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No.92 - Video cord-cutting

DigiWorld Economic Journal - C&S - 01/12/2013 No.92 - Video cord-cutting

4th quarter 2013

"Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ stratégies. Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.


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Dossier


Video cord-cutting


Edited by: James ALLEMAN, Gilles FONTAINE,
Raul KATZ & Rémy LE CHAMPION



Introduction

By the Editors

Cutting the Cord: Common Trends Across the Atlantic

Gilles FONTAINE & Eli NOAM

Papers


Video-Viewing Behavior in the Era of Connected Devices
Aniruddha BANERJEE, James ALLEMAN & Paul RAPPOPORT

The Television Struggle: an Assessment of Over-the-Top Television Evolutions in a Cable Dominant Market
Bastiaan BACCARNE, Tom EVENS & Dimitri SCHUURMAN


Interviews


Terry DENSON, Verizon Communications
Conducted by Raul KATZ

Craig MOFFETT, MoffettNathanson LLC
Conducted by Raul KATZ


Extra papers


Watching Mobile TV in Constrained Telecommunication Networks

Julien FIGEAC

Next Generation Access Networks: the Post-Investment Conundrum
Ricardo GONÇALVES & Álvaro NASCIMENTO


Features



Firms and Markets
• Television 2025: Video as a Service
Gilles FONTAINE
• The New Territories of TV Market
Florence LE BORGNE

Book Review
• Ian BROWN (Ed.) : Research Handbook on Governance of The Internet
By Marco GAMBARO


Author biographies


Service section

- Events
- Publications
- Call for papers


Dossier

Video cord-cutting



Video-Viewing Behavior in the Era of Connected Devices
Aniruddha BANERJEE, James ALLEMAN & Paul RAPPOPORT
Key words: pay TV, OTT, cord loyalists, non-pay TV, cord couplers, transition among OTT segments, household demographics, connected devices, relative risk ratio.

In the United States and elsewhere, traditional sources of television programming (or "pay TV") are facing rising competition from bypass or over-the-top ("OTT") alternatives in the form of streamed or downloaded access to video content.  As a result, consumers of video content now fall into three segments:  "cord loyalists" that continue to use pay TV exclusively, "non-pay TV" that includes consumers who have cut the video cord, i.e., dropped pay TV entirely in favor of OTT, and "cord couplers" that use both pay TV and OTT.  Household demographics, use of connected OTT-capable devices, and availability of subscription-based and free streaming video services are hypothesized to influence how consumers choose to view video content.  This paper reports on an empirical study of US households to answer two questions: (1) do households transition among the three OTT segments over time? and (2) what factors determine the household's decision to stay in, or move from, an OTT segment?  Using a longitudinal survey panel of 7,655 unique households observed over three consecutive quarters in 2011 and relative risk ratios from multinomial choice models estimated using the data, the study confirms that connected devices (both their use and their variety) and certain key demographics (age, annual household income, and race/ethnicity) influence the household choice of OTT segment.


The Television Struggle:
an Assessment of Over-the-Top Television Evolutions in a Cable Dominant Market
Bastiaan BACCARNE, Tom EVENS & Dimitri SCHUURMAN
Key words: over-the-top television, cord-cutting, television market, cable television.

Traditional television screens have lost their monopoly on television content. With a helping hand of digitalization, the introduction of ever more screens in our lives and increasingly faster network technologies, a wide variety of alternative screens and sources of television content are trying to conquer a piece of the audiences' viewing time. This evolution calls for new kinds of services and has the potential to change the current television market. This paper assesses the evolution of over-the-top television services in Flanders, a cable dominant market in which several OTT TV services emerged during the past two years. By presenting an analysis of the market and the results of a large scale end-user survey (n: 1,269) we provide insights on the future of OTT TV and its impact on the current television ecosystem. In the Flemish market, both traditional broadcasters, the channels themselves and new market entrants are launching OTT TV services. These market evolutions are being related to user expectations and usage patterns in order to assess the challenges for future television. This also allows to make assumptions on future scenarios regarding so-called "cord- cutting" behaviour. Because of the high adoption of triple play bundles and fierce competition between the two dominant television distributors, a large scale video cord-cutting scenario is highly unlikely for the Flemish television market. Although OTT TV might gain importance, it will be hard for 'OTT TV-only' services to replace the traditional television distributors.


