Pay TV is, and always has been, a frustratingly imperfect retail experience, writes Andy Fry. While most leading operators place great store by customer experience and customer care, they impose conditions that would inspire outrage among consumers in a more conventional bricks-and-mortar shopping scenario.
Imagine, for example, you could only buy pasta in a supermarket if you also bought soap and chocolate (like channel bundling). Or suppose you could only get some ingredients for a meal in one shop and had to go to another for the rest (sports rights packages). And what if the cashier only let you leave after haranguing you for half an hour to convince to do all future shopping at their store (sub cancellation)?
Of course, there are plenty of rational commercial reasons why the Pay TV business operates the way it does (with content exclusivity the most notable way in which the sector diverges from a more traditional retail model). But it is precisely these historic restrictions that have come under attack in the new era of IP-delivered television. The emergence of Netflix, Amazon, skinny bundles and other forms of direct-to-consumer content packages are all forcing cable, satellite and telco operators to reassess their relationships with consumers.
"The emergence of Netflix, Amazon, skinny bundles and other forms of direct-to-consumer content packages are all forcing cable, satellite and telco operators to reassess their relationships with consumers."
In the broadest possible terms, operators are responding in three ways. The first has been to offer a wider range of content packages and price points. European Pay TV operator Sky TV, for example, has used its own OTT service – Now TV – as a way of occupying the space that exists between high-priced big bundle Pay TV and low-cost alternatives such as Netflix. Scandinavian operator Viasat has done something similar with its OTT service Viaplay. More generally, Pay TV operators have been driven to mimic the disruptors by offering more choice in the form of à la carte pricing, daily passes, and contract-free subscriptions.
The second has been to try to persuade customers that their platform is the best place to get the widest array of content and communication services at the best possible price, through one easy-to-manage subscription. The world of triple or quad play, for example, is predicated on the notion that most of us would rather not deal with the hassle of multiple service suppliers. Similarly, Liberty Global’s decision to offer Netflix within its content eco-system is about convincing customers that they don’t need to cut the cord to get what they want.
Another example of how the market is shifting is a recent deal between UK Pay TV rivals Sky and BT, which will allow the two to sell their sports channels on one another’s platforms in a more streamlined form. In the case of Sky, this means its subscribers now gain access to BT Sport content, including Premier League, Champions League and Europa League football, through a single Sky subscription (which will also include Sky’s own sports content). This not only simplifies things for consumers but may also lead to a price reduction.
All of this is linked to the third point, which is the attempt by traditional operators to offer the best possible user experience. Faster broadband speeds, intuitive user interfaces, voice recognition, personalisation and the ability to view whatever you want, whenever you want, seamlessly across devices are all key battlegrounds in the newly emerging Pay TV landscape.
Many of the above themes came to the forefront during 2017’s Pay TV Innovation Forum, developed by NAGRA in partnership with research consultancy MTM. Speaking within the umbrella of the Forum, for example, Laurent Perchias, head of strategy, content division at Orange, envisaged a future in which Pay TV providers play a key role in aggregating OTT services, becoming a central content gateway for consumers.
Perchias said: “(Our) vision and conviction is to be a content aggregator. We want to be the right partner for content providers, promoting and selling their content to consumers and delivering a great user and customer experience. The alternative model of vertical integration is much more risky, often requiring huge investment in content and delivering low returns, particularly in terms of telco KPIs, which are growth of broadband subscriber base and ARPU.”
The issue of seamless multiscreen TV delivery also loomed large among 2017 Forum participants. While 90% of Pay TV operators in EMEA now have so-called ‘TV everywhere’ services, a key message was the need to make these services as seamless and intuitive as possible.
“Growing competition and changing consumer demand mean that both established and new Pay TV providers need to find ways to optimise their content offering"
Alexander Sacher, CTO at HD Plus, summarised by saying that: “Growing competition and changing consumer demand mean that both established and new Pay TV providers need to find ways to optimise their content offering… and ensure they can deliver a high-quality user experience across multiple consumer devices and apps.”
NAGRA, a Kudelski Group company that provides content protection and multiscreen TV solutions, conducted a piece of research off the back of the 2017 Forum, in partnership with MTM. As a result, the two identified three key disruptive challenges facing the industry worldwide: the proliferation of cheaper OTT services, changing consumer behaviour and demand, and the rise of content piracy. “67% of executives agree that competition from SVOD services will have a negative impact on PayTV,” according to the research, “pushing down prices and increasing churn. 66% agree that we will see a new wave of mobile-first services to cater to evolving habits.”
Against this backdrop, NAGRA/MTM found that 85% of executives agree that, in order to grow, Pay TV service providers will have to innovate strongly over the next five years. “By developing new services and partnerships as part of their innovation roadmap, service providers and content owners will successfully prepare their businesses for the future,” concluded Simon Trudelle, senior director, product marketing, NAGRA.
