Analysis & Opinion

After its ‘Worst Ever US Year’ – IP&TV asks “Where next for pay-TV?”

This week saw the striking news that US pay-TV had just endured its “worst year ever” – according to Wall Street media analysts Craig Moffett and Michael Nathanson, who reported that “providers of TV, broadband and phone communications lost 687,000 subscribers during Q3… gained 574,000 new ones, for a net loss of 113,000.”

Which leaves us with two main questions,

  • What is causing the subscriber slump?
  • What can pay-TV do about it in the future?

While plenty has been made of the first of these– with analysts and other commentators pointing to a variety of reasons ranging from the so-called “cordless generation” (increasing amounts of young people who have grown up with Netflix et al and are now resistant to purchasing relatively exorbitant cable packages) to a saturated US market (households in the in the US with pay-TV have numbered around 78%-80% for almost a decade: the only way, some say, is down)– arguably too little has been made of the latter.

Happily, in a special report on the subject, “OTT TV and cord-cutting: Lessons from US pay-TV declines,” Rob Gallagher, Head of Broadband & TV Research at Informa, has helped shed light on the question of the best future approach for pay-TV services .

Gallagher anticipates the following “three main responses from pay-TV operators” –

  • Focus on customer profitability. A number of US cable operators have already started moving away from discounts and promotions to win and keep subscribers at all costs.
  • Target new pay-TV segments: Operators will devise lower-cost services aimed at customers who have not historically paid for TV and existing customers at risk of abandoning services because of their affordability. Cox Communications, for example, is beta-testing an OTT video service that only requires a subscription to the cable operator’s broadband offering.
  • Emphasize connectivity: The quality of fixed, mobile and Wi-Fi connectivity will become more prominent in operator bundles, as broadband increases in utility. Cablevision CEO James Dolan even recently told the Wall Street Journal that “there could come a day” when the cable operator stops selling TV and makes broadband its primary offering.

“Pay-TV,” Gallagher writes, “is ripe for readjustment, but not total reinvention.” He lays out three recommended approaches for pay-TV operators.

  • ‘Sell people what they want and what they can afford’: The words of Time Warner Cable’s Britt have an appealing simplicity yet leave plenty of room for interpretation. Informa believes that merely retreating to protect high-value customers would be a mistake. Operators should embrace promotions and lower-cost offers – including OTT services – in a bid to win customers disenchanted with rivals and create the new pay-TV subscribers of the future.
  • Connect with the cordless generation before Christmas: Continuous hype about OTT services is creating uncertainty among tech-savvy younger consumers, leading fresh-out-of-college-kids and other new householders to delay deciding what TV services to buy, if at all. Operators must launch compelling offers before Christmas, particularly as the noise around next-generation games consoles, media streamers and other devices reaches fever pitch.
  • Dumb-pipe pricing can be smarter than you think: The day predicted by Cablevision’s Dolan when cable operators stop selling TV is not even on the far horizon, but that doesn’t mean that the industry shouldn’t start pricing broadband more creatively. Regardless of future gains by OTT services, consumers will still need broadband to access them. Bundles that make taking pay TV seem a bargain and stand-alone broadband expensive will be key.

Furthermore, since practically everyone appears to be in accord that the future consumer will continue to make use of a mix of traditional linear and OTT services, there would certainly seem to be an unusual wealth of approaches to engage and retain subscribers, to monetise, and to generally present an all-round better service that can revitalize subscriber figures, including OTT, but also social, multiscreen and more.

Informa will soon be hosting the 9th Annual Digital TV World Summit, which returns to London on the 3rd and 4th December 2013. The event provides a unique platform for the entire ecosystem to unite in order to discuss and debate the huge opportunities and key challenges facing today’s dynamic digital TV market.

This event provides a unique opportunity for leading industry players’ to shed light on how best TV and pay-TV can plough onwards and upwards. Key sessions include a keynote panel discussion on “Ensuring Growth in Established Market Revenues” – focusing on sub retention and featuring representatives from Sky Deutschland, Discovery and TalkTalk TV among others. Day Two of the event welcomes  BT Sport’s Simon Green examining the growing role of premium content, presentations’ from the BBC and Etisalat addressing the challenges ahead for Ultra High Definition and 4K; speaker’s from Deutsche Telekom, Canal Plus and Orange discussing Social TV, and much more besides. For booking and info go here.

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