Over-the-Top (OTT) services offer content, either free or at very low cost, over a broadband connection. These services, such as Netflix (paid) and Cuevana (free) are increasing users among those who consider “on demand” the most distinctive feature of content. While cord cutting is one risk for pay-TV providers, the most acute problem could be the progressive emergence of a new demographic segment that has never paid for TV content. This trend is growing among Personal Computers (PCs), tablets, and other devices that allow the consumption of video in a non-linear form.

In the Latin American region, pay-TV consumers are gradually making their way into the “anywhere, anytime, from any device” trend by either migrating to a more basic pay-TV plan and mixing that with an OTT subscription, or by canceling their pay TV altogether. Connectivity availability in different devices (smartphones, tablets, video games, PCs) and changing consumer behavior have been increasingly stimulating OTT market development in the region.

Unlimited content availability including movies, famous TV series, and original programs and shows — such as Netflix’ Orange is the New Black and House of Cards — for a much lower price when compared to pay TV have been increasingly attracting Latin American consumers to this new modality. The OTT market is growing and, in some areas, at rates that exceed the growth of traditional telecommunication services. This indicates that this market has been meeting consumer needs, and is an important opportunity for new participants and incumbents.

Currently, the largest players in Latin America have been Netflix and Clarovideo. However, as the OTT video streaming services market value becomes a reality, new participants should emerge and this market will rapidly spray in the region. The Latin American market is already a target for OTT native companies such as the aforementioned Clarovideo and Skyonline, which are taking a lot of customers into this new model. On the other hand, some of them have started to integrate online live programming and pay-TV channels in their devices or OTT apps, such as the case of TIM Fiber in Brazil and UNE in Colombia.

According to Frost & Sullivan research, the OTT video services market in Latin America achieved $96 million revenues in 2013 and is estimated to reach $783 million in 2018. The trend, in terms of adoption, is increasing, although it is still likely to represent a small percentage of the total pay TV revenue in 2018.

In an attempt to fight back the impacts from OTT services, pay TV companies are including value-added services such as Video on Demand (VoD) in their portfolio, as an effort to provide a differential in terms of the service quality since they own the end-to-end infrastructure. Additionally, integrating services that are similar to Netflix in their own VoD platform and multiple-play plans have also been part of the strategy to minimize OTT impact on pay-TV revenues.

However, it is important to note that the growing OTT market represents both a threat and an opportunity for telecommunications operators globally. In the long run, an OTT partnership could help to ensure improved customer retention and competitive advantage for pay-TV operators. Typically, they will allow the OTT player to host the service and agree to a revenue share plan (incremental revenue through increased ARPU/payments from OTT players), which would also allow operators to build a customer base outside of its current market.

A great example of a partnership between a pay TV and an OTT player is the relationship between Comcast Corporation and Netflix in the United States. Comcast Corporation is the largest mass media and communication company globally by revenue. It is the largest cable company and home Internet service provider in the United States. Netflix is paying Comcast Corporation for wider bandwidth to ensure that the content is delivered faster to the end user. With this, it will ensure the users are happy with the service that has been provided by the two companies. VS

_{Maiara Munhoz is a digital transformation industry analyst at Frost & Sullivan in Latin America.}