Gartner Says Saturation of U.S. Pay-TV Market to Create Challenges for Emerging IPTV Services

U.S. Consumer Pay-TV Preferences Are Key for IPTV Market Entrants

STAMFORD, Conn. — As Internet Protocol television (IPTV) services emerge, telecom companies face a fairly saturated pay-TV market in the U.S, as 82 percent of all U.S. households reported having a pay-TV subscription in 2006, according to a recent survey by Gartner, Inc. This is forecast to increase to 84 percent by the end of 2011.

While there are a number of households that subscribe to a telephone company for IPTV services, this segment currently accounts for less than 1 percent of the total pay-TV subscriber market. This is expected to increase to almost 8 percent by 2011, mostly at the expense of subscriber loss from the cable companies.

“The U.S. pay-TV market is dominated by cable and satellite providers by a factor of two to one,” said Amanda Sabia, principal research analyst for Gartner. “As the availability of IPTV offerings from telecom providers increase competition in this market, understanding what consumers currently receive, and what they will want from their pay-TV provider, will be critical to gaining or protecting market share.”

As more households upgrade to a high-definition (HD) television set, they require HD channels from their pay-TV provider. The Gartner survey showed that nearly 40 percent of all pay-TV households have either local HD channels (such as ABC HD and PBS HD) or cable HD channels (such as Discover HD, ESPN HD and HBO HD) included in their monthly pay-TV service subscription, up 5 percent from the previous year.

Interactivity features with the pay-TV subscription have increased during the past year, rising from 9 percent penetration to 15 percent. Interactivity features include interactive program guides, an interactive channel or service with on-demand content and interactive advertisements, where the user can click to request information.

“Many of these increases in feature adoption can be attributed to the fact that the entry of IPTV into this market has caused the competition to raise the ante,” said Ms. Sabia. “To remain competitive in the market, especially with the recent FTTx and hybrid IPTV solutions, cable providers are upgrading to digital transmission as well as including either the features and/or equipment as part of the service offering at no additional cost or for a nominal fee.”

IPTV providers have a challenge to gain subscribers in the fairly saturated pay-TV market. Knowing that consumers are price-sensitive, the telephone companies are going to market with highly competitive, low-price offers for triple-and quad-play packages. What is included in the video component of these bundles will also be critical to IPTV adoption.

“All the pay-TV providers will offer basically similar content, but those IPTV providers that differentiate their offerings and are attentive to qualitative factors, such as quality of service, and that provide positive customer experiences will succeed in this well-established marketplace,” said Ms. Sabia. “The U.S. consumer wants HD channels and recording capabilities within their set-top box, and is willing to experience interactive features as well. It is only a matter of time before the integration of the Internet and other communications applications with the TV will move to the forefront of the consumer’s requirement for a satisfying TV experience.”

Additional information is available in the report “Dataquest Insight: U.S. Consumer Pay-TV Preferences Are Key for IPTV Market Entrants.” This report gives an insight into the U.S. pay-tv market in terms of what consumers currently get and what new offers most interest them. Additional information on the outlook for the North American IPTV market is available in the report “Forecast: IPTV Subscribers and Service Revenue, North America, 2005-2011.”