By Frank Poppelsdorf, Product Direct at Irdeto
Pay TV operators continue to face an uncertain future. The rapid growth of pureplay OTT providers like Netflix and Amazon Prime has increased competition for VOD revenues. Meanwhile the increased consumer choice for content across the board has seen cord-cutting become a growing problem. As a result, many operators have seen substantial losses in subscribers for broadcast pay TV services.
While some of this loss is a migration to linear OTT pay TV subscriptions – a recent report from Dataxis found the linear OTT pay TV market in Europe alone increased 13% in Q4 2017 from the previous quarter – these subscriber losses are symptomatic of an industry undergoing fundamental changes in value expectations. Looking at things from the OTT side, there are clear signs that consumers are searching for and finding a better bang for their buck. Netflix reported that 2017 was a record year for subscriber growth, with 24 million new subscribers and revenue up 36%. Meanwhile, a recent poll from personal finance website, LendEDU found that cord cutters are saving an average of $115 per month.
The content war is changing – think “and”, not “or”
Pay TV operators have established strong brands to date, often by having the most enticing content for their markets. While this strategy has been mostly effective for demanding a premium subscription price, it requires some tuning for operators to compete in the future. For one, big OTT players can outmuscle operators on content spend. A recent report from the Diffusion Group has predicted that Netflix, Amazon and Hulu will triple their original content spend in a bid to attract additional customers. Meanwhile, the true bastion of traditional pay TV operators, live sports rights, could also be under threat from newer market entrants. Amazon recently outbid Sky for the rights to the ATP Tennis tour and it has been widely predicted that a push from Facebook, Amazon, Apple, Netflix and Google in exclusive content, could push up the cost of sports rights and further increase the pressure on traditional pay TV operators.
Facing this level of competition, the need to differentiate on content is more critical than ever. But instead of choosing this service or that service, consumers are increasingly relying on multiple sources of content to fulfill their entertainment needs. Operators must accept the reality of the content war, and start adjusting to an “and” vs. “or” mental model. In other words, in a new media and entertainment landscape, collaboration, or at least strategic co-existence between pay TV operators and OTT players is often a practical and efficient way to enhance the overall user experience.
Rethinking what’s in a brand name
Many OTT players have established a brand that customers identify with, whether it is the link to other consumer services and offerings (in the case of Amazon) or the strength of original content (in the case of both Amazon and Netflix). Pay TV operators themselves have strong brands which they can leverage however, and they are making smart moves to grow their business in the face of the increasingly competitive and changing market. Comcast continues to push forward with its Xfinity Mobile service. In Europe, Sky plays heavily on its Sky Q box, associated UHD content, user interface and functionality. Sky also recently unveiled the new Now TV Smart Stick, a low-cost streaming device powered by Roku, as well as an all-IP version of its service which will launch in April, first in Italy.
Operators realize the importance of the brand in retaining customers and increasing market share. But what does the brand stand for? Content is certainly a critical part of the equation, but instead of just offering its own content, the operator can differentiate its brand by enabling consumers to find and enjoy any content with ease. Operators can offer content from a variety of sources and prioritize availability as necessary, much like Apple does on iTunes or Sonos does when connecting Spotify or Apple Music accounts.
Building fancy features is another way pay TV operators have strived to differentiate their brand. However, the question operators must ask themselves is “will a consumer use a service because of content or feature of the set-top box (STB)?” Some basics are needed, like PVR and catch-up TV. But why spend a lot of effort on features that may please 1% of the customer base, such as Airplay or DLNA? Is there another way to leverage the strong brand of others to deliver features with minimal or no effort on the part of the operator?
Future-proof your set-top box, the face of your brand
The realistic ten-year outlook is that all content will be delivered through OTT. The big four technology companies – Amazon, Apple, Facebook and Google – will continue to invest in not only content, but also their own boxes. Many operators today struggle to differentiate on fancy features, but it takes them so long to get to market. At what point is a feature “too little too late” when the OTT giants are adding stuff with armies of engineers on their own platforms?
In this case, leveraging the Google brand may be the answer.
With Android TV operators can let Google develop these features, and get them for free on Android TV. This allows them to focus on content, which is the differentiation.
Already, Android TV is an excellent option for operators who want to launch a hybrid set top box quickly, with low development and operational costs. By leveraging built-in features of Android TV, operators can add their broadcast service in six to twelve months, or even faster if they work with pre-integrated solutions. They can give consumers instant access to thousands of OTT and other apps in the Google Play Store. Android TV allows operators to future proof the STB and expand business opportunities beyond media. Securing this open platform requires careful planning, but it is well worth the work for the benefits Android TV offers. Meanwhile in the future, operators may wish to let the big technology companies take the frontline in the feature battle, so they can focus on the content that truly differentiates them.