OTT Provides Better Video Business Model Than Linear Video, CenturyLink Believes
LInear video always has been a tough business model for any small telco. That also seems to be true even for firms the size of AT&T, Verizon and CenturyLink, for several reasons.
Verizon earns modest amounts of total revenue from anything other than mobility services. Mobility generally contributes as much as 70 percent of total revenue, with fixed network business and consumer services representing 30 percent. AT&T earns more total revenue from its fixed network than does Verizon, but consumer video service revenue mostly is generated by the DirecTV operation, not fixed network video.
AT&T only had about five percent market share in the linear video subscription business prior to its acquisition of DirecTV. Now AT&T is the single largest linear video provider, but on the strength of satellite delivery, on market share of fixed network services.
So video services represent growing amounts of revenue, but not at a significant level. “We don't look to video as a significant revenue and EBITDA contributor in 2017,” CenturyLink has said.
Also, all consumer revenues only contribute about 25 percent of CenturyLink total revenues, which mostly are earned selling services to business customers.
“If you look at our Prism product, as you know, we've talked about content costs have really gone out of sight the last couple of years,” said Glen Post, CenturyLink CEO. “If you look at the margins, sometimes actually negative margins,” said Glen Post, CenturyLink CEO.
In addition to the “cost of goods sold” problem, CenturyLink costs include truck rolls and installation capital and operating cost.
“With over-the-top product, we don't have to make a truck roll,” said Post. “We have much wider availability due to lower bandwidth requirements of over-the-top.”
In other words, the business model for over the top TV is better than for linear video.