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The Business Case for Unbundled IP Video

As I mentioned in an earlier post on the recent market study of U.S. pay-TV subscriber needs and wants, the segmentation of the video marketplace potentially  brings both new challenges and opportunities for incumbent service providers.

That said, the debate around what to do about the unprecedented growth of the Netflix phenomenon now seems to be a moot point – as incumbent pay-TV service providers openly acknowledge its disruptive impact on the traditional video entertainment industry. And, now they’re proceeding with their plans to execute their long-awaited counter strategy.

Clearly, 2011 could prove to be a pivotal year for testing new business cases, as the marketplace becomes more fluid and is subject to further significant changes that are on the near horizon.

While it’s perfectly understandable that incumbent pay-TV service providers might prefer to bundle a Netflix-like, on-demand IP video service offering with their standard digital cable tier subscriptions, let’s remember that this is but one potential scenario.

Revisiting the results of the Cisco market study, it’s interesting that note that – by far – “the most likely motivation to pay for an online video package…” is a low price point. Call this the “value-based” market segment, if you will – it likely includes some current subscribers and previously lost customers. To win-back these prior subscribers, such as those that are looking at more of an iTunes or Hulu approach to catch up on their TV, an unbundled IP VOD offering by the provider could be very attractive.

But price isn’t the only driver of customer preference. We learned that in all age categories over 25, there are 50% more people who are willing to pay their pay-TV service provider for enabling an online video capability vs. buying and installing a retail device on their own.

In fact, we already know that there’s a big delta between the technical skill-level of the early-adopter of retail digital media player devices (such as a Cisco engineer) and the ability of the typical mainstream consumer (such as my Mom).

So to summarize, while there is all the talk about cord-cutters, there’s also a recognized market value in an “all-encompassing” service offering which has broad based appeal of simplicity combined with narrow-based appeal of content choice to meet the needs of each individual viewer. 

That’s an area where SPs can really thrive… and considering they are gearing up to take on this changing market even further, look for new business models like this to come to the forefront… and make this space even more interesting in the new year ahead.

PS, even though you likely weren’t a part of this survey, we’re interested in your thoughts as well --  please this poll and let us know--What excites you most about new and future video entertainment experiences?

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