Mile to the Last Yard, which highlighted the bad things (like congestion and constant packet loss) that can happen to good traffic.

It appears that recent development, like the FCC’s net neutrality ruling, and HTTP’s 2.0 upgrade will not significantly improve streaming.

So where will this standoff end? Will there be a great disconnect? We’ll be revisiting this topic soon so, stay tuned, and feel free to share your thoughts below.