Why the Networks Can't Beat Netflix: Speculations on the US OTT Services Market

21 Pages Posted: 2 Apr 2016 Last revised: 16 Aug 2016

See all articles by Eun-A Park

Eun-A Park

Western State Colorado University

Date Written: March 31, 2016


This paper examines the dramatically different markets for Over the Top (OTT) TV services that have emerged in the United States, and other leading markets such as Japan and Korea. Whereas OTT TV services emerged as extensions of mainstream audiovisual providers in Korea and Japan further entrenching their dominance, they emerged in the United States as market-disrupting newcomers such as Netflix. This papers seeks to explain why, putting forward four explanations: lower resistance to disruptive innovation in public TV dominant systems; higher production costs; lower penetration of broadband-capable devices, and more expensive mobile pricing plans.

OTT TV services have transformed all things in the media environment. Consumers are increasing their consumption of OTT TV services, driven by better affordability and a broader menu of content offerings. Major OTT TV services have grown subscriptions significantly, and OTT has been a catalyst for the “content arms race” to capture new subscriptions (L.E.K., 2015). Traditional content providers have been responding to this new phenomenon by adopting multiscreen strategies, monetizing content beyond the subscription, providing online pay TV packages as a full OTT model, developing cloud pay TV accessed through an application on smart TV sets, and providing hybrid broadcast/broadband services (Song, 2013). In the US, OTT TV service was popularized by third parties like Netflix, resulting in an upheaval of the traditional paradigms of pay TV markets. In response to the emergence of Netflix, TV broadcasters later formed the second alternative screen, Hulu but have been lagging far behind the market leader Netflix, and even Amazon (L.E.K, 2015).

In contrast to the US, South Korean OTT has emerged as extensions of established pay TV services, and part of their N-screen strategy, further entrenching their market position. In particular, mobile IPTV services offered by the incumbent telecommunication carriers have been quickly penetrating with emerging LTE network. In Japan, NHK and major commercial broadcasters have developed OTT services by themselves. A typical one is Hybridcast service developed by NHK. Most broadcasters in Japan think that TV sets are their own exclusive terminals. Thus, TV application services on smart phone are mainly developed by TV broadcasters themselves. Thus, the United States’ experience is a direct contrast to that of Japan and Korea.

This paper aims at examining and understanding why OTT TV services have not been deployed by US mainstream audiovisual providers, compared to those in Japan and Korea. Using relevant documents and surveys, the contrasting facts and implications are addressed and discussed.

The possible explanations are suggested: first, the differences between public TV-dominant and commercial TV-dominant nations may be a factor. Public broadcasters have less incentive to avoid or oppose disruptive innovations since their business models does not involve profit motive to the same extent as the commercial broadcasters in the US. Second, much higher production costs in the US may explain broadcasters’ delayed response. The per capita audience cost has been increasing in the US as the primetime audience has shrunk. The lower cost implies that the risks in alternative distribution platforms is lower. For risk averse distributors, it is less attractive to distribute more expensive content over untried channels, where the revenue models are not well-established. Third, the US has lower proliferation of 3G and 4G mobile devices on which OTT content can be accessed, compared to Japan and Korea. The rapid penetration of LTE in the US may make a difference in the near future, though. Fourth, the pricing models for mobile content can influence. The US users have to pay first the subscription to the OTT service itself (e.g., Netflix), and second to the network provider that provides the connectivity for the service. For example, the mobile carrier (Verizon Wireless) that delivers the content to the mobile device. While the former payment might be the same in US and Japan/Korea, the US users have much higher payments for the latter since they have (a) slower connection speeds on mobile networks, (b) lower data caps and (c) higher prices for data. In conclusion, OTT services in the US face both supply side and demand side bottlenecks compared to the markets in Japan and Korea.


Song, M. (2013). Global OTT landscape & strategic directions of CPND. KT Economics & Management Research Lab. Retrieved from http://www.digieco.co.kr/ L.E.K. (2015, June). Over the Top TV trends. Accessed from http://www.lek.com/sites/default/files/ott-tv_over-the-top-tv_over-the-top-tv-market-trends_ott-series-part1_1.pdf

Keywords: OTT, OTT TV service, Netflix, the US TV broadcasters

Suggested Citation

Park, Eun-A, Why the Networks Can't Beat Netflix: Speculations on the US OTT Services Market (March 31, 2016). Available at SSRN: https://ssrn.com/abstract=2757494

Eun-A Park (Contact Author)

Western State Colorado University ( email )

600 N Adams St.
Gunnison, CO 81230
United States
203-214-6822 (Phone)

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