Extra papers


Watching Mobile TV in Constrained Telecommunication Networks
Julien FIGEAC

Key words: media consumers, reception, mobile TV, multimedia cell phone; mobility.

This article shows how users adopt Mobile TV in situations of mobility by choosing TV programmes that are adapted to the size of their mobile phone screens and other constraints of daily commuting, including telephone network reception problems, short time slots, etc. It illustrates how users limit "places" where it is relevant to use Mobile TV in urban environments, in accordance with mobile telephony availability, and consequently, how they re-define the places where older forms of media are used. Consumers use media, including multimedia cell phones, and contents suitable to the resources and constraints encountered during their travel times. This article thus identifies the renewal of media preferences and diverse behavioural factors in connection to telecommunication networks. It describes how this type of engagement in media activities relates to a form of strategic media attachment consisting in exploiting utilisation opportunities in augmented urban environments.

Next Generation Access Networks:
The Post-Investment Conundrum
Ricardo GONÇALVES & Álvaro NASCIMENTO

Key words: next generation access networks, revenue sharing.

Next Generation Access (NGA) networks entails significant investments but brings with it promises of a "brand new world" in telecommunications. In this paper, we provide an overview of some of its implications. In particular, we argue that it is not clear whether the "old" vertical integration model, where network operators provide end-to-end services, is likely to be maintained. But we also argue that, irrespective of that, network operators must look with increased interest at their wholesale revenue stream, i.e., at the possibility that, even if vertically integrated, profits can be reaped from providing access to (potentially rival) retail operators. Moreover, content providers will significantly increase their relevance in the future value chain. Therefore, we argue that revenue sharing mechanisms between content, infrastructure and service providers are likely to (re)emerge.


The Editors

James ALLEMAN is Professor Emeritus at the University of Colorado – Boulder and a Senior Fellow and Director of Research at Columbia Institute of Tele-Information (CITI), Columbia Business School, Columbia University.  He was recently awarded a Senior Fellowship at Institut Barcelona d'Estudis Internacional (Barcelona. Spain) to research regulation of Information and Communications Technology (ICT) in Latin America.  Dr. Alleman was a Visiting Senior Scholar at IDATE in Montpellier, France in the fall of 2005 and continues his involvement in IDATE's scholarly activities.  During calendar years 2001 and 2002, he was a Visiting Professor in the Economics and Finance Division at Columbia Business School, Columbia University. 
Dr. Alleman was previously the Director of the International Center for Telecommunications Management at the University of Nebraska at Omaha, Director of Policy Research for GTE, and an economist for the International Telecommunication Union.  He has conducted research in the area of telecommunications policy, with emphasis on pricing, costing, and regulation as well as on interconnection, international telephony settlements, communications in the infrastructure and related areas.  More recently, he has been researching the application of real options valuation techniques to network industries.  He provides litigation support in these areas.

Gilles FONTAINE is IDATE's Deputy CEO and is also in charge of IDATE Business Unit dedicated to media and digital content. During its 20 years experience in the Media sector, Gilles Fontaine has become an expert of the media economics and of the impact of Internet on content. He directed numerous studies for both public and private clients, including the EC, governments and local authorities, telcos and TV channels. Recent assignments have included a participation in the future MEDIA programme ex-ante assessment, the analysis of new video internet services economics, a long term forecast project on the future of television. He has also monitored the impact of digitization and online distribution on other media, radio, press and music. Mr. Fontaine holds a degree from the highly reputed French business school, HEC (Ecole des Hautes Etudes Commerciales, 1983) and from the Institut MultiMédias (1984).
g.fontaine@idate.org

Raul L. KATZ is Director of Business Strategy Research at the Columbia Institute for Tele-Information and an Adjunct Professor in the Finance and Economics Division at Columbia Business School. He is also President of Telecom Advisory Services (www.teleadvs.com), a firm that advises technology clients in the fields of strategy, regulation and business development.  In 2004, Dr. Katz retired as a Lead Partner at Booz Allen Hamilton, where he was a member of the firm's Leadership Team and Head of the US and Latin America Telecommunication practices. Dr. Katz received his Ph.D. in Management Science and Political Science and an M.S. in Communications Technology and Policy from the Massachusetts Institute of Technology.  In addition, he holds a Licence in History and a Maîtrise in Political Science from the University of Paris-Sorbonne, as well as a Licence and a Maîtrise (with honors) in Communication Sciences from the University of Paris.

