As a follow-up to one of my recent posts, there has been more discussion about Cox's flareWatch OTT video service. flareWatch stands to represent the first significant "over-the-top" TV* service that is being offered by a traditional pay TV (cable) operator and it's completely decoupled from their cable TV service as a standalone service offering. IHS has done some research on the new Cox offering and offers up some insight that I thought might be valuable to smaller cable and telco service providers in the US, and globally for that matter.
IHS sees flareWatch as Cox’s attempt to regain business being lost to a new generation of cord-cutters and cord-nevers – consumers who have avoided traditional Pay TV in favor of Netflix, Amazon and other OTT video services. According to IHS, "because of these types of consumers, growth in U.S. pay-TV subscriptions has stalled, and penetration has begun to decline, and is expected to fall to 81 percent in 2017, down from 86 percent in 2009."
flareWatch will be offered for $39.99, compared to an average $63.99 spent monthly on Cox's cable services. However, flareWatch subs will not get premium cable channels or "TV Everywhere" services (although I presume flareWatch.com will be accessible on iOS and Android devices via browser). It must be noted that apparently flareWatch is being forecasted by IHS to be a low margin business, at least at first, primarily due to the carriage fees Cox will have to pay tier one content providers. I think that can change over time as the disruption of the old TV business models continues in this new era of TV over the Internet.
It's likely that Cox intends to offer this service to an audience outside its traditional pay TV footprint and unlikely to become cable subscribers. So it sounds like they are being careful not to canibalize their higher margin pay TV business. I could see Cox treating flareWatch as a customer acquistion vehicle that also gives them the opportunity to upsell services to flareWatch customers. Either way, Cox must see OTT as a mechanism for expanding their video subscriber footprint and for increasing revenues through flareWatch itself and then again by cross-selling other services.
You can quickly see in flareWatch marketing who they are targeting, a younger demographic which, by in large, includes the "cord nevers"...
Erik Brannon of IHS stated, "Cox’s flareWatch is likely to be the first of a new generation of products from other cable operators that will take a ‘if-you-can’t beat ‘em-join-‘em’ approach to tackling the OTT challenge." I tend to agree that Cox is treating OTT as an opportunity to reignite video subscriber growth through careful strategic rollout of next-gen TV services. They likely also know that the future of TV is over the Internet. In any event, cable and telco operators should pay attention to innovative services, like flareWatch, being rolled out by their industry peers, as they themselves decide if and how to approach TV being reinvented.
That's how I see it. What are your thoughts?
Paul D Hamm
* Technically, flareWatch may not be a true "over-the-top" television (OTTtv) service, if Cox only delivers the service over their own broadband networks to their own broadband subs - maybe we can call it "through the middle (TTM) TV". However, if Cox offers this service to other broadband providers' subscribers, then flareWatch could certainly then be considered a true OTTtv service. Some may argue that flareWatch is delivered over unmanaged Internet, even if over Cox networks, therefore it is an OTT service.
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