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Smart TV & Connected Home
www.strategyanalysis.com
The Future of TV: Connected Devices and OTT Disruption
April 2015
David Watkins E-mail: dwatkins@strategyanalytics.com
Report Snapshot
Contrary to the views of many commentators, TV is not
dying, but it is changing. The growing base of internet
connected media devices in the home is providing an
opportunity for non-traditional video service providers and
technology companies to challenge the dominance of
incumbent Pay and Free TV operators.
This complimentary report provides TV Connect attendees
with selected insights and research highlights from Strategy
Analytics’ leading experts in the digital media and
technology space.

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Introduction
Strategy Analytics’ Media team are delighted to be chairing and speaking at this year’s TV Connect event.
We are also pleased to offer TV Connect attendees this complimentary report examining the impact of OTT
and connected devices on the TV industry.
The report draws upon Strategy Analytics’ comprehensive research across the TV, video and media industry,
Our experts and thought leaders have a combined 200+ years of experience in researching, analysing and
consulting with the world’s leading players. We have been guiding clients through the internet revolution for
more than 20 years and that experience is proving invaluable as they navigate through the stormy waters of
the connected TV tsunami which is shaking up the ecosystem.
In addition to industry expertise our research draws upon Strategy Analytics’ leadership in consumer insights,
which provide a continuous flow of understanding of how emerging connected TV technologies are changing
the way consumers choose, view and interact with video and television content.
Our recently published research themes, competitive analysis and global, regional and country forecasts
include:
Connected TV and Media Devices Multiplay Services
Chromecast, Apple TV, Amazon Fire TV Pay TV and Broadband
OTT TV and Video Global Forecasts Cable and Telco Consolidation
Ultra HD and 4K TV Home Video Gateways
Smart TV Ericsson’s Mediaroom and Azuki acquisitions
PS4, Xbox One, Wii U and Cloud Gaming Games and Music Global Forecasts
Wireless Home Devices Regulating Media Convergence
Smart Home Programmatic Buying
For further details on our TV and media research as well as further complimentary research and analysis,
please visit http://sa-link.cc/IQ . You can also interact with us at the following social media connections:
Strategy
Analytics
@SA_Update www.linkedin.com/company/strate
gy-analytics
blogs.strategyanalytics.com
David
Mercer
@DavidMercer_SA uk.linkedin.com/in/davidmercersa sa-link.cc/IR
Michael
Goodman
@MikeGoodman_SA www.linkedin.com/in/mgoodman2 blogs.strategyanalytics.com/dms
David
Watkins
@revewatkins fr.linkedin.com/pub/david-
watkins/2/b94/344
blogs.strategyanalytics.com/chd
Jason
Blackwell
@blackwjq www.linkedin.com/pub/jason-
blackwell/6/580/33a
blogs.strategyanalytics.com/mmd

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Connected TV Devices are the new battleground for TV domination
More than half a billion connected TV devices are now in use around the world ranging from games consoles
and Blu-ray players to digital media streaming boxes and dongles as well as of course Smart TVs. Growth in
ownership of these devices is being driven by a number of factors including the rising popularity of online
video streaming services like Netflix and Amazon, the availability of cheap and easy to use media streaming
boxes and dongles from well-known brands such as Apple, Google and Amazon, and the current wave of TV
replacement which is driving up ownership of Smart TVs. Growing usage and availability of such gateways
into the online video world is changing the way that many people watch television today by offering
consumers more choice, flexibility and control over how they view TV.
Consumers today commonly own more than one type of connected TV device and so often have a choice to
make as to which device to use to access the online content they want to view. That decision is often driven
by how easy the device is to use, speed of access to the content and how well the application has been
tailored to fit a large screen format. Smart TVs and Blu-ray players often come up short on these measures
due to their clunky interfaces and underpowered video processors. Meanwhile, games consoles have seen
high levels of online connectivity although usage is generally skewed towards gaming applications and