Drilling down further into the nature of that innovation, the NAGRA/MTM research found that “PayTV executives are increasingly focused on delivering standalone OTT services (64% of respondents believe it to be a commercially attractive area opportunity), multiscreen TV Everywhere (67%), app-based TV services (61%) and advanced functionality (53%) such as voice and 4K, alongside innovative content propositions (74%) and new pricing and packaging models (78%.)”
Furthermore, NAGRA/MTM added: “More advanced service providers are also increasingly investing in adjacent areas such as advanced advertising and data solutions (50 per cent), Internet of Things and Smart Home solutions (42 per cent), and new content and technology services (45 per cent), such as licensing or white-labelling in-house technical solutions.”
Jon Watts, managing partner at MTM added: “In this period of change and disruption, service providers that are prepared and willing to innovate by deploying new pricing models, technology partnerships and improved user experience will be successful in meeting quickly evolving consumer demand.”
NAGRA/MTM’s reference to piracy is a reminder that threats to traditional Pay TV operators are not just coming from legitimate sources. The research found that 50% of executives believe content piracy will lead to greater pressures on the industry over the next five years, with online streaming, peer-to-peer downloads and IPTV piracy cited as the most important forms of piracy affecting service providers and content owners.
The research estimated that service providers could gain US$7 billion in unrealised Pay TV revenue annually, if at least one in four consumers of pirated services switched to a legitimate option.
While much of the above innovation is simply about protecting existing revenues, there are areas of innovation that could help Pay TV operators grow revenues.
Addressable advertising and dynamic ad insertion, for example, are viewed as ways of combatting the threat of declining subscription revenues.
Similarly, millennials also offer providers the opportunity to develop new forms of content as they feed the demand for digital-first short-form content, virtual reality and gaming. The main challenge here is that a growing number of millennials live in the same household as older more traditional Pay TV subscribers, meaning that operators need to devise two-tiered strategies that cater for both segments of the market.
Of course, with the New Year upon us – now is the time when industry seers and visionaries line up to predict key developments in the coming period. So what are the key trends and challenges expected to impact on Pay TV operators?
Ericsson’s annual ConsumerLab TV and Media Report is anticipating a big shift towards mobile and on-demand, predicting that by 2020: “Half of all viewing will be done on a mobile screen, and half of this will be done on the smartphone alone. About 7 out of 10 consumers will prefer on-demand and catch-up services over scheduled linear TV viewing.”
In parallel, Ericsson expects content discovery to be a bigger challenge than ever: “As the number of TV and video services increases, so does the average time spent searching for content – it has already seen an increase of 13% from last year, reaching almost one hour per day. Content discovery capabilities are failing to cope with consumer usage of multiple video services and devices, which is why 7 out of 10 consumers say a universal search feature would be very useful.”
NAGRA’s Trudelle is thinking along similar lines: “Consumers today expect access to all their content in one place, anywhere they are, with the flexibility to watch now, save for later or ‘binge on’. This requires a simplified content discovery process and a frictionless user experience, while keeping all ‘consumer types’ happy and satisfied. Whether viewers prefer traditional or more modern navigation, the user experience must provide the perfect path to content. Combined with powerful analytics, a multi-journey, consumer-facing UI can deliver personalised content experience that creates stickiness and monetises.”
In terms of developments that could benefit Pay TV platforms, Ericsson is backing VR big time: “Today’s VOD viewing experience is set to become more of a social activity (thanks to) VR. The social and immersive aspects of VR are key reasons why current and potential VR users believe the technology will be an essential component of TV and video in the future.”
The emergence of cloud-based operating systems continues apace. But another technological trend of significance is the resurgence of the set top box (STB), largely thanks to the arrival of Android TV. In a recent piece of research, Kagan (a division of S&P Global Market Intelligence) said the advantages associated with Android TV-powered STBs are numerous. Aside from being able to customise the look and feel of their operating systems, using Android TV gives operators the flexibility to offer popular OTT apps like Netflix and Hulu, as well as the other apps that are found in the Google Play store.
While there are some disadvantages, another major upside is that Android TV can be integrated with one of the world’s most popular and widely used mobile operating systems. Major players to have backed the shift towards Android TV STBs include DISH, DirecTV, Bouygues Telecom and NTT DoCoMo.
As a footnote, it’s worth noting that Pay TV operators need to do some serious soul searching if they are to make the changes that are crucial to their long-term survival.
With the likes of Apple, Amazon, Google and Roku all driving forward in different directions, one worrying message to emerge from NAGRA’s PayTV Forum is that the traditional industry is risk averse and doesn’t have the right incentives to stimulate innovation.
Shuja Khan, VP of revenue growth transformation at cable giant Liberty Global, observed that: “Lots of PayTV companies are not designed to be innovative; they’re designed to be efficient. A lot of them are still working in silos, with little collaboration.” That is going to have to change if operators are to retain their place at the heart of the connected home.