Are Pay-TV Operators Integrating OTT To Check Customer Churn?

The U.S. pay-TV industry has been facing competitive threat from the online video streaming providers because of cheap source of TV programming. The industry has been losing subscribers to online video streaming providers such as Netflix, Inc. (NASDAQ:NFLX) , Hulu.com, YouTube, etc. Video offering, which represents the core business function of cable-TV operators, is losing popularity.

Per a FierceCable report, traditional pay-TV services, including cable and satellite, lost 1.2 million customers in third-quarter 2017, thanks to cord cutting. (Read more: Pay-TV Subscriber Loss Rises in Q3, Cord Cutting Still a Woe)

In the first nine months of 2017, cable companies lost 801,000 video customers — 114% higher year over year. Total U.S. traditional pay-TV subscribers are approximately 91.7 million.

In such a scenario, major cable operators are integrating Netflix natively on their set-top boxes. Integration of Netflix and select over-the-top (OTT) services has become a common strategy among leading pay-TV operators. Previously, the operators were apprehensive about the increasing adoption of OTT platform.

We believe that the companies are trying to leverage the demand of these programming services to enhance their connectivity products. They are trying to reach out to a wider customer base to check churn.

Pay-TV Stocks Integrating OTT

U.S. telecom behemoth, Verizon Communications, Inc. (NYSE:VZ) is reportedly making Netflix available on select Fios set-top devices. Per sources, Verizon is currently running a trial of the service with a select group of employees and customers.

In November 2017, privately held U.S. cable company — Cox Communications — reportedly announced the integration of Netflix on Cox Contour nationwide. Customers with a Netflix subscription can access Netflix content, along with Cox's live TV, DVR and On Demand content within the Contour TV guide.

On Oct 31, cable-tv giant Comcast Corp. (NASDAQ:CMCSA) announced the availability of Netflix Ultra HD (UHD) 4K programming on Xfinity X1. Xfinity customers with a 4K-capable X1 device and a Netflix premium subscription can watch Netflix 4K movies and shows, along with live on demand, DVR and web programming. Prior to this, Comcast also tested the integration of YouTube on its X1 video platform.

On Sep 29, Satellite-TV operator DISH Network Corp. (NASDAQ:DISH) became the first pay-TV operator to offer a whole-home 4K programming services of Netflix via Hopper 3 DVRs. The company announced that the streaming video-on-demand operator’s content can be viewed throughout the home.

DISH Network was already streaming Netflix’s programs through over-the-top (OTT) Sling TV video streaming service. DISH Network has also launched a streaming player called AirTV Player for similar reasons.

In September 2017, T-Mobile US Inc (NASDAQ:TMUS) announced the inclusion of services from Netflix into its unlimited postpaid wireless service, T-Mobile ONE. The company is the national provider of mobile communications services.

All the above-mentioned companies currently carry a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Pay-TV operators are planning to revamp business model to keep their market share intact. In order to cope with the loss and remain competitive in the market, pay-TV operators have also started offering Internet-TV services with selected TV channels at cheaper rates.

With the increasing popularity of OTT video services, we keenly wait to see whether offering of Internet-TV services or unity with the opponents (OTT video services), will help retain their position. If not so, do these companies have an alternative plan to check subscriber losses?

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