Shotgun wedding on the set-top

Over-the-top video platforms and traditional pay-TV distributors are realizing they need each other after all. And they can thank consumer electronics companies for playing match maker.

This week, Samsung confirmed it had acquired “key talent and assets” from Boxee, the New York and Israel-based OTT software and set-top box maker for a reported $30 million. Samsung is expected to shut down Boxee’s retail set-top box business, which has struggled in a market dominated by Roku, Apple TV and video game consoles. According to IHS iSuppli, the company sold fewer than 70,000 of its Boxee Box STBs in 2012.

Instead, expect to see elements of Boxee’s software incorporated into Samsung’s Smart Media Player, which Samsung hopes to ship later this year (the device is currently awaiting regulatory approval by the FCC). The Smart Media Play is designed to integrate linear pay-TV service with OTT video in a single, Samsung (or perhaps now Boxee) developed UI. The device includes a CableCARD slot for integration with uni-directional cable services.

If shipped as planned, the Smart Media Player will join a growing list of set-top devices aimed at marrying linear pay-TV and OTT services. Microsoft’s upcoming Xbox One, for instance, is equipped with HDMI In and Out ports that allow it to be daisy-chained to a cable or satellite set-top box. The Xbox One software enables the user to control both their pay-TV service and OTT services through Xbox Live via the same UI.

In May, video-discovery app developer Fanhattan unveiled FanTV, a diminutive IP set-top device it hopes to market in partnership with cable operators to provide their subscribers with a natively integrated linear/OTT experience.

In other cases, pay-TV providers themselves are taking the lead in integrating their services with third-party OTT devices via apps. Time Warner Cable for instance, was reported this week to be in talks with Apple about making its service available as an app on the Apple TV STB. TWC already has deals in place with Roku and with Microsoft for direct integration with the Xbox.

For consumers, the marriage of linear and OTT video is a matter of convenience. As viewers rely on a growing number of screens and devices for consuming video, the source of the programming becomes ever-less relevant to the experience of watching it, particularly as OTT services like Netflix become a more important source of original programming. Integrating those sources into a single, seamless UI simply brings the experience of discovering and accessing content up to speed with the experience of watching it.

For pay-TV providers, its more a marriage of necessity. According to a recent survey by GfK Media & Entertainment, nearly 20 percent of U.S. TV households now get by with a pay-TV subscription, relying exclusively on over-the-air signals for linear TV. That translates into 22.4 million households, representing 58.7 million viewers, a 38 percent increase in about four years.

A recent study by Nielsen identified 5 million households it classifies as “Zero TV households,” whose viewing habits do not fit any traditional category of “TV household” but who rely heavily on OTT services. According to Nielsen almost half (48 percent) of Zero TV households subscribe to one or more OTT service, such as Netflix, Hulu Plus and Amazon Prime. About 75 percent of Zero TV households actually have one or more TV sets, but they are connected exclusively to broadband service, not to pay-TV. The rest rely entirely on PCs, tablets and other connected devices for consuming TV content.

If pay-TV operators don’t want those trends to continue indefinitely they’re going to need to make their service part of a bundled user experience, whether they like the company or not.

 

 

 

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Paul Sweeting

Principal Concurrent Media Strategies

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