Related > Viewer Watch 2017: Download the Complete Report

With new business models proliferating almost as fast as new consumer-electronics devices at this year’s CES, TV executives are recalling 2016 as a year of landmark changes that will produce even more profound developments in 2017.

“In the last year, there has been more change in the video business than we saw in probably the past five years,” said Matthew Strauss, executive vice president and general manager of video and entertainment services for Comcast Cable. “We’re just continuing to find the competitive landscape shifting. There are more services being delivered over the top to consumers. There is the growth and proliferation of Internet-connected TV devices like Roku, Apple TV or Amazon Fire. And you are also seeing new services that are delivering bundled over the top channels like Sling TV, Sony’s PlayStation Vue and DirecTV Now.”

In response, programmers and operators have introduced a flurry of new products. “In terms of video, this has been one of the biggest for Cox in all the years I’ve been here,” Steve Necessary, executive vice president of product development and management at Cox Communications, said.

Less obviously, operators and programmers continue to make massive investments in their technology infrastructures with important implications for their offerings in 2017 and beyond.

“As a company, we are investing and positioning content to be consumed on more and more platforms every day,” Discovery Communications chief technology officer John Honeycutt said, stressing that the programmer is rapidly deploying new cloud and software-based infrastructures so it can adapt to consumer needs and quickly roll out new services. “We are in the middle of a revolution in our supply chain.”

Related: Old Controversies and New Businesses

DIGITAL-FIRST REALITY

Much of this reflects longstanding changes in consumer behavior and the underlying economics of the TV, digital and media industries.

Vincent Letang, executive vice president of global market intelligence at Magna, said 2016 was the first year digital advertising exceeded total TV advertising in the U.S., garnering 39% of the total ad spend versus 37.4% for TV. Digital advertising is set to exceed total TV advertising worldwide for the first time in 2017, he added.

“We are forecasting that in five years, digital will grow to 56.0% of total advertising [in 2021 in the U.S.] while TV will plateau at 29.9%,” he said. Meanwhile, content creators and distributors are following the flow of money into digital media, fueling rapid growth in consumption of TV shows on mobile devices, computers and TVs connected to the Internet.

“The cliché of how consumers ‘want my content when I want it, where I want it and how I want it,’ is now a truism,” Mike Vorhaus, president of Magid Advisors at Frank N. Magid Associates, said. “Just five years ago, it was hard to find a lot of content. But now, in 2017, I’m really the captain of my media ship in a way that was not true in the past.”

Given ongoing rapid growth in the usage of mobile and connected TVs, it is difficult to call digital video “mature.” But researchers stress that the tectonic changes in how video is consumed and delivered have already made digital media a central part of the TV business.

“After four or five years of talking about alternative ways to access video and watching significant growth in its usage, we are now at a point where it is pretty much established,” Howard Horowitz, president and founder of Horowitz Research, said. “It’s not a fly in the ointment, but part of the business. Digital self-managed access to video content is with us and mostly that is a good thing for all the players.”

DISRUPTIVE GAINS

Others agree. After ticking off a long list of new products and initiatives designed to realign their offerings with newer consumer behavior, Comcast’s Strauss said: “Our third-quarter video results were the best we’ve had in 10 years. We added 32,000 video customers, which is an 80,000 improvement year over year. And if you look at the last 12 months, we are video-positive.”

Some programmers have been buffeted by the changes, which have hurt ratings, but those that have aggressively moved to capitalize on the newer delivery platforms are pleased with the results.

Bernadette Aulestia, executive vice president of worldwide distribution for HBO, noted that the launch of the OTT service HBO Now has allowed the programmer to tap into new markets and see healthy growth in the overall business. “Less than 1% of [the OTT] HBO Now subscribers are coming from our linear multichannel subscribers,” she said.

Executives from Dish Network and AT&T cited similar experiences with their respective OTT channel bundles, Sling TV and DirecTV Now, which are designed in part to tap into viewers outside of the pay TV ecosystem.

“There are about 20 million households in the U.S. that are either not engaged with pay TV or have opted to leave the pay TV ecosystems,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said.

That doesn’t mean that the industry can sit back and pretend it will be business as usual in 2017.

An acceleration in the decline in pay TV subscribers has caused Magna to revise its estimates of pay TV subscribers downward. There is also a great deal of uncertainty about the ad market.

These trends raise important questions about the changing use of video on various platforms — traditional TV, mobile, Internet-connected TVs, set-top boxes and other technologies. How these trends will impact the health of the industry and the kind of products that get launched in 2017 is the subject of the next story.

“We believe the future of TV is apps,” Apple CEO Tim Cook declared in September as he unveiled the latest, greatest Apple TV streaming device. It was largely viewed as a prescient utterance.

Based on the current state of the TV world, though, Cook might has well have been talking about the present. Programmers and multichannel video programming distributors (MVPDs) are continuing to launch streaming apps at a rapid clip for smartphones, tablets, gaming consoles, smart TVs and streaming players.

It’s abundantly clear that the bulk of the pay TV ecosystem has taken on an apps-friendly approach, crafting strategies to help fight back against the small-but-growing cord-cutting trend while establishing a presence on increasingly popular connected consumer devices.

These programmers and MVPDs have realized they need to be where consumers are. In many cases, that’s no longer the old set-top box.

The shift toward an apps-centric paradigm also has huge regulatory ramifications. Cook’s comments and the ongoing deployment ramp fit snugly with the cable industry’s position as the Federal Communications Commission considers new video-security rules that would succeed the CableCard, a device that failed to create a vibrant market for cable-ready retail set-tops and TVs.

