How the TV Industry Can Make Up Lost Revenue Dollars

In the world of over-the-top video (not to mention here at GigaOM), one of the hottest topics is cord-cutting. But as more mainstream consumers look for ways to replace that $100-a-month cable bill with a “dog’s breakfast” of Netflix Watch Instantly and Hulu Plus, it’s worth examining the downstream implications for content owners in a market where video subscription dollars shrink.

Before we answer that question, let’s examine how much in subscription dollars is at stake in today’s pay-TV market. If every pay-TV subscriber in North America — about 100 million or so — decided to simply subscribe to Netflix and Hulu by 2014, the result would look something like the chart below.

OTT Impact Fig 1

Source: GigaOM Pro

The red line assumes a scenario where all of today’s cable subscribers cut the cord and subscribed to two OTT services: Hulu Plus ($7.99) and Netflix Watch Instantly ($9.99). The end result is a market where 100 million pay-TV households collectively paying $54 billion in video service fees today would end up paying, in aggregate, $21.6 billion in 2014.

Ok, ok, we know such a scenario is unlikely if not impossible, but it illustrates our point: Total subscription dollars for video go down in an OTT world. Maybe not by $30 billion, but certainly, less total dollars cascade down the content river to the creators and rights holders as OTT rises in popularity.

The point of this analysis isn’t to feel sorry for the cable provider, but to instead ask, in a world of less subscription dollars, how does the world of video entertainment make that loss up?

The chart below shows some starting points:

OTT Impact fig 2

Source: GigaOM Pro

Below I examine the four ways in which the economic value-gap left by lower subscription dollars for video will be addressed by the broader content industry:


The most obvious way to make up lost subscription dollars in an OTT wold is advertising. The problem here is the cable industry — and, ultimately, the content owners — already rely heavily on cable advertising revenue, so losing cable subscribers also has a double-whammy impact on the content owner. But as Jason Kilar said last week at NTVL, better targeting and advertising simply done smarter will result in higher CPMs. In fact, it’s likely well-targeted OTT video ads are undervalued today and will see significantly higher impression values in the future once marketers realize how much more effectual targeted OTT advertising is to the dumb ol’ world of broadcast TV advertising.


The TV industry is experimenting with premium on-demand, looking to make movies available at home in the theatrical window or soon thereafter. Recent research from GigaOM Pro shows that consumers are interested in early or same-day rentals, but purchase intent is largely dependent on how big the “premium” is for the luxury of an early viewing.

Live Content

One of the competitive weapons content owners (and cable MSOs today) hold in the battle today is live content — sports, dramatic vote-driven reality shows, etc. Here, watching events unfold in real-time is part of the excitement for consumers. While this type of content will likely be a mainstay for pay-TV providers who can currently pay billions for rights, savvy owners of such content today (such as Major League Baseball) are already monetizing it well through online subscriptions and premium day-of purchases. Overall growth of liveInternet video is expected to reach 323 million by 2014.

TV Commerce

One of the ways lost subscription dollars will be made up in the future will be through commerce on TV. With smart, connected TVs that integrate social overlays on top of lifestyle TV, the possibilities for commerce — such as group- or friend-influenced purchasing of goods and services — becomes a viable monetization engine in the future. Content owners can possibly participate directly in TV commerce through making their content channels effectively commerce channels and taking a cut of sales.

Question of the week

How can the TV industry make up the lost revenue caused by demand for OTT?