• by Daisy Whitney , Op-Ed Contributor, October 9, 2012

Nearly two-thirds of pay-TV customers don’t use over-the-top services at all, but those who do often use them to watch movies. That suggests the real digital video threat for multichannel service providers isn’t so much in cord cutting, but in their transactional VOD slate, according to an analysis of a study conducted by video discovery service Digitalsmiths of 2,000 North American pay-TV customers.

While only twelve percent of respondents said they’ll either cut or change their cable or satellite service in the next year, many are trying out other options for movie viewing. About 45% of pay-TV subscribers use other movie rental services such as Redbox, Netflix, and Amazon.com. They do so because those services are cheaper (63% cited this reason), more convenient (42%), have a better selection (33%), and the movies are easier to find (28%).

“Most consumers don’t look to OTT solutions as a replacement for cable, but as a supplement which cuts into pay-TV providers’ bottom lines, especially in the form of lost VOD revenue,” Digitalsmiths said in its report. “Despite pay-TV providers’ heavy investments in their VOD catalogs and the marketing of these services, VOD revenues continue to disappoint. When asked how many VOD purchases made from their service providers’ catalogs every month, 78% of respondents said zero and only 10.5% made two or more purchases.”

That’s partly because on-screen guide navigation has traditionally lagged on cable and satellite providers. About 61% of respondents said they don’t use their providers’ search functions, and 87% said their providers don’t recommend TV shows or movies to them, as services like iTunes and Netflix do.

Digitalsmiths also said that of the subscribers using services such as Redbox, Netflix, iTunes or Amazon, more than half watched or purchased one to three movies per month. That means pay-TV providers miss out on about $3 to $15 per subscriber across half of their subscriber base, representing millions in lost revenue, Digitasmiths said.

Of course, Digitalsmiths is in the business of offering video discovery solutions to multichannel providers so it has a vested interest in selling its video discovery solutions to them. Even so, the study provides useful insight into the mind of the consumer and the willingness to turn to other avenues for movie viewing. Cable providers were first to market with movies on your schedule via VOD, but they haven’t done as much as they could to push those offerings even as other newer ones have come to market.

There’s money to be made by someone. Digitalsmiths said if half of a provider’s one million subscribers made two monthly VOD purchases at $3 each, the provider would generate an additional $36 million annually.

Who’s going to get those dollars is the question.