CenturyLink executives had some blunt talk on their 4Q16 earnings call regarding their IPTV product Prism TV. Its days may be numbered. CenturyLink execs, including CEO Glen Post, expressed a preference for an OTT offer over Prism TV, due to OTT’s lower cost structure.

If CenturyLink does ditch Prism TV, it won’t be an industry precedent. AT&T made a similar decision last year, basically halting their U-verse TV platform, in favor of DIRECTV, citing cost structure as well. AT&T’s video focus is now on their DIRECTV DBS and DIRECTV NOW OTT video products.

While answering questions from institutional investors on their 4Q16 results conference call, CenturyLink CEO Glen Post elaborated on the potential shift from Prism TV to a forthcoming OTT product, which is currently in trial in four markets:

“But if you look at our Prism product, as you know, we’ve talked about content costs [that] have really gone out of sight the last couple of years. If you look at the margins, sometimes actually negative margins. But we certainly – we have to make a truck roll and the cost of provisioning really makes it difficult from a returns standpoint for really driving the kind of returns we expect,” said Post.

“With over-the-top product, we don’t have to make a truck roll. We have much wider availability due to lower bandwidth requirements of over-the-top. We have network-based storage for DVR. We’ll have local channels to help distinguish that product. And our trial is getting really strong reviews right now. But we have really deemphasized the Prism product because of the margin issue.”

CFO E. Russel Ewing confirmed the frustrations regarding content costs for Prism TV, citing them as a large contributor to a $44 million year-over-year increase in cash expenses.

These insights confirm the tough and challenging business realities for most pay-TV operators who do not have tens of millions of subscribers to spread costs across. And it is leading providers, large and small, to seriously consider transitioning away from the status quo of video entertainment distribution to lower cost alternatives like OTT.

CenturyLink Transition

For CenturyLink, that transition is well underway. They claim a differentiator will be inclusion of local broadcast channels in their OTT offer.

“We’re in trial right now in four markets, said Executive Vice President of Global Operations Maxine Moreau on the conference call. “We plan to launch those markets in early second quarter, expand that midyear, and then further expand it throughout the year.”

If CenturyLink does decide to ditch IPTV entirely, they will be the second largest pure-play IPTV provider to do so, with AT&T being the first. That hurts the pure-play IPTV ecosystem, which also includes Frontier, TDS, and a host of smaller tier 3 providers.

The move to OTT is by no means a sure fix either. Delivering live linear channels via OTT is wrought with technical challenges. AT&T has seen their share of challenges with DIRECTV NOW. Additionally, the live linear OTT market is beginning to get crowded.

CenturyLink will join AT&T, Sling/DISH, Sony PlayStation Vue and a few others with lower cost OTT options. It’s doubtful the market can support this many options over the long term.