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TDG: ‘Barbell’ economy pushing pay-TV to extremes

According to research from The Diffusion Group (TDG), the realities of the new ‘barbell’ economy are setting in for legacy TV operators. Today’s ‘race to the bottom’ – characterised by ‘skinny bundles’ and thinning margins – is driven in large part by the need to provide consumers on the lower end with less expensive TV options. That said, operators and networks would be wise to also consider a ‘race to the top’ strategy, apropos their high-income subscribers. These and other strategic insights are discussed in TDG’s latest report, Luxury TV in the Age of Skinny Bundles: ARPU among High-Income Households, 2015-2025.

“Much energy is being spent on the design and creation of services for younger low-income Millennials,” notes Joel Espelien, Senior Analyst for TDG and author of the new report. “While these efforts are not misplaced, they are myopic and have left fallow the tremendous revenue opportunities among high-income consumers, and at a time when video ARPU is under tremendous pressure.”

The US economy has undergone polarisation during the past three decades (the definition of a ‘barbell’ economy – consumers bunched at the low end and the high end), with incomes among the top 10% of earners growing strongly while median household incomes have stagnated or declined. The classic tripartite income model is being replaced by a barbell economy characterized by strong growth at the low and high end.

According to Espelien:

  • MVPDs should develop services that appeal specifically to this segment, including premium offerings such as 4K, cloud DVR, and tiered SVoD services.

  • Operators should create new brands in order to clearly distinguish such services from their mainstream offerings.

  • Content and broadband sports providers must move beyond a one-size-fits-all approach to content production, and develop tiered versions of shows and live events that can be sold to high-income consumers at premium price points.

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