Over-the-top (OTT) and pay TV are two business models that allow consumers to subscribe to television content. Pay TV, which is generally more expensive, typically bundles content and requires the user to lease a proprietary coaxial cable or satellite dish network set-top box. In contrast, OTT content is delivered through a proprietary content delivery network (CDN) over the public internet.
Unlike over-the-air (OTA) TV signals which can be accessed freely by using an antenna, Pay TV signals are encrypted to prevent theft of services. Each proprietary set-top box issued by a cable or satellite company contains a tuner that can receive the provider’s encrypted digital television (DTV) signals and translate them into a format the television understands. Firmware in the set-top box determines what signals the customer can decrypt by referencing which entitlements have been granted through the customer’s subscription.
Over-the-top (OTT) content, services or applications from third-party content delivery services like Netflix, Amazon Prime, YouTube or Hulu do not require the assistance of a set-top box because they are delivered over the public internet. Depending upon the service level, the content may be freely available or it may be encrypted to prevent theft of services. Some OTT content providers, like YouTube, include ads with their free content to bring in revenue, while other providers use a subscription and/or pay-per-view revenue model. Customers who do not have internet-capable TV can purchase video streaming devices like Roku, Apple TV, Amazon Fire TV or Google Chromecast to access and display internet content on an older TV screen.
OTT content delivery allows customers to cut the cord and view content in a more mobile and on-demand manner. Competition among and between Pay TV and OTT providers has resulted in a wider range of user choices and a transformation in how to access content. Take, for example, a customer who likes to watch a specific TV show that's broadcast once a week on a certain network. A cable provider might bundle that network with hundreds of other networks and charge the customer accordingly. However, with OTT content delivery, the customer might be able to download an app for the preferred network and binge-watch the entire television series, only paying for internet access.
The increasing availability of public Wi-Fi and unlimited wireless data plans has also helped bolster the growth of OTT providers and services. This has challenged traditional content and service providers with finding ways to stay relevant or risk losing customers. For example, HBO launched its own video streaming service called HBO Now that lets customers view HBO shows without a cable subscription.