Is it time for pay tv operators to call time on the set top box?

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One of the familiar themes heard at broadcast conferences around the globe is encroachment of so-called disruptive players into the pay TV space. Unencumbered by expensive, and often ageing, distribution infrastructures such as cable or satellite, these upstarts are piggybacking existing broadband networks to get their content to customers. This over the top (OTT) approach allows streaming media providers to keep their costs down and these savings can in turn be passed on to consumers.

The mantra “content is king” still holds true of course. The incumbents will face increasing competition for first run premium programming from the new OTT players, as exemplified by Netflix securing the rights for the final season of Breaking Bad in the UK. Add to this the new competitors producing their own content, and the prospect of cord-cutting looms ever larger.

OTT provider Amazon Prime Instant Video stepped up its TV ambitions this week by entering the (increasingly crowded) market for connected TV streaming devices. The move was to be expected as the company seeks to take advantage of additional avenues from its expanding media catalogue, which now takes in various subscription and on-demand services for film, TV, music and games. This strategy has already proven a success through the company’s Kindle Fire tablet range.

What is perhaps more surprising is that Amazon has taken a set top box (STB) approach at all when compared to the lower cost dongle option Google has taken. Instead, Amazon looks to differentiate through a relatively high-spec puck device that arguably has more in common with Android-toting micro-consoles such as the Ouya than Google’s Chromecast. Amazon’s emphasis here would appear to be on quality of experience. Recurring themes in early reviews have been the slickness of presentation, speed, and usability.

While having the ability to play “proper” games via Fire TV with an optional controller is fairly interesting. Theone aspect that the Fire TV device seems to have over Xbox is voice search that actually works. One of the key challenges faced by consumers using VOD libraries has been the difficulty in finding something to watch quickly and efficiently. The strength Amazon offers lies in its proven expertise in personalisation and recommendations and, factoring in voice, this seems like a truly next generation technology. Cutting out fiddly remotes from search may also offer the company a viable message to take the Amazon Prime service to senior audiences.

While competitors such as Google and Apple are agile enough to keep up both in terms of software and hardware, the incumbent pay TV providers are not geared up to maintaining the same speed of innovation. In the UK, BSkyB has been working hard to future-proof its offer. The company recently rolled out a new Sky TV Electronic Programming Guide (EPG) that places equal emphasis on linear and on demand content. It also features a search bar prominently on the home page, although at the time of writing, search support does not extend to compatibility with companion devices.

As the competition from lower cost OTT providers becomes increasingly credible, pay TV operators would be advised to provide more flexible options to customers. This fact has clearly not been lost on BSkyB. Even though the market for connected TV dongles is still relatively niche, the company has released its own Now TV device aimed at consumers who don’t wish to commit to a lengthy subscription. By offering pay-as-you-go and pay-per-view options though its own dongle, as well as through apps available on third party devices, the provider is giving itself the options it needs to operate in a more competitive market.

Sky and its peers are clearly looking to the long-term and the future for standalone STBs has perhaps started to look less secure. While it is in the operators’ best interests to keep their customers within the walled gardens of their own subscription STBs, there are signs this will not a viable prospect indefinitely. This is signalled by the providers’ efforts to make their content available through apps, as pioneered by the BBC’s iPlayer, and this could point to the future for the industry.

Spec-wise, Amazon’s Fire TV compares to current generation smartphones, but the mobile sector is engaged in an arms race that sees each year throw up increasingly powerful handsets. There are already 4G models on the horizon and multiple apps for both screen-mirroring and casting media to WiFi-ready TVs, which could make STBs redundant altogether. Amazon has been rumoured to be working on a smartphone for some time now and it may well be that the next upgrade to Fire TV could simply be a phone. Digital natives are so wedded to their handsets, the appearance of a viable mass market Android STB could signal the first step of a worrisome trend to operators. However, whether the traditional subscription pay TV market will be ready to relinquish their STBs will be a tough call to make.