The FCC has yet to act on any new rules in this area, but it’s mulling its next move following a report from an agency-appointed group, the Downloadable Security Technology Advisory Committee. DSTAC arrived at divided recommendations — an apps-based approach that is generally endorsed by the cable industry, and an “AllVid”-style approach that favors the implementation of a “virtual headend” and a government-specified gateway device.

The cable industry believes the market is being driven by apps, and has been backing that up with stats and numbers. For instance, the National Cable & Telecommunications Association recently estimated that 66% of the 460 million Internet-protocol devices in the market now can stream each of the top 10 pay TV provider apps. In a blog item posted in September, CableLabs chief technology officer Ralph Brown noted that 96% of those retail IP devices can be served by apps from one or more MVPD app, and 67% of them can be served by an app from all of the top 10 U.S. pay TV providers.

When it comes to video apps, 2015 will be remembered “as a watershed moment for the industry,” HBO executive vice president of global distribution operations Bernadette Aulestia said.

Although the cable industry agrees on the apps-based approach, the way those strategies have been put into play has been far from uniform.

While Time Warner Cable, Charter Communications and other providers have developed apps for Roku players, Comcast has instead focused its apps on mobile devices. For their part, programmers have centered on iOS and Android tablets and smartphones, but vary in their support of TV-connected platforms. (For a representative rundown of programmer apps, see chart starting.)

But they all agree that use of their respective apps is on the upswing. “We are definitely seeing an increase in the usage” of the TWC TV app, now offered on eight platforms, Mike Angus, senior vice president and general manager of digital programming and content for Time Warner Cable, said.

That trend is gradually moving “mainstream,” as TWC and others remove some steps in the authentication process that used to be required for customers to obtain their credentials, Angus said.

And apps on TV-connected devices have given MSOs a path to distribution on retail platforms that can replicate most of the functions in a set-top box.

TWC is taking that idea to task in New York, where it is trialing a set of IPTV service tiers centered on the Roku platform. The trial, targeted to cord-cutters and video customers looking to avoid monthly set-top box fees, uses the TWC TV app to deliver live programming and VOD to Roku devices.

“You’ve got to be able to provide each of those customers with what they want or you’re potentially missing out on an important and new [customer] segment,” Angus said.

“It’s not one size fits all anymore.”

Comcast has been adding more utility (and unity) to its apps, which are used by customers in and out of the home. The Xfinity TV app for Comcast’s X1 platform, for instance, recently tacked on support for the MSO’s TV Everywhere VOD library.

That has incented customers to download the app as a primary video source, Comcast Cable senior director of TV Everywhere content and product strategy Vito Forlenza said. About one-third of Comcast’s customers are now using some form of TV Everywhere, via the MSO’s Web or mobile apps, or through an app operated by a programming partner, he noted.

“The most interesting thing is that users are growing, but hours per viewer are also growing,” he said, attributing that in part to an increase in the “stacking” of current TV seasons.

About 25% of programming hours viewed via TVE are live, Forlenza said, driven primarily by news and sports.

Comcast is also working to fill a gap in its TVE lineup by adding broadcast-TV stations to the mix.

“We think that will really have a big effect on increasing our reach and engagement and providing more value to our customers,” Forlenza said. Comcast is working with broadcasters to define the rules on access, he added.

Forlenza attributes some of TVE’s upward swing to the collaboration on guidelines, including iconography and language, developed in partnership with organizations such as the Cable & Telecommunications Asssociation for Marketing and the Open Authentication Technology Committee.

Programmers, and premium networks in particular, are also seeing increased traction with their respective apps.

Showtime said it has seen significant growth in TVE since launching its effort four years ago. Among the stats: Registered users rose 69% and app downloads nearly doubled from September 2014 to September 2015. “Program plays” — via the Showtime Anytime app and MVPD apps that provide Showtime content — increased 64% from August 2014 to August 2015.

Still, TVE remains an additional conduit, rather than a primary one. Showtime Anytime users are moving fluidly from the linear channel, the DVR, set-top VOD to the app, as just 6% of the network’s viewers watch Showtime content exclusively on the TVE app, Showtime executive vice president, research, program planning and scheduling Kim Lemon said.

HBO has seen similar usage patterns across HBO Go, its TV Everywhere offering, and HBO Now, its new standalone OTT subscription service, Aulestia said.

“For many years … consumer education was a big piece of what many of us spent a lot of time working on,” she said. “But once they [consumers] use it, they’re sold.”

And the apps-based approach has not cannibalized other parts of HBO’s business. For example, HBO Go, a mature product in TVE terms, has seen registrations jump 20% this year. “All boats have risen,” Aulestia said.

THINKING INSIDE THE BOX

Traditional set-top makers are also working on ways to stitch apps to the traditional TV offering. While TiVo has been doing this for years on its retail and MVPD-tailored digital video recorders, Arris is also blazing that path with Arris Market, a platform that enables its MSO partners to blend OTT with TV.

Heading into next year, Arris aims to “drive wild and wide adoption” of its approach as it introduces a new pricing model for Arris Market, vice president of product management Ron Miller said.

Arris has already integrated Netflix, Pandora, i-Velozity (an IP video-on-demand service now owned by Evolution Digital), Toon Goggles, Weather Network, Newsmax and thousands of Web clips (via a partnership with Wurl) to its platform. It’s in the midst of obtaining certification for YouTube. “Netflix, YouTube, Amazon and Hulu … those are the four constants in the discussion,” Miller said.

OTT providers are also eager to be integrated on set-top platforms. “It’s called the fight for Input 1 on the remote control,” Miller said.

For our list of programmer OTT apps, please click here.