Is your netflix a substitute for your telefunken? Evidence on the dynamics of traditional pay TV and OTT in Latin America

Abstract

Este trabajo analiza si los servicios audiovisuales OTT son sustitutivos, complementarios o independientes de la Tv de pago tradicional en América Latina. Para responder a esa pregunta, desarrollamos un modelo teórico basado en una función de utilidad CES, de donde se obtienen funciones de demanda que se estiman simultáneamente a través de mínimos cuadrados no lineales. Los resultados sugieren que, si consideramos una muestra comprendida entre los años 2011 a 2020, ambos servicios serían independientes. Sin embargo, si acotamos la muestra al período mas reciente de mayor expansión de conectividad y de ofertas OTT (2015-2020), emerge evidencia de sustitución bruta. Estos resultados sugieren que los reguladores deberían incluir a los servicios OTT dentro de su ámbito de análisis y realizar estudios pormenorizados por país para evaluar y actualizar la regulación aplicable. También se sugiere implementar sandboxes regulatorios para avanzar hacia una regulación inteligente en el segmento audiovisual.

Are audiovisual over the top (OTT) services in Latin America substitutes for the traditional Pay TV services (cable or satellite), complementary or independent? To respond to this question, we develop a simple theoretical model based on a CES utility function and estimate simultaneously, using non-linear least squares, demand functions for both audiovisual services. Our results, based on original database covering 17 Latin American countries from 2011 to 2020, suggest no substitution of Pay TV for OTT. However, during the more recent period (2015–2020), we find evidence of gross substitution (i.e., similar enough, although not completely equivalent for consumers) between these audiovisual services. This confirms, although only partially, the existence of the so-called cord-cutting and cord-saving phenomena, due to the expansion of fast internet and the richer OTT offers, and their relatively lower prices. These results suggest regulators should include OTT services in their scope and produce in-depth analysis on the country level to update and optimize regulations, as well as implement regulatory sandboxes to advance towards smart regulation, as shown in the financial industry.