Pay-TV will need to innovate to make the most of OTT | Media Analysis | Business
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The global pay-TV market is in a state of transition, as the growth of IP services continues to disrupt the industry - however, pay-TV providers see significant opportunity if they can innovate in their business models.
Nagra payTVIF 21June2018
That’s according to the 2019 Pay-TV Innovation Forum report from NAGRA and MTM, which found that over the past year, the pace of change and disruption has accelerated, as digital services and connected platforms continued to grow, resulting in an increasingly fragmented and complex pay-TV ecosystem. Consequently, pay-TV offerings are becoming more diverse, with a focus on packaging and bundling innovation and new services to drive growth, particularly with connectivity offerings.

The study found that executive sentiment regarding the impact of standalone OTT services is mixed – some see an opportunity for pay-TV providers to evolve into super-aggregators. About 70% of pay-TV executives believe OTT will have a positive impact on their business, while only 21% anticipate a negative impact. Meanwhile 77% expect that super-aggregator platforms will emerge over the next five years and attract a significant proportion of customers who pay for video content. However, they do note that more rounded bundles from content providers, such as Disney+, Hulu and ESPN+, could be a competitive substitute when launched.

Pay-TV providers will have to introduce a wider range of pricing and packaging options to ensure their offerings stay relevant, particularly to younger audiences, the study also found. Pay-TV providers must reinvent their offerings for the next generation of consumers and experiment with packages that cater to their unique needs and behaviours, such as their growing interest in free ad-funded services, their reduced brand loyalty and their limited willingness to pay for video services.

Meanwhile, retaining Tier 1 sports rights and aggregating sports OTT services have emerged as key priorities for pay-TV operators. The rise of sports OTT services has introduced a new wave of competition and innovation into the market according to the report, prompting traditional providers to adapt their business models and value propositions. For instance, 85% of executives believe that OTT sports streaming in their country will grow either moderately or strongly through to 2024, and 93% think that sports streaming services are some of the most valuable types of partners for pay-TV providers seeking to aggregate content and services.

“The conclusions of the 2019 program, in its fourth season, show that the sustained growth of OTT SVOD and sports services is paving the way for super-aggregation opportunities across the pay-TV and video industry,” said Simon Trudelle, senior director, Product Marketing, NAGRA . “With shifting demographics, competition from new forms of entertainment and mainstream piracy, rights holders, broadcasters and pay-TV service providers are under intense pressure to evolve their business models to adapt to the new market dynamics. This program provides the new compass required to successfully navigate this new landscape.”

Content piracy continues to be a significant challenge for the global pay-TV industry, with 60% of executives in 2019 seeing it as ‘a major challenge’ or ‘a challenge’ to their business. Moreover, 65% of pay-TV executives believe that the level of pay-TV and video piracy in their respective countries has either gotten worse or remained the same, continuing to affect their ability to generate a return on their content and technology investments. Nearly half (48%) expect that content piracy will lead to greater pressures on the pay-TV industry over the next five years.

Executives increasingly acknowledge that there is no one-size-fits-all approach to tackling piracy and believe that successful anti-piracy efforts will require a combination of improvements to pay-TV service offerings, deeper collaboration across the industry and new technical solutions.

The report also shows that a majority of industry executives (79%) believe that to remain competitive, pay-TV service providers will have to invest heavily in data capabilities in areas such as big data analytics, automation, artificial intelligence and machine learning. Executives see the potential for data and AI/ML capabilities to benefit almost every component of their business, including new product development, customer service and care, content management, customer acquisition and network management.

However, despite recognising its importance, executives remain critical of their companies’ ability to leverage data and AI/ML capabilities today. There is consensus that the industry can, and should, be doing more to invest in data and analytics capabilities.

“This year’s findings illustrate the ongoing need for transformation, as the pace of change across the industry accelerates. The wave of new OTT offerings entering the US market are causing considerable anxiety, but the industry remains confident that it can continue to thrive,” said Jon Watts, managing partner, MTM. “Pay-TV providers will have to continue to innovate, developing better offerings and services that deliver what consumers are looking for. Faced with ever-growing competition, increasing fragmentation, and fast-paced innovation, pay-TV businesses will have to decide which opportunities to pursue and which investments to prioritise.”