Rémy LE CHAMPION is associate professor at Institut français de presse at Université Panthéon-Assas Paris 2.  He co-heads the School of Journalism at IFP. He is a member of CARISM (Centre d'Analyse et de Recherche Interdisciplinaire sur les Médias), a research center at the Université Panthéon-Assas Paris 2.  His research and publications focus on media economics, business models of media firms and market-driven journalism.  He has edited a book on Journalisme 2.0. (La Documentation française, 2012). Rémy Le Champion holds a Ph.D. in Economics, a B.A. in Communications and a B.A. in Sociology from Université Paris 10.  He was a visiting scholar at Columbia Business School in 1988. He did a post-doctorate study in 2000 at Mediacom Institute, Keio University, Tokyo.


The interviewees

Terry DENSON is Vice President, Content Strategy & Acquisition for Verizon Communications.  He is responsible for Verizon's content strategies and acquisition across all platforms including FiOS TV, Broadband, Verizon Wireless and Redbox Instant by Verizon (Verizon's joint venture with Redbox).  He previously was vice president of Programming and Marketing, a position he was named to in August 2004 when he joined Verizon.  In that position, Denson oversaw the creation and implementation of FiOS TV's content packaging, pricing and marketing strategies and video content acquisitions.  Prior to joining Verizon, Denson served as vice president of programming for Insight Communications where he led the acquisition of programming, in addition to the development of analog, digital, video-on-demand, high definition TV, Broadband and interactive content strategies.  Previously, as director of business development for the Affiliate Sales and Marketing department of MTV Networks, a division of Viacom International, he negotiated affiliation agreements.  As general attorney for ABC, he managed numerous content rights and distribution matters.  A graduate of Harvard University, Denson holds a J.D. degree from Georgetown University.

Craig MOFFETT is the founder of MoffettNathanson LLC, an independent institutional research firm specializing in the telecommunications, and cable and satellite sectors. Mr. Moffett spent more than ten years at Sanford Bernstein & Co., LLC as a senior research analyst.  He was previously the President and founder of the e-commerce business at Sotheby's Holdings.  Mr. Moffett spent more than eleven years at The Boston Consulting Group, where he was a Partner and Vice President specializing in telecommunications. He was the leader of BCG's global Telecommunications practice from 1996 to 1999. While at BCG, he led client initiatives in the U.S. local, long distance, and wireless sectors, in both consumer and commercial services, and advised companies outside the U.S. in Europe, Latin America, and Asia. He was the author of more than 20 articles about the telecommunications industry during the 1990s. He published analyses and forecasts of the overcapacity and pending collapse of the U.S. long distance business as early as 1998. Mr. Moffett graduated from Harvard Business School with Honors in 1989. He received a BA from Brown University phi beta kappa in 1984.

Eli NOAM has been Professor of Economics and Finance at the Columbia Business School since 1976. In 1990, after having served for three years as Commissioner with the New York State Public Service Commission, he returned to Columbia. Noam is the Director of CITI.  He also served on the White House's President's IT Advisory Council.  Besides the over 400 articles in economics, legal, communications, and other journals that Professor Noam has written on subjects such as communications, information, public choice, public finance, and general regulation, he has also authored, edited, and co-edited 28 books.  Noam has served on the editorial boards of Columbia University Press as well as of a dozen academic journals, and on corporate and non-profit boards. He is a regular columnist on the new economy for the Financial Times online. He is a member of the Council for Foreign Relations, and a fellow of the World Economic Forum. He received AB, AM, Ph.D. (Economics) and JD degrees, all from Harvard. He was awarded honorary doctorates from the University of Munich (2006) and the University of Marseille (2008).


The contributors

Bastiaan BACCARNE is a research and teaching assistant at iMinds-MICT, a research group within the communications department of Ghent University, where he works on user-centric innovation development research in the context of (new) media and ICT. Also being part of iMinds-iLab.o, Bastiaan works as a user researcher for several SME and start-up projects, with an overall academic focus on the possibilities and limitations of user-centric innovation development ecosystems.

