Intelligence Brief: What next for pay-TV? – Mobile World Live

Intelligence Brief: What next for pay-TV?

24 APR 2019

Pay-TV has been the most popular medium to deliver entertainment to households for decades. But when was the last time you sat down with the family to watch good old-fashioned programming on your pay-TV subscription? OTT apps just fit perfectly with the way we live and consume media today, don’t they?

And why not? They give us flexibility, mobility, AI-based recommendations, original as well as aggregated content and, maybe more importantly, a wire-free, (sometimes) hardware-free, and hassle-free experience at a very reasonable cost per month.

All of this combines to have some pundits predicting the end of pay-TV.

In some markets, this might be premature: think APAC, where the Informitv Multiscreen Index showed considerable net new connections were added during Q3 2018 (see chart, right, click to enlarge). But, regions like North America and Europe have seen the trend kick in with 877,000 net cord-cutters for the top ten players alone in the US during the quarter. As per some market watchers, globally there will be more than 400 million OTT video subscriptions by 2022. And what might be driving this growth beyond the dynamics (ease and cost) highlighted above? In a word: value.

1: The successful OTT players are competing on service innovation backed by improved infrastructure and changed viewership dynamics;
2: Pay-TV players kept on adding channels and increasing carriage fees which made money for the networks and cable companies, but eventually resulted in a costly bill for consumers, inviting OTT disruption.

What has been the operator strategy so far?
For operators, the response so far has been straightforward. Consolidate the customer base and converge TV, broadband, voice and wireless services to manage churn through compelling bundled offers with OTT subscriptions.

It is simple economics: operators with the bigger share of pie gain negotiating power against the content providers and can pass that benefit on to the end customer. That’s what operators have done alongside exploring possibilities like acquisition/partnership with content producers, developing their own OTT app, or playing role of an aggregator for other OTT services in order to retain their subscriber base and revitalise their growth.

Let us look at few of our favourite examples from the industry where the operators applied some of the above strategies:

Partnership with OTT players
By partnering with OTT services and bundling their subscription fee with post-paid and prepaid plans, the operators can provide additional convenience which will help in reducing customer churn. In Germany, Deutsche Telekom has started giving its customers direct access to Netflix. In 2018, the operator added 200,000 new TV customers thanks to the pseudo-convergent offering including attractive TV content across all screens and on any device. In South Korea, SK Telecom and LG U+ are soon to provide exclusive Netflix services on IPTV. This strategy will help the operators to expand their client base through a diversified content offering.

Acquisition to reduce time to market
Acquiring budding or established players in the market can be a good strategy to derive direct and indirect benefits for scaling the services while still reduce time to market. For example, Reliance Jio’s acquisitions of Den and Hathway are good examples of how it gained a massive share of the Cable-TV pie in India to use it for content distribution and price negotiations. Icing on the cake, it helps them with quick proliferation of its cable network, leveraging it for broadband service provision as well. India’s Airtel TV is also in talks with Dish-TV to explore a potential merger, in order to acquire a collective market share of more than 60 per cent in the DTH space and then provide its enhanced content offerings to a wider audience.

Partnership with local content producers
This allows telecom operators to tap into the deepest layers of demography by offering local or regional content. For example, in the US, Televisa’s audio-visual content is distributed through subsidiary Univision, the leading media company serving the Hispanic market. Televisa’s content and convergence strategy has helped the operator to generate value for its shareholders: its content revenue contributed approximately 37 per cent and 35.1 per cent of total revenue for 2018 and 2017, respectively.

Own OTT App and content
For operators with deeper pockets, this move can help to command a strong control over the long-term content monetisation strategy. Jio Prime membership from Reliance Jio in India is a great example through which it is providing a host of OTT apps offering extensive content services to the customers. While initially they were provided for free to incubate a sense of loyalty and penetrate the market, Jio is now charging INR99 per year ($1.42) for these services, adding an additional source of income. Telefonica’s content strategy in Spain and LatAm specifically stands out in this regards: it started producing its own content and launched 12 original series in more than 13 countries during 2018. To add to the convenience, it bundled this product and other premium content services (Netflix, Fox premium et cetera) along with its core mobile and fixed line offering into a single bill. Due to this strategy, there was a noticeable impact on customer retention with 1.5 million registered users of the service as of August 2018, 78 per cent of which were active users.

Playing a role of content aggregator
Operators are well-placed to aggregate content/services by providing one-stop access and bundled billing. A great example of this is EE in UK offering its mobile customers access to Amazon prime video, MTV play, BT sport and Apple music in a single bill. Telefonica in Spain and LatAm (illustrated above) also sets a good example as a content aggregator providing a unified service offering with single billing.

In a changed media and entertainment landscape, end customers yearn for on-demand content, customised to their taste with enhanced convenience. While the big media houses and operators are cognisant of this and willing to come together to provide seamless distribution of content, the models of collaboration vary across markets. It is about tapping the right arrangement to penetrate the opportunity.

– Aryan Jain – research manager; Ashish Singhla – senior research analyst; and Deepti Agrawal – research analyst, Strategy, GSMA Intelligence

The editorial views expressed in this article are solely those of the authors and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

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