We apply Non-Linear Least Squares due to non-linearities, and simultaneous estimations, as adoption decisions occur at the same time. whether these audiovisual services are complementary, independent or substitutes: Our empirical strategy focuses on how Pay TV and OTT consumption reacts to changes on the price of the other service i.e. The demand function for both services are as follow: The theoretical model relies on basic consumer theory and uses a CES utility function to model an economy in which households consume two services: OTT platforms and Pay TV. Our database, originally built for this paper is representative of over 90% of GDP and population, and covers the main options of OTTs (Subscription video-on-demand, SVOD) and Pay TV (cable and satellite). Our paper Is your Netflix a substitute for your Telefunken? Evidence on the dynamics of traditional Pay TV and OTT in Latin America aims to contribute to this literature shedding light on 17 Latin American markets during 2011-2020. In a similar line, the consulting firm Altman Solon (2021) argued that there are specific dynamics in the regional markets that help traditional Pay TV providers retain customers, namely exclusive programming (live sports and news), and the limited penetration of debit and credit cards. In contrast, the Colombian telecommunications and media regulator CRC (2019) estimated that OTT and Pay TV options are complementary. The telecommunications association think tank Cet.la (2019) qualitatively stated that both types of service are close substitutes. In the US, empirical evidence – albeit not very deep and based on ad-hoc databases – tends to confirm this competition and substitution processes (see Banerjee et al, 2014 Prince and Greenstein, 2017 Fuduric et al, 2018 or Maloney et al, 2021), explained by younger cohorts, similar content, and multiple device availability among other factors.Įvidence for Latin American markets is much more limited. In terms of public policy, it is key to determine whether these OTT services compete in the same relevant market with the more traditional pay TV alternatives (cable and satellite), in order to update its regulation and competition policy. In Latin America, Digital TV Research data projects that by the mid-2020s streaming penetration might surpass that of Pay TV. Changes in consumer patterns gave place to cord-cutters, cord-savers, and cord-nevers, as consumers gradually substitute traditional pay TV services in favor of audiovisual OTT choices, either because they cancel their subscription, or directly have never used them in the case of younger generations. These transformations are driven and are driving changes on consumer patterns, with some segments – mainly the younger generations – perceiving OTT audiovisual platforms as an alternative to traditional pay TV services (cable or satellite). As recently reported by the Financial Times, the top streaming platforms will invest globally 140 billion dollars in 2022 in new content (films, series, documentaries), and sports rights. With the COVID-19 outbreak, the relevance and value of platforms became greater. Audiovisual platforms – whether owned by traditional distributors and programmers such as Disney+ or HBOMax, or digital natives from the world leader Netflix, or big-tech owned as Google´s YouTube or Apple´s iTunes –have grown well and fast as broadband connections became more widely available. The audiovisual industry has experienced an extraordinary transformation over the past few years, led by the development of multiple content distribution platforms.
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