Set-Top Rapprochement

Back in 2012, writing for the now-defunct GigaOm, I predicted that peace would eventually breakout between pay-TV operators and over-the-top services, a process I dubbed the set-top rapprochement (I was able to find one archived example of my musings still available online).

As OTT services evolved into ever-more viable substitutes for traditional TV, pay-TV providers, I assumed, would eventually realize they were better off embracing the enemy that fighting him, lest they be displaced altogether. OTT services, I imagined, would eventually see the benefit to getting their service onto TV-input 1 in households that held onto their pay-TV service, which is to say most of them.

Both sides, moreover, had an interest an interest in gaining leverage with programmers, and on the theory that the enemy of my enemy is my friend, each could be stronger together than apart.

For traditional pay-TV providers facing ever-growing carriage and retransmission fees, incorporating OTT channels into their service could help maintain their value proposition to subscribers while making operators marginally less vulnerable to blackout blackmail by fee-hiking programmers. It would also bolster operators’ pitch for faster broadband speeds, where their margins are better than on their video service anyway.

For OTT services, scale is critical in negotiating licensing fees, and anything that might expand their reach while lowering average subscriber acquisition costs would be beneficial.

I still think that analysis is substantially correct. And, while it has taken longer than I anticipated in 2012, there are signs the process is accelerating.

Last week, Comcast and Netflix announced the cable operator will start bundling the streaming service with the rest of its pay-TV service, allowing consumers to pay for both on a single monthly bill. The arrangement builds on the companies’ earlier agreement to make the Netflix app available on Comast’s X1 set-top box, and marks perhaps the final step to ending to years of hostilities between them.

Meanwhile, as Colin Dixon of nScreenMedia reports, pay-TV operators are slowly starting to embrace the open Android TV platform in their STBs as a means to integrate traditional pay-TV and OTT services.

Dixon is skeptical that integrating OTT services can save the big pay-TV bundle. But it might open other possibilities.

A new study by comScore highlights the increasing fragmentation of the OTT universe, which the analysts liken to the explosion in the number of TV networks in the 1980s with the rapid growth in cable and satellite TV penetration. The evolution of OTT into a multichannel mosaic could eventually create pressure for a new type of aggregator, offering a menu of ala carte channels, or skinny bundles mixing linear and OTT channels, through a single user interface.

After all, even the Berlin Wall eventually came down.