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consoles are not always hooked up to the main TV set in the home. This has left an opportunity for a device
that can provide quick and easy access to the popular online video applications and digital media streaming
boxes and even cheaper dongles have been doing a good job of fulfilling that need in recent times.
One of the key shortcomings of all of these devices is the lack of access to live linear and premium movie
and sports content which means that for the vast majority of cases, usage of the video streaming capabilities
of such devices is limited to occasions when a consumer is not accessing content through their existing Pay
TV subscription. Sony’s announcement of its PlayStation Vue TV service this year is a sign that these new
Connected TV device platforms can compete directly with Pay TV providers and vie for 100% of a consumers
TV viewing time.
Competition within the Connected TV device market is characterized by a battle between the traditional TV
display vendors such as Samsung, Sony, LG and Panasonic, the games console vendors and
Internet/technology giants including Apple, Google and Amazon and it is this latter group which is making the
biggest play in terms of becoming the dominant technology ecosystem in the living room. Despite its
limitations, Google’s Chromecast dongle has overtaken Apple TV to become the leading digital media
streaming device and the company is set to expand its footprint in the living room this year as it rolls out its
revamped Connected TV Platform, Android TV, in partnership with a number of major TV brands, other
device manufacturers and Pay TV operators. Google is also winning support from the app development
community for its Cast streaming technology which is proving a popular means of bridging the gap between
portable and fixed devices in the home. Amazon meanwhile is steadily building a base of devices including
its Fire TV media streaming box and stick, Fire tablets and phone in order to bring more consumers into its
ecosystem of services including its video streaming service. Apple appears likely to introduce a revamped
media streaming device later this year following the recent price reduction on its 3 year old Apple TV box in
an attempt to regain its position as a dominant force in the living room and perhaps also serve as a
launchpad for its own OTT TV service that is rumoured for the second half of 2015.
Is the Pay TV Model Ripe for Disruption?
Creating a competitive Pay TV market has long been a goal of regulators but high capital expenditures
associated with building out facilities-based networks for a share of the Pay TV market has limited
competition. The growth of broadband and connected devices, however, is fundamentally changing this
equation.
OTT video services require two basic building blocks in order to succeed – fast Internet access and a
sufficient installed base of connected devices.
 Fast Internet Access. While work remains, a sufficient number of homes have 10 Mbps or faster
broadband access to provide a viable market for OTT video distribution. While OTT video can be
consumed on slower networks, video quality is lower and fewer devices can be streamed to
simultaneously. According to Akamai’s Q4 2014 State of the Internet Report, 39% of connections in
the U.S. to Akamai servers were at speeds greater than 10 Mbps and 18% were at speeds greater

