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Why the Rise of Over-The-Top Services Is Here to Stay

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Pay-TV companies’ view of over-the-top services

Millennials increasingly prefer to watch content online. This trend has allowed new players to enter the market and has made it difficult for pay-TV companies such as Comcast (CMCSA) and Dish Network (DISH) to retain subscribers.

While some pay-TV companies expect business to continue to decline, Comcast believes that its X1 set-top box has been the key to differentiating it from the competition. It views the box as a content aggregator, with the integration of Netflix (NFLX) and Alphabet’s (GOOG) YouTube. We’ll discuss pay-TV operators’ measures in more detail later in this series.

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Why the rise in over-the-top services?

The streaming services market is burgeoning with new entrants, including Alphabet’s (GOOG) recently announced YouTube online television service. Hulu is also set to launch an online television service later this year.

The OTT (over-the-top) video streaming space has huge growth potential. Users are subscribing to OTT services in greater numbers than ever before, mainly due to the high monthly bills they’re paying cable and satellite TV providers. A 4Q16 report from Digitalsmiths suggests that ~35% of users pay more than $100 to their pay-TV providers every month. In contrast, plans for streaming services such as Netflix (NFLX) are an average of ~$10 per month. Netflix makes up 0.20% of the SPDR S&P 500 ETF (SPY), which has a 3.5% exposure to the computer sector.

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