Over-the-Top Digital TV Service Set To Flourish Over 5 Years

Internet TV streaming service is gradually gaining market traction worldwide. According to a latest report by consultancy Juniper, the market size of digital TV and video services will reach $119.2 billion in 2022 from $64 billion in 2017. The Americas will take 33.5% of revenues, with Europe taking 31.7%. Advertising spend against online video is set to grow 130% to $37 billion in 2022, increasing from $16 billion in 2017.

Notably, exponential growth of mobile data usage supported by flourishing high-end smartphone and tablet devices, has changed the entire dynamics of the traditional pay-TV industry. Presently, the web-based digital media market is growing by leaps and bounds. Digital media brands are becoming immensely popular with the younger generation. With the growing demand for smartphones and tablets, target customers are increasingly watching videos online, and preferring them over costlier legacy pay-TV connections.

Competition Intensifies in the OTT TV Market

Netflix Inc. (NASDAQ:NFLX) and Amazon.com Inc. (NASDAQ:AMZN) are the two leading Internet TV streaming service providers. Statistics reveal that Netflix has more than 100 million subscribers and Amazon has an estimated 60 million Prime TV customers.

Major pay-TV operators, such as AT&T Inc. (NYSE:T) , DISH Network Corp. (NYSE:DIS) and Sony Corp. (NYSE:SNE) have already launched their Internet TV streaming services. AT&T’s DirecTV Now includes channels such as E!, FX, TBS and TNT. DISH Network’s Sling TV offers channels like ESPN, AMC, Cartoon Network, HBO and Univision. Sony’s PlayStation Vue provides a portfolio of channels like Bravo, Fox News, Nickelodeon and USA.

Apart from these three companies, YouTube TV of Alphabet Inc. (NASDAQ:GOOGL) and Hulu Live TV also offer Internet TV streaming facilities. In August 2017, The Walt Disney Co. (NYSE:DIS) announced its plans of launching ESPN streaming service in 2018 and a branded direct-to-consumer streaming service in 2019. Telecom behemoth Verizon Communications Inc. (NYSE:VZ) has deferred the launch of its TV streaming service, which is likely to be unveiled next spring.

In September 2017, Comcast Corp. (NASDAQ:CMCSA) launched its TV streaming service, Xfinity Instant TV, only to its high-speed Internet subscribers. The latest entrant into this league is T-Mobile US Inc. (NYSE:T) , the third largest wireless carrier. The company is set to unveil its online TV steaming service in 2018 after its acquisition of Denver–based video technology innovator Layer3 TV Inc.

Digital Advertising: The Next Battlefield

In order to derive maximum synergy from the combined video content and video distribution platform, ISPs (Internet Service Provider) are aggressively penetrating the advertising technology market. Inclusion of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements is a step toward the same objective. The advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.

Two Favorable Regulatory Verdicts in 2017

President Donald Trump stated that he wants to do away with nearly 75% of all governmental regulations during his term as the President. A new Federal Communications Commission (FCC), headed by Ajit Pai, exercising lesser restrictions, certainly augurs well for the ISP industry.

On Apr 3, Trump signed a repeal of the Obama-era broadband privacy rules. This has given a major boost to the ISPs. The digital advertisement market is growing exponentially and ISPs have been increasingly investing resources to cash in on bountiful opportunities. However, the FCC’s (Federal Communications Commission) previous directive stipulated that the ISP should notify customers before sharing any user data for advertising. This would have marred ISP prospects.

More importantly, on Dec 14, FCC repealed the Net Neutrality laws that it had imposed under the Obama regime. On Feb 26, 2015, the FCC under the chairmanship of Tom Wheeler adopted Net Neutrality implying an open-Internet atmosphere, which would prohibit ISPs from discriminating against applications.

So far, these companies were allowed to restrict any device, application, service, or content from running on their respective networks. There is little doubt that the ISP industry will be the major beneficiary after FCC dismantling Net Neutrality. A light-touch regulatory measure will generate higher revenues for the ISP industry.

Zacks Rank

Except Sony, all the other stocks mentioned above, carry a Zacks Rank #3 (Hold). Sony sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Walt Disney Company (The) (DIS): Free Stock Analysis Report

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