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than 15 Mbps. In the U.K, 38% of connections to Akamai servers were at speeds greater than 10
Mbps and 22% were at speeds greater than 15 Mbps.
 Installed base of connected devices. As noted in the previous section, there were 579 million
connected TV devices as of year-end 2014 globally.
With the fundamental building blocks falling into place, OTT subscription video services such as NOW TV
(U.K.), Canal+ (France), PlayStation Vue (U.S.), and Sling TV (U.S.) are emerging. While European OTT
subscription services have a strong relationship with incumbent providers, those in the U.S. have the
potential to be more disruptive. In particular, PlayStation Vue is positioned to threaten the status quo in the
United States.
PlayStation Vue changes the competitive landscape in several ways.
 A clear price advantage over the competition. Once all the fees, additional service charges,
surcharges and taxes are added to the sticker cost of a Pay TV subscription in the U.S., PlayStation
Vue consistently costs less than comparable Pay TV video/data bundles. A comparison of the
cumulative costs of PlayStation Vue + a broadband subscription against the video/data bundles of
two Pay TV providers shows that over a 5 year time span PlayStation Vue subscribers would save
$968 compare to company 1 and $2,517 compared to company 2.
 OTT subscription services enable multiple revenue streams. A typical Pay TV provider has
three core revenue streams – subscription, advertising, and VOD (electronic sell-thru and rental). In
comparison, PlayStation Vue is part of the PlayStation ecosystem which generates revenue from at
least nine different revenue streams (i.e., video game console, video game sales, PS Now, PS Vue,
PS Plus, advertising, movie downloads and rentals). While not every OTT subscription video service
will have all these revenue streams, changing the consumer perception of the in-home box from a
dedicated video STB to a multi-entertainment device opens up new revenue possibilities.
 The STB becomes a piece of consumer electronics sold at retail. For the most part consumers
in the U.S. get STBs from their Pay TV providers. Though efforts have been made to get consumers
to purchase STBs at retail, aside from satellite providers, this has had little to no success. This is
relevant because OTT subscription video services, such as PlayStation Vue, are getting consumers
to purchase the STB (in this case a PlayStation 3 (PS3), PlayStation 4 (PS4) or iPad). Unlike a Pay
TV provider which has to recover the cost of a $300 - $400 STB, Sony makes a $15 - $25 profit on
each PS4 sold and far more than that on each PS3 sold. Since Sony does not have to amortize the
cost of a STB it can pass these savings onto consumers.
 OTT subscription video services do not suffer from channel bloat. OTT subscription video
services offer subscribers a much more entertainment focused packaged without a lot of extraneous
channels. Is it a pure a la carte offer? No, but it does get closer to offering consumers just the
channels they want than any other package on the market. Unlike Pay TV providers in the U.S., OTT
subscription video services are NOT currently required by the FCC to carry any independent and low
power stations. Nor is the number of channels they report carrying inflated by counting both the
standard definition and high definition feeds of networks, music channels, religious channels, or
home shopping channels.

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Now that is not to say that OTT subscription video services are not without shortcomings.
 The regulatory landscape in the U.S. is going to change. In December 2014 the FCC issued a
Notice of Proposed Rule Making (NPRM). According to the FCC, the NPRM proposes to interpret
the term MVPD to encompass distributors of multiple linear video programming streams. Whether
the FCC intends to tweak the existing rules regarding MVPDs or completely re-write them remains
to be seen. In any case, the regulatory playing field will be changing.
 PlayStation Vue does not carry any of the Disney-owned networks, the most important being ABC,
Disney Channel, and ESPN.
 Sling TV only offers approximately 20 channels in their base package. You can add additional
packages but the cost quickly goes up.
 PlayStation Vue lacks premium channels (i.e., HBO, Showtime, Starz, etc.), however, with the
availability of HBO Now, Netflix, Amazon Instant Video and Hulu Plus, and still to be launched
OTT services from Showtime and Starz, consumers are not lacking for OTT premium options.
 At launch, a single account can simultaneously stream PlayStation Vue on up to three different
consoles in the same home at no additional charge; however, you can only stream on one PS4 at
any given time. At the moment this is not much of an issue as few households own more than one
PS4 but in time this will be an issue.
While the jury may still be out on the long term success of PlayStation Vue and other OTT subscription video
service, Sony deserves credit for introducing a new pricing strategy that threatens to up-end incumbent

