How Soon, How Significantly, Will Online Video Displace Video Service Revenue?

A new ABI Research (News - Alert) study suggests that nearly 20 percent of online video consumers consider online video as a replacement for entertainment video subscriptions. That obviously represents “significant risk” to the traditional video entertainment business.

ABI Research suggests the magnitude of potential revenue loss could range as high as $16.8 billion in the U.S. market, for example. Telcos won’t face those issues, as they are predicted by virtually every study to continue taking market share, as cable TV operators and satellite providers continue to lose market share over time.

But at least one analysis has satellite providers overtaking cable TV providers in revenue in 2017. 


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So the near term trends might not be “linear,” as some forecasters still project cable TV operator and satellite provider video revenue growing for a period, Digital TV Research forecasts.

But a change that shaves as much as $17 billion from U.S. providers would seem to be a longer-term danger, as ABI Research also suggests U.S. video entertainment penetration is dropping at a rate of about 0.5 percent per year through 2017.

Ignoring changes of market share between the contestants, a loss of perhaps half a percent a year of subscribers won’t make a large dent in a revenue stream that collectively represents more than $90 billion in annual revenue.

If the number of subscribers were directly related to the amount of revenue, then a half percent a year decline would represent perhaps $450 million in lost revenue each year. At such rates, it would take decades before service providers lost $17 billion.

The study also notes a larger longer-term opportunity, namely that 30 percent of online consumers currently buy entertainment video service. Those consumers use both entertainment video services and over the top services, but don’t immediately see the value proposition for online video as an effective substitute for video entertainment service.

The big unknown is what other changes might happen. Will there be a mass introduction of lower-priced subscription alternatives that effectively reduce the value of over the top alternatives?

How fast will some networks embrace over the top delivery? Will housing trends change in ways that automatically boost the potential for additional video purchases? Will use of multiple new screens (smartphones, tablets) create a large enough potential audience that some networks will take the risk of selling direct?

As always, it seems, the actual potential for video service abandonment is less certain than it might seem, in the near term.