While operators lose subscribers in the United States, telcos in Latin America have taken advantage of the delay in Over-The-Top (OTT) services launching locally to embrace the over-the-top business model as their own.

The rise of over-the-top content services such as Netflix has been hailed around the world as a threat to the traditional intermediary role operators have played in this lucrative business over the years. As TV operators in the United States fret over the cord-cutting movement – which may not be as severe as imagined since both IPTV and DTH services have continued to grow while cable companies lost subscribers – telcos in Latin America have seen OTT content as an opportunity to strengthen their operations and to attract more customers to their triple- and quadruple-play offers.

As OTT services remained limited in the region for a long time, TV operators have managed to harness the advantage of already having existing licensing contracts with content providers, which so far have shown little interest in expanding their licensing agreements with OTTs to other countries, especially emerging markets. Both music streaming services, such as popular online radios Spotify and Last.fm, and video providers like Netflix, have had trouble with licensing to the region. Amazon is launching its Kindle e-reader in Brazil but with no plans to bring the Kindle Fire tablet and its wide array of video and music content.

Netflix was eventually launched in Latin America in November 2011 to a slow start, with its small catalog and few dubbed titles and local productions, as well as having to reduce video quality since the region’s low Internet speeds couldn’t handle seamless HD streaming. The service has grown significantly and now boasts over one million subscribers in Latin America, but it still faces local rivals such as Telefónica’s SundayTV, which is part of the Spanish group’s Terra Networks, and Netmovies in Brazil.

The lack of connected TVs and gaming consoles in the market (as well as the necessary credit cards for buying content online) also help give TV operators an edge in Latin America, as these are the most common platforms used in mature OTT markets for watching content on TVs. Telcos here can make use of their existing customer base to launch their own offers, either on the set-top box or the computer, which in turn is connected to the company’s own fixed or wireless network, and charged for directly on the user’s monthly bill.

In Brazil, popular programmers such as Globosat and Telecine have their own multi-platform OTT offers for pay-TV subscribers, and HBO Go recently launched in Latin America and is available to all DirectTV/SKY customers. On demand services are also provided by several pay-TV operators and include catch-up functions, as the linear programming of broadcast channels is still very popular in the region. IPTV is another tool for operators that is expected to drive demand for multi-platform content in Latin America, and is expected to grow at a 37.6 percent rate in the region over the next five years, totaling 3.4 million subscribers by 2017, according to Frost & Sullivan research. Neither are operators in the region under threat of cord-cutting, as TV services are only now making their way into the homes of Latin America’s new middle class, and pay-TV penetration is likely to double in coming years.

Other telcos providing online content to subscribers include GVT’s Power Music Club online radio, and Oi, which brought the music streaming service Rdio to Brazil under a branding partnership with multi-platform options, as well as the growing number of mobile carriers – especially Telefónica’s Movistar and Vivo and Telmex’s Claro – launching video streaming services to attract customers to 3G and 4G mobile broadband plans. Despite the market’s structure in Latin America, where these large groups operate in all different segments of the telecommunications industry, telcos’ OTT offers for the most part have so far been limited to these one-off sales gimmicks, with little effect on companies’ convergence strategies.

These services also generally have very limited catalogs, which are unlikely to satisfy Latin America’s growing appetite for online content. A recent study by Rio de Janeiro’s chamber of commerce, Fecomércio-RJ, revealed that 59 percent of the Brazilian public believe downloading music online is legal, which shows that Latin Americans are already changing the way they consume content. Despite the region’s growing potential, if content providers and operators don’t step it up, over-the-top content may yet become a threat to the traditional pay-TV business model.

Georgia Jordan works as a research analyst for ICT in Latin America for Frost & Sullivan. She is based out of Sao Paulo.