Video: Not Cord-Cutting but Cord-Complicated

Yesterday I blogged a bit about mobile video and mobile viewing behavior, and today I want to follow up with some commentary and data on the fixed-line side of OTT video.  The industry data shows convincingly that channelized consumption of video isn’t dropping even for fixed-line customers, but my own modeling and research shows that’s not necessarily the case.  You have to look deeper to get the real situation, and you have to look at households rather than people.

You can divide households into three primary groups; those with children living at home, those where young adults are independently living without children, and those where children have grown up and moved away.  My data continues to show that the viewing habits of two of those three groups has remained fairly constant; you can likely guess that it’s the independent adults who represent the force of change.  The fact that this group is the smallest of all is part of the reason why industry viewing data doesn’t show a significant behavioral shift.

If you look at the independent adults group (unmarried, married and childless, group living) you find that this group consumes about five times the quantity of OTT video that the rest of the groups do, to the point where it actually exceeds their channelized viewing.  However, most of this is consumed while the people are away from home.  While at home, they consume somewhat more OTT than the other groups, but not a lot more.  They do, however, consume a lot less channelized TV, and this is the group that provides most of the cord-cutters.  Why?  The viewing data shows that this group watches primarily sporting events and late-night TV.  They are in their social prime-of-life and their entertainment activities are focused on “going out”.  They were never much for TV to begin with, and so their own viewing habits haven’t changed much either—which is the other part of why industry data doesn’t show a change.

If we dig a little deeper into this, we find what I think is the interesting stuff.  The independent adults group, when they watch something other than sporting events, etc. tend to watch a potpourri of documentaries, movies, and other shows.  About a quarter of their viewing is stimulated by social referral, the same process that drives them to share links to YouTube videos during the day or even when out at a social gathering.  The remainder is essentially ad hoc diversion, and here we find something interesting.  Since 2008, there has been a steady slippage in the number of viewing hours spent on channelized material in this ad-hoc viewing category.  This year, my model says that this group will watch as much full-length material in ad-hoc episodes as they watch channelized material.  Since people with children in the household watch more TV and there are more of them, this little shift in ad-hoc independent adult viewing hasn’t been noticed much.

The issue for this group is the “nothing-on” problem.  Remember that ad hoc viewing is to fill a specific time slot, a whim.  That generates two problems for the viewer; first that the whim may not come at an hour boundary and so channelized material isn’t aligned with their period of interest.  Second, the material in a given time period is what it is; if you aren’t planning viewing ahead of time you have to accept what you find—or go to OTT.

TV provider VoD doesn’t answer the question of “what’s on” for this group either.  Most VoD users are either supporting child entertainment or catching up on shows they usually watch and have missed.  The independent adult group doesn’t have scheduled viewing except for sports, and most say they are less interested in watching a game non-real-time because they know the outcome.  So this is where watching a movie on Amazon or Hulu or Netflix comes in.

Another interesting point about this independent adult group and its ad hoc viewing is that they say the biggest problem they have isn’t the material itself but finding it.  Nearly all say that they don’t like the channel guides their TV provider offers for VoD because it’s hard to find something.  If you want a TV show you need either to know the network it’s on or find it through laborious keypad manipulation.  This group is therefore the group that wants integration of phones/tablets with TV—not to pick a channel but to find videos on demand.

They’re also the group that drives the integration of the Internet and TV, the group who Apple and Google target with their TV offerings.  Because this group gets a big chunk of their viewing time on mobile devices, and in terms of number if discrete videos watched gets most of it that way, they’re accustomed to online navigation and browsing for things on their gadgets.  For them, the ideal would be to simply “switch” the video to the big screen when they were near one (which, sadly for them, violates the licensing rules of most video distribution agreements).  The tech-savvy among them are virtually the only people who set up their TV as the external monitor of a computer so they can navigate to videos without restrictions.

There’s more, though.  In families with children, the consumption of OTT video increases when the children reach about age 10 (because they get their own appliances).  What’s happening here is that the kids are in their rooms or on the deck or even in the living room with a headset watching their own thing.  This drives up OTT consumption, but doesn’t drive down channelized viewing because the household still has other members “watching TV”.  It’s for this reason that cable companies see the congestion created by OTT as a greater threat to their business model than the cord-cutting.  People aren’t really cord-cutting in any significant numbers, and likely won’t be even as far out as 2020 when my model runs out of steam.  But they are very likely to keep increasing OTT use, and that means that the return on infrastructure is lower because per-user consumption of capacity is higher.

So there we have it.  OTT video is a threat, but not to the revenue side.  It’s a problem for return on infrastructure, and ROI in that sense is already in deep brown.  This is the problem that the real NGN will eventually have to solve; the problem that what most think is the “NGN”—the Internet—has created.

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