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Irdeto: Three Reasons Why the Rise of OTT is Good News for Pay TV Operator

Adam Nightingale  Senior Director Strategic Sales, Global  Irdeto

Adam Nightingale
Senior Director Strategic Sales, Global
Irdeto

Guest article by Adam Nightingale, Senior Director Strategic Sales, Global, Irdeto.

The pay-TV market is undergoing a huge shift. Consumers are increasingly inclined to find and consume content on non-traditional devices distributed via the Internet rather than over linear satellite or cable networks. They demand easier access to desirable content on any device and from an increasing selection of content providers.

It’s no surprise, then, that the success of OTT services is shaking up the industry and forcing pay-TV operators to review how they capture the attention of this new age of consumers. Popular OTT services such as Netflix, which recently announced that it had passed the 40 million subscribers mark in 41 countries, are causing concern in the industry; a recent survey conducted by Irdeto at IBC 2013 found that 53% of survey respondents now see new OTT entrants as the biggest threat to pay-TV operators.

But is OTT really sounding the death knell for established TV service providers?

While many industry commentators may hold a pessimistic view about the future of operators in this new competitive landscape, they underestimate the power of operators’ three key assets – content, audience and advertisers.  In reality, operators are in a great position to thrive if they adapt and evolve to address the new OTT world.

  1. 1. Premium content is king in OTT as well – and operators still hold court with premium content

Content continues to remain the major revenue driver for operators, and most TV viewing today still centres around premium content such as live sports. In the 2012 Global Sports Media Consumption Report, at least 70% of adults surveyed in some of the largest countries around the world claimed to follow sports.

Operators who can securely offer this premium content on as many devices as possible will grow their market and revenue. Exactly what impact BT’s recent £ 900m acquisition of three years of Champions League football rights will have on previous holders BskyB and ITV has yet to be seen, but it is without doubt the action of a company keen to disrupt the establishment.

Similarly, with OTT players like Amazon creating its own content and Netflix seeing record subscriptions around exclusive deals for comedy and drama content, it’s clear that exclusive content draws consumers – no matter if the platform is traditional or OTT. When it comes to premium content, operators still have the advantage. A multiscreen service including niche or exclusive content can enable operators to further extend their reach and increase return on their content investment.

  1. 2. Riding the OTT wave has revenue-generating benefits for operators

According to Informa, revenue from pure OTT services is estimated to be $14 billion in 2013 and will grow to $37 billion by 2017. But while the growth curve is steep, pure OTT revenue will likely just reach 10% of pay-TV revenue by the end of this decade.

Operators such as Viasat, with their pure OTT offering Viaplay, are becoming an exception to this rule and are generating significant revenue from their multiscreen services. But the vast majority of multiscreen services offered by operators today are bundled with subscription. Even when operators do not charge separately for OTT consumption, it is still highly valued by consumers and therefore valuable for operators, especially in the following two ways:

  • Churn prevention: This is often the most concrete and effective way for operators to attribute revenue to multiscreen services when they reduce churn
  • Subscription:  Informa Telecoms & Media used a theoretical model to determine how much OTT contributes to operators’ subscription revenues when operators don’t charge separately. The model is straightforward – if consumers spend 10% of their time watching the operator’s content over the top, attribute 10% of the subscription revenue to OTT.  Today’s operators own so much of the global pay-TV revenue, compared to pure OTT services, and they need to (and can) shift and preserve that revenue by offering an additional multiscreen service to suit consumer demands for OTT.
  1. 3. Operators can use OTT to make the most of an established subscriber base and personalize

The rise of OTT services brings about a number of challenges for operators, not least of which is the pressure of unbundling. At less than $10 a month for unlimited viewing, OTT services such as Netflix offer great value for many consumers and can lead to cord shaving or cord cutting.

Besides offering the right content on the right devices, the best thing that operators can do to preserve their revenue potential is to create a personalised TV experience that will drive content consumption and customer loyalty. Adding attractive features such as a redesigned interface and search and recommendation technology can drive up content consumption but also significantly increase the loyalty of their subscribers.

Agile OTT players such as Google/YouTube, Amazon and Netflix have made great strides in creating a highly personalized and compelling experience for viewers.  All operators who evolve their offering to suit new consumption methods can create personalised TV services that propel them into tremendous leadership positions.

 The New Charter for Operators: Adapting to thrive in the OTT world

Competition for a consumer’s time and money will not slow down anytime soon. Rather than see OTT only as a threat, operators need to learn from the strengths of OTT, and adapt their processes to satisfy their increasingly-demanding consumer base and successfully implement a multiscreen strategy.

A move into multiscreen to compete with OTT is more than just content distribution on multiple devices. A proactive approach to delivering multiscreen services is required to compete for consumer revenue, and elevating this service to must-have status will require development of a personalised experience that engages the viewers, provides tailored recommendations, interacts with their social networks and enhances the existing pay TV experience.

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