Will Internet TV Streaming Replace Legacy Pay-TV In 2018?

Internet TV streaming service is gradually gaining market traction in the U.S. Of late, the legacy pay-TV industry has been facing stiff competition from online video streaming service providers. The low-cost, over-the-top video streaming service has resulted in massive cord cutting that is currently threatening the pay-TV business model. Internet TV streaming has emerged as a strong alternative to counter this competitive threat.

Technically, Internet TV streaming is similar to pay-TV offerings. Its shows can be viewed using a broadband connection and mobile gadgets like tablets, smartphones, Roku box and smart TV, to name a few. To sum up, Internet TV streaming offers a TV Everywhere experience to subscribers in a cost-effective manner.

The growing deployment of 4G LTE mobile network and significant adoption of portable mobile devices are the primary reasons propelling the popularity of Internet TV streaming. The Millennials have a strong appetite for new technologies, as they are no longer interested in incurring a huge bill for a fat pay-TV bundle. A skinny TV bundle in a cost-effective manner is the next-generation favorite.

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 demand for smartphones and tablets on the rise, target customers are increasingly watching videos online, and preferring them over costlier legacy pay-TV connections.

Moreover, an increasing number of customers are using the Internet to watch videos and want mobility of content. This has given TV distributors an opportunity to differentiate their products by offering access to select content through their networks. By making deals directly with content developers, service providers are trying to draw customers with bundles of content such as streaming entertainment or sporting events, possibly with no additional data charges.

Market is Getting Crowded

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 plan 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.

Each of the above-mentioned stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Is Cannibalization a Concern?

A major concern pay-TV operators, who recently entered into Internet TV streaming, is that the latter has actually cannibalized the legacy pay-TV service. Most of these companies are offering both legacy pay-TV services as well as Internet TV streaming service, with selected TV channels at lower costs.

The operators are yet to find out an appropriate trade-off between these two types of services. Making attractive online ventures are drawing subscribers to the new service at the cost of traditional pay-TV business model. Ultimately, the Internet TV service is yet to stop cord cutting, the biggest threat for pay-TV operators.

Statistics reveal that Netflix (NASDAQ:NFLX) has more than 100 million subscribers and Amazon (NASDAQ:AMZN) has an estimated 60 million Prime TV customers, whereas AT&T, currently the largest pay-TV operator in the U.S., serves only 25 million subscribers across its legacy pay-TV and Internet TV streaming platforms.

Bottom Line

It is to be noted that, 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. The Internet TV streaming service, launched by leading pay-TV operators in the United States, is yet to cope up with the onslaught of the low-cost online video streaming services. It remains to be seen how major pay-TV operators can survive the competition.

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