Pay TV vs. OTT part II: managed devices and networks vs. OTT

It is really interesting to me to see that as Google acquired Motorola, it has become the market leader in video head end and set top boxes overnight without many hardly noticing. It means in my mind that the previous attempt from Google to invade the pay-TV market will be much stronger the second time around when Google TV will be relaunched.

This market looks just like the mobile market 8 years ago, when device vendors all had proprietary operating systems (this is the case with set top boxes middleware and connected TVs, game consoles, net boxes...) and everyone wanted to "own" the customer.

Managed devices, Managed networks
Pay TV is traditionally delivered through a set top box to a home. Because the set top box has until recently been built upon a service provider specifications,because it was sold, rented or subsidized by the service provider, because the service provider decided what services (PVR, Electronic programming guide, search...) would go into that box, for all these reasons the set top box is seen as a managed device. A managed device runs on a managed network, as opposed to unmanaged network (e.g. the internet).
The network is called managed because the service provider controls the backbone, core and delivery, therefore guaranteeing digital rights integrity to content owners and quality of service to content aggregators and subscribers.

What happened in the last year is that managed devices such as set top boxes have become less and less managed and have offered access to OTT content via the internet. These devices are called hybrid, as they offer both cable/satellite managed services and internet access, together with OTT apps access (Hulu, Netfix...).


Unmanaged devices, OTT

Smartphones, tablets, laptops, game consoles, net boxes, connected TVs have made their appearance.These devices are by definition unmanaged or hybrid, since they are all connected to the internet.

Strategy Analytics predicts that over a billion connected devices will be shipped in the next three years, with managed devices being a very small 20% portion of the total.
This is without counting the billions of smartphone and tablets that will be sold at the same time.

OTT apps are flourishing, offering video content to consumers, without the need for a pay TV subscription, in some cases complementing the current offering (for instance, YouTube fills a need that wasn't properly served by PAY TV services) , in other cases, cannibalizing or replacing traditional Pay TV services (for instance, video on demand from the service provider is seriously threatened by Netflix, Hulu...).
Additionally, the content aggregators whose only channel was TV are now addressing directly the customer through OTT. For instance, HBO, a very successful payTV channel is now offering HBO Go, so that its subscriber can watch live, catch up and on demand programming from connected devices. For the moment, in the US, the consumers have to sign up with Comcast, Time Warner Cable... credentials to get access to the service, so the service provider revenues streams are protected, but nothing prevents HBO to go direct overnight, or to offer its programming outside the US directly to consumers...

We will see in the next post that CE vendors are also joining the fray, and we will examine an interesting new trend: companion screens.