Aniruddha BANERJEE is the Senior Vice President of Advanced Analytics at Centris Marketing Science, USA.  Dr. Banerjee currently consults on strategic and regulatory aspects of communications, media, and home security industries, and directs survey-based research of household behavior regarding products of these industries.  He has a Ph.D. in Agricultural Economics from the Pennsylvania State University, USA.  Dr. Banerjee is on the Board of the International Telecommunications Society and serves on its Publications Committee.

Tom EVENS is a senior researcher at iMinds-MICT, affiliated at Ghent University, Belgium. He has a background in Media Studies and Business Administration. Tom specializes in the economics and policies of digital media markets, and has published widely on the media business in international peer-reviewed journals and edited volumes. Together with Petros Iosifidis and Paul Smith, he co-authored The Political Economy of Television Sports Rights (published by Palgrave Macmillan, 2013). He is also books editor with the International Journal of Digital Television.

Julien FIGEAC is a CNRS Researcher at the Information Processing and Communication Laboratory, Telecom ParisTech, France. His research and publications focus on the uses of Smartphones in situations of mobility. He contributes to the development of a sociological method based on video recordings, video-ethnography, to analyze how ICT are changing the organization of social interactions and urban mobility. He has developed this method in different case studies: the uses of Mobile TV in public transportation in Paris, the modalities of participation in mobile social networking, and the forms of sociability generated by geosocial networking and location-based game.

Marco GAMBARO is associate professor of Media Economics and Economics of Communication at the Department of Economics and Business at the Università degli Studi di Milano (Italy) where he is in the board of the School of Journalism. His research interest include: television industry, digital markets, international film industry, competition in the communication markets, economics of information and advertising.

Ricardo GONÇALVES is an Assistant Professor and Associate Dean at the Faculdade de Economia e Gestão of Universidade Católica Portuguesa (Porto), in Portugal. He holds a Ph.D. in Economics from the University of York (UK) and his main areas of expertise are microeconomics, auction theory and competition policy and regulation. He has done a wide variety of consultancy work for private and public entities, both in Portugal and abroad, on several topics related to regulation and competition in the telecommunications, financial services and health sectors (among others).

Florence LE BORGNE is Director of Studies at IDATE. She is head of TV & Digital Content Practice.  Florence's prime area of focus is the development of digital broadcasting (terrestrial, cable, satellite and IPTV, mobile TV, digital cinema, video and TV on the web) dealing with both the economic and strategic aspects of those sectors, at a macro and microeconomic level. More generally, her work involves analysis of media groups' strategies.  Before coming to IDATE, Florence Le Borgne worked as head of research in the Nord-Pas-de-Calais Regional Development Agency's Economic Observation department, where she devoted herself primarily to issues relating to the Information Society, the development of telework and the mastery of key technologies.  Ms. Le Borgne is a graduate of the Lille school of management EDHEC (Ecole des Hautes Etudes Commerciales).
f.leborgne@idate.org

Álvaro NASCIMENTO is professor of Finance at Universidade Católica Portuguesa, in Porto, Portugal where he has previously served as dean of the Faculdade de Economia e Gestão. Álvaro holds a Ph.D. in Finance from Cass Business School (UK) and an MSc in International Trade and Finance from Lancaster University (UK). He has been a research fellow in the Regulation Initiative at London Business School. Professionally, he acted as lead economist on competition issues for some of the largest M&A operations in Portugal and is advisor to the financial services industry. He has conducted research for the Portuguese Competition Authority, Anacom and the Health Regulatory Authority on competition and regulatory issues.

Paul RAPPOPORT is Professor Emeritus of economics at Temple University, USA.  He received his Ph.D. in economics from the Ohio State University in 1974.  Dr. Rappoport is a Senior Fellow at Columbia University's Center for Tele-Information, and is currently the lead partner in SBRC and Associates, an analytics consultancy based in Philadelphia.

Dimitri SCHUURMAN is a senior researcher at iMinds-MICT and is working at iLab.o where he keeps an eye on the methodology of Media and ICT Living Labs. He is doing research about the role Living Labs play in Open Innovation, Smart Cities and User-centric Innovation. More specifically, he focusses on user profiles, such as Lead Users and defectors, in innovation processes. Rather than going straight to the end-user, he focusses on the first phase in the innovation project. Using his working-experience as a solid ground, Dimitri is currently finalizing his Ph.D. (due end 2013), with the working title: 'Bridging the gap between open and user innovation: Living Labs as a means to structure user involvement and manage innovation'.



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