Research: N American pay-TV meeting challenges

Findings from the 2018 Pay-TV Innovation Forum, the survey of pay-TV industry executives globally carried out by content protection and TV solutions specialist NAGRA, and MTM, an international research and strategy consultancy, suggests that top priorities include managing the roll out of a more diverse range of video products, unlocking the full potential of advanced TV advertising, transforming the end-to-end customer experience, leveraging customer data, investing smartly in infrastructure and combating streaming piracy.

Executives attending a New York event as part of the programme’s 2018 North American Pay-TV Innovation Forum agreed that the industry faces significant challenges, as pricing pressures intensify and subscriber losses from traditional pay-TV services accelerate. With consumers migrating to skinny bundles and SVoD services, the pay-TV industry is becoming more diverse, with a broader range of paid-for video services competing for consumer spend. However, virtual MVPD offerings remain challenging for the industry, with low margins and limited differentiation.

As a result, major pay-TV businesses are committed to diversification, with broadband and other services compensating for declining revenues from pay-TV services. This decline in pay-TV revenues creates challenges for cable networks and other programmers, pushing content owners to look for new monetisation opportunities, notably in direct-to-consumer offerings and advanced advertising services.

Although strategies are diverse, participating industry executives identified five important priorities for pay-TV service providers:

• Managing the roll out of a more diverse range of video products: MVPDs are transitioning from selling big channel bundles to retailing multiple smaller content packages, such as skinny bundles and direct-to-consumer services. However, neither the existing pay-TV business model nor the contractual agreements with content owners were set up to support this transition, and, as a result, will need to be adapted to offer the flexibility increasingly demanded by consumers. At the same time, as the competitive landscape becomes increasingly fragmented, industry executives see a major opportunity for existing MVPDs to offer a user-friendly re-aggregation of an increasingly complex range of content and services.
• Unlocking the full potential of advanced TV advertising across the industry: As pay-TV subscription revenues decline, executives are focusing more heavily on expanding their advertising businesses. MVPDs are exploring new partnerships with cable networks to sell a higher share of their ad inventory available on MVPD platforms and are leveraging their direct access to customers and their data to offer addressable TV advertising and bring new advertisers to TV.
• Transforming the end-to-end customer experience: As it is increasingly difficult to differentiate pay-TV services based on content or price, customer experience is widely seen as a major priority for companies looking to deliver a successful next-generation pay-TV service. As new digital video services raise the bar for customer experience, service providers must work hard to deliver more user-friendly, personalised, and interactive experiences, spanning all customer touchpoints.
• Leveraging customer data: Advanced data, analytics and artificial intelligence (AI) are an important area for investment and development, presenting opportunities to improve operations and deliver efficiencies across pay-TV businesses. For example, advanced data, analytics and AI can help automate and improve customer service, deliver more relevant advertising, personalise content recommendations, and help companies understand the full value of their content portfolio.
• Investing smartly in infrastructure and technology: As competition intensifies, it will be more important than ever to optimise infrastructure and technology investments, to ensure the delivery of great products and services while reducing risks and costs. Key priorities in this area include rolling out fibre and 5G networks, transitioning to IP-based technology, and leveraging consumer devices for video service delivery, as network infrastructure and billing relationships – rather than proprietary set-top boxes – become the gateway to the customer.

Additionally, some industry participants expressed concerns that the growing importance of IP-based content distribution may lead to an increased prevalence of streaming piracy. To respond to the growing threat of piracy, industry participants will have to develop innovative anti-piracy approaches, develop more affordable premium content services, and continue educating consumers about piracy. The growing trend of password-sharing among OTT service users is also seen as a concern. However, many North American pay-TV providers believe they are making progress in tackling the challenges the industry faces.

“While the North American pay-TV industry is experiencing a challenging transitional period with barriers to entry falling and competition growing, it remains the most innovative in the world,” said Simon Trudelle, Senior Director, Product Marketing, NAGRA. “This is why industry executives are optimistic about their ability to remain competitive and grow overall revenues through a more diverse product and service offering, with pay-TV at the core of this success.”

“Despite the challenges and disruption facing the US industry, pay-TV providers in the region are taking significant steps to adapt to the new competitive landscape,” said Jon Watts, Managing Partner, MTM. “There is a long way to go and some important challenges still to resolve, such as strengthening the economics of the new virtual MVPD services and unlocking the wider potential of advanced advertising and addressability. However, these issues are clearly front of mind for many US executives – and there are encouraging signs of a growing willingness to collaborate and partner across the industry.”