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IHS: Cox SVOD Service Could Stem Cord-Cutting

31 Jul, 2013 By: Erik Gruenwedel

Cox Communication’s recent beta launch of subscription video-on-demand platform “Fan TV” could help the cable industry curtail ongoing declines in video subscribers, according to research firm IHS.

FlareWatch is the first U.S. pay-TV operator-provided over-the-top (OTT) subscription service that is not tied to a concurrent bundled video plan. It does require subscription to Cox’s high-speed data service.

Now in beta launch in select cities in Orange County, Calif., the $39.99 monthly platform, which offers about 100 (non-premium) content channels, costs significantly less than the industry average of $63.99. Cox envisions FlareWatch as an opportunity to sell non-cable subscribers some form of video service.

Indeed, No. 1 cable operator Comcast said it lost 159,000 video subscribers in the second quarter.

IHS said the MPVD industry remains under siege from “cord-cutters” and “cord-nevers” — the latter that have eschewed traditional pay-TV altogether in favor of Netflix and other OTT services. Due to this trend, growth in U.S. pay-TV subscriptions has stalled, and is expected to fall to 81% in 2017, down from 86% in 2009, according to the research company.

“U.S. cable operators desperately want to return to subscriber growth,” said Erik Brannon, analyst for television research at IHS. “Cox’s FlareWatch is likely to be the first of a new generation of products from other cable operators that will take an ‘If you can’t beat ‘em join ‘em’ approach to tackling the OTT challenge, i.e., providing video service over the Internet.”

Brannon warns that lower-margin streaming platforms will undoubtedly impact the bottom line.

IHS estimates that if Cox is paying a similar carriage fee for FlareWatch as for its existing cable video tiers, then its monthly carriage fee load is more than $31 per subscriber per month. At that price, the carriage fee doesn’t offer FlareWatch much margin, but any positive margin is better than no margin when customers purchase a video product.

“With the carriage fees, Cox may be loss-leading its way back into cord-never homes,” Brannon said.

In fact, Cox originally launched FlareWatch for $34.99 — a price point it upped $5 less than a week later.

“There is likely enough headroom to be profitable, but not on par with typical cable margins. It is likely that the company recognizes that the future of video content delivery is going to be involved with the open Internet,” Brannon said.


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