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service providers’ decades-old pricing models. Assuming rumors are true and Apple launches an OTT
subscription TV service in the fall it will be interesting to see if they take a page from Sony’s playbook and
follow a similar “all included” price model, further disrupting the existing pay TV revenue model.
Embrace it or fight fire with fire? Pay TV Operators and the OTT Threat
Traditional Pay TV operators – cable, satellite, and IPTV – are all facing challenges as the world of content
consumption is quickly evolving. Pay TV is under pressure in many of the biggest markets, including North
America and Europe although the threat of cord cutting has been greatly exaggerated to this point. Rather
than seeing OTT as only a threat, some of the more innovative and forward-thinking operators are embracing
the concept of over the top by creating their own services to stave off competition from the likes of Netflix,
Amazon, Hulu, and others.
The Now TV service offered by Sky in the UK offers a great example of a Pay TV OTT service that has been
well executed and has achieved some popularity in the market. Although Sky has not released subscriber
numbers our own ConsumerMetrix research found that 4% of respondents claim to use the service. Now TV
service pricing starts at just £6.99 per month with a small number of popular channels as well as live and
catch-up TV. Customers can add sports or movie packages from £6.99 to £10.99 per month, and all of this
content is available on a growing number of devices and platforms including iOS and Android.
At the same time, traditional Pay TV operators are incorporating the pure OTT vendors into their ecosystem,
giving the operator better control of the situation and keeping their customers within the operators’ user
interface. As an example, many smaller cable operators in the US have included Netflix within their
middleware, particularly on the TiVo platform. This type of integration is not limited to the US, as Virgin
Media, Swisscom, and other European operators have also followed this path. Control of the user
experience and integrating OTT into search and recommendation can offer significant benefits to pay TV
operators including increased revenue opportunities.
Pay TV operators have a strong resource on their side in the competition with OTT vendors – content rights
and relationships. The Pay TV operators pay tremendous amounts of money in carriage fees to content
owners. These relationships have limited the offerings from many of the pure OTT competitors, typically
leaving them with older TV shows and movies, or delaying the availability of current shows by several days or
even weeks. However, these same content rights issues have also hampered the TV Everywhere efforts by
Pay TV operators. We are finally beginning to see more availability of content through Pay TV apps,
including an increase in live streaming, both in and out of home.
Operators will also begin to deploy another weapon in the battle, namely skinny TV bundles. While not
reaching a true a la carte level for customer selection, these skinny bundles are packaging some of the more
popular channels in a low-cost OTT service. On top of the base package, customers can then add small
bundles of channels, typically focused on a particular niche like local sports content. The Sling TV service
from Dish Network in the US market is an example of this type of offer, as well as the previously mentioned
Sky Now TV in the UK.

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We expect to see more and more operators developing and deploying their own OTT services in the coming
months. 2015 will be the year where traditional Pay TV more quickly evolves into the future of entertainment
services, and the Pay TV operators who adapt and integrate technologies to deliver services that customers
desire will be the most successful coming out of this transition.
Glossary of Terms and Related Reports
Glossary of Terms
 Connected TV Device – An IP-enabled device that facilitates the streaming of online video content
to a TV screen via a wired or wireless broadband connection. Includes Smart / Connected TV,
Games Console, Blu-ray Disc Player, Set-Top-Box / Digital Video Recorder and Digital Media
Adapter.
 Digital Media Streamer – A set-top or HDMI dongle whose sole purpose is to stream online content
to the TV screen. Examples include Apple TV, Roku, Chromecast and Amazon Fire TV.
 Over-the-Top (OTT) Content – Online video content delivered over unmanaged IP networks.
 Smart TV Displays – An IP-enabled TV display that has broad internet access and advanced
functionality such as a content recommendation engine, app store, intuitive control, second screen
sharing, web browser and content search capabilities.

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Author Contact Details
David Watkins, Director - Connected Home Devices: dwatkins@strategyanalytics.com
Michael Goodman, Director – Digital Media Strategies: mgoodman@strategyanalytics.com
Jason Blackwell – Director, Service Provider Strategies: jblackwell@strategyanalytics.com
Recent Selected Reports:-
 Can PlayStation Vue Successfully Capture a Share of the Pay TV Pie?
 Global Connected TV Device Tracker: Q4 2014
 Google Brings Android to the TV
 Amazon Leverages Media to Drive Prime Subscriptions
 HBO Challenges Netflix for SVOD Dominance
 CES Points the Way to Future TV Services
Recent Blogs:
 Strategy Analytics and Piksel Announce Consumer Insights Partnership
 V-Nova’s Video “Paradigm Shift” Could Drive Both UHD And Mobile Video Expansion
 Comparing the US and UK TV Markets: A Reply
 Installed Base of Sony’s PS4 Will Exceed Microsoft’s Xbox One by 40%
 Ultra HD achieves Ultra High approval ratings
 Smart Bulbs: The Trojan Horse of the Smart Home Market
To explore this topic in more detail or to hear how our solutions (Workshops, Presentations, Consulting
engagements, annual multi-client services) can support you please contact us
www.strategyanalytics.com/solutions.html

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