What is “over the top” (OTT)?

Other than, well, a Stallone movie about arm wrestling, of course. You’l hear this term used from time to time, and because the concept is becoming more popular, you’ll probably hear it more.

“Over-the-top” refers to streaming services that use the internet service you already have. Think of Netflix, Hulu, HBO Go, that sort of thing. The idea is that you’re already paying for internet service so the content can come pretty cheaply, as it rides “over the top” of what you’ve already paid for.

OTT, as the really savvy folks call it, is a threat to traditional IPTV like FiOS or cable-provided on-demand, because those services are usually partially paid for with the price you pay for internet. This makes OTT seem a lot cheaper. For example, look at a full-price FiOS TV “double-play” at $90 for a basic package compared to Hulu Plus for $8 per month. Of course, if you didn’t have the double-play you’d pay $60 per month for internet, so really we’re looking at $68 vs. $90. A good deal, but not as good as when you thought you were getting the world for only eight bucks.

The basic conceit of OTT is that everyone is going to have internet service anyway, which is pretty much true. However, as more and more people use OTT instead of traditional service, the cost of the internet service itself will go up. Fifteen people in your neighborhood all watching Netflix is going to strain the internet node around your home a lot more than fifteen people watching cable. That means more fiber, more switches, and eventually higher costs that have to go somewhere.

Right now OTT is the fastest growing segment of home-delivered entertainment. It’s all but slaughtering physical media as it grows by leaps and bounds. Of course we expect that the cost of providing internet will go down — after all a .125 megabit line was $500 a month in 2003 — but right now internet costs are going down much more slowly than OTT usage is going up, and that could be a problem.

At least now, it’s a problem with a name you know.