How Fast Will Linear Video Decline?

The conventional wisdom now is that over the top (online) video services are displacing linear video services. According to the latest forecast from The Diffusion Group, the conventional wisdom is correct.

Take rates (household penetration) of linear video services will decline from 85 percent of U.S. households in 2017 to 79 percent in 2030, according to TDG. But other TDG metrics suggest faster declines.

Some might argue the rate of change now modeled by most observers actually understates the degree of change. Up to this point, forecasters have (correctly) called for modest but steady declines in linear video take rates.

But some might note that market changes caused by new technology tend to follow a rather predictable “S” curve, where initial changes are quite modest, followed by fast changes when an inflection point is reached.

That means linear projections are proven wrong, as the rate of change actually becomes non-linear, usually after about 10 percent adoption of the new technology. That actually already has happened, in the U.S. market, in terms of adoption of OTT video services.

There are at least 187 million OTT video accounts in service, compared to roughly 93 percent household penetration of linear video.  So, counting by accounts, OTT video adoption is far beyond 10 percent, well over 100 percent adoption of households, as there are perhaps 126 million U.S. households.

As with mobile subscriber identity modules, some people might use more than one SIM. Some households have multiple subscriptions.

Up to this point, OTT has been a substitute for linear video, but not a complete substitute, as often happens early in the adoption cycle of new technology products. Over time, the new technology platform becomes more robust, eventually becoming a fully-fledged substitute for the legacy technology.

TDG predicts that, by 2030, roughly 30 million U.S. households--representing 26 percent of all U.S. households--will live without a linear service of any type.

So legacy video penetration will fall from 81 percent of U.S. households in 2017 to 60 percent in 2030, down 26 percent.

That estimate includes losses of traditional services to over the top services that stream “live content in real time,” as well as using the on-demand format favored by Netflix, Amazon Prime and others.

So, using that set of definitions, legacy linear video might drop substantially between now and 2030. That is just one reason why some find U.S. Department of Justice concerns about excessive potential market power if AT&T buys Time Warner to be somewhat odd.

The linear video market itself already is changing in ways that make "dominance" a problem that goes away as the market itself goes away. And even the new OTT market features average revenue per account perhaps seven to eight times cheaper than the linear product OTT replaces.
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