TV Viewing is Over-the-Top

April 2015

Increasing numbers people, particularly twenty to 34 year olds, are disconnecting their cable TV service. Many have never signed up for cable TV. Instead they watch movies and television on smartphones, game consoles, tablet computers, and connected TVs. These devices are all connected to the Internet via Wi-Fi. Other cable TV subscribers “shave” the number of premium channels they subscribe to while concurrently subscribing to streaming services such as Netflix. These streaming services are referred to as Over the Top (OTT) services because they are streamed over broadband providers such as Comcast and Time Warner Cable’s networks. For the close to 50 million households that subscribe to cable TV, live sports events, though costly, are a major attraction motivating them to continue their cable TV subscriptions.

The amount of content streamed over the Internet is growing and includes content from pioneer Netflix, as well as Time Warner’s HBO Go and HBO NOW, Google’s YouTube, Apple’s iTunes, Dish Satellite’s Sling TV, and Hulu. Hulu is jointly owned by 21th Century Fox, the Walt Disney Company, and NBC Universal.

Content from these providers is available from apps on low-cost digital Wi-Fi equipped set-top boxes such as Apple TV, Amazon Fire, Roku, and video game consoles or directly on mobile devices. A few cable TV providers such as RCN and Atlantic Broadband include Netflix as a channel on their own set-top boxes. Streaming content over the Internet has been enabled by higher speed broadband to peoples’ homes, improvements in Wi-Fi, and the availability of Internet connected televisions.

The ease of connecting specialty set-top boxes and game consoles to high definition TVs along with an increasing availability of content and the reduction in the number of commercials are important factors in the adoption of streaming content over the Internet. Prior to the availability of these set-top boxes, people who wanted to watch Netflix or Hulu on high definition TVs purchased HDMI cables to connect laptop computers to their televisions. They further had to change their computer settings each time they watched Netflix on their television.

But the major factor that enables Over-the-Top streaming is the improvement in the Internet and greater capacity in broadband services available in much of the United States. Greater capacity is a result of fiber optic cabling closer to homes in many neighborhoods, higher speed processors in network gear, and features in network equipment that enable networks to carry movies and audio using less capacity than ever before by squeezing blocks of video into smaller chunks.

The attractiveness and availability of entertainment on the Internet along with escalating prices for cable TV have resulted in more customers in the United States with broadband than those with cable TV subscriptions. According to the Leichtman Research Group, there are 49,910,000 cable TV subscribers and 49,915,000 broadband subscribers in the United States. Broadband subscriber numbers increase every year at the same time that cable TV numbers shrink.

Cultural and behavioral factors are key enablers of this trend. College students who are accustomed to getting entertainment via their computers often don’t subscribe to cable TV as they enter the work force. Kids and teenagers assume they can watch TV shows and play games on tablet computers, laptops, and smartphones. They spend more leisure time on social networks and less time watching traditional television.

 

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