Commentary

OTT Subscriber Benchmarks May Not Be Enough

Recent OTT news has showed two big benchmarks performances: Both Hulu with Live TV and ESPN+ have each hit the 1 million subscriber mark.

Is this a big deal -- or just a blip on the long road ahead?

For investors, a key measure is the break even point for these OTT services. Lots goes into these financial formulas -- carriage fees, programming costs and marketing plans.

Then there is data from Hulu OTT competitors: Sling TV at 2.34 million subscribers; DirecTVNow, 1.80 million. Other types of OTT platforms are doing well, such as single-network service (on-demand programming, live-streaming access to local TV stations) at CBS All Access -- with 2.5 million subscribers.

Still, all these numbers seem tiny by comparison.

Established traditional cable TV networks still hover around 80 million to 85 million subscribers -- even with regular annual declines anywhere from 1% to 3% per year.  This is why new digital OTT platforms of all types -- including single live TV networks, on-demand TV programming and bigger digital app groups of live, linear networks -- are seeking more stable consumer transitions.

By some measure, all major OTT platforms amount to 170 million U.S. subscriptions in total. That includes just under 60 million in the U.S. for Netflix. Overall, there is a lot of competition.

When looking at the entire U.S. TV household universe -- 119.9 million from Nielsen’s 2018-2019 TV Universe estimate -- that would amount to 1.4 subscriptions per household.

Now legacy TV brands may have a slight advantage. They can look at the whole picture -- traditional live, linear network, digital platform and mobile (on-demand and linear), and perhaps others to come. A new OTT service can be a lost-leader -- for a bit of time.

Break-even goals? We can only guess the timetable for this. But some are quicker than others. When it comes to failure, consider: NBCUniversal’s SeeSo (20 months) and FullScreen (also 20 months).

Some OTT platforms also do not account for consumers’ cycling in-and-out of OTT platforms -- a so-called “churn” rate. Others want to be Netflix or Amazon. But to be honest, how many “mass-market”  OTT can you have? In the old days, you might call them “broadcasters.”

If all this doesn’t scare new OTT platforms, there is this 2013 "long-term view" from Netflix: “If you think of your own behavior any evening or weekend in the last month when you did not watch Netflix, you will understand how broad and vigorous our competition is.”

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