Pay-TV Players Hope To Become OTT 'Super-Aggregators'

Given the new streaming services coming out of subsidiaries of major pay-TV players including Comcast and AT&T, one might assume they’ve all come around to a “if you can’t beat ‘em, join em” attitude when it comes to OTT.

But it’s not that simple, according to an in-depth survey conducted between April and June, in conjunction with the Pay TV Innovation Forum. The September event, for senior pay-TV and content executives, was hosted by digital media solutions provider NAGRA and international research/consulting firm MTM.

As is true for many surveys of senior executives — particularly within an industry with a relatively limited number of companies — the response number was small: 141. But for directional purposes, the results provide an interesting picture of how leaders in this industry, across the globe, are thinking. North American executive responses were in the minority (20), with 51 coming from EMEA, 42 from Latin America, and 28 from Asia Pacific.



A few highlights from the event’s summary report, based on the survey, in-person interviews and seminar discussions:

Sentiment about the impact of standalone OTT services is largely positive, but still somewhat mixed.

About 70% of these executives said they see the growth of OTT consumption as an opportunity that will have a positive impact on their businesses, versus 21% who anticipate a negative impact.

But North American executives are least positive (65% say OTT’s impact will be somewhat or highly positive). “The anticipation of new, well-funded OTT services from major content providers and digital giants headquartered in the U.S., and the rapidly evolving viewing behaviors of younger audiences, have helped to fuel the anxieties of North American executives,” is the report’s (unsurprising) observation.

The “super-aggregation” model — offering a range of content and services via a single subscription — is seen as an attractive opportunity for pay-TV service providers and telcos.

Three-quarters (77%) of the executives said they believe that super-aggregator pay-TV platforms will emerge over the next five years and attract a significant proportion of customers who pay for video content.

“Despite initial anxieties, many believe that new standalone direct-to-consumer services” — including Disney+, WarnerMedia’s HBO Max and NBCUniversal’s Peacock) — will be “largely complementary,” and “will not pose a significant threat to the pay-TV industry,” sums up the report. “Instead, executives see opportunities for pay-TV providers to adopt a super-aggregation model for these services.”

Still, they do acknowledge that “more rounded bundles” from content providers—like the low-cost Disney+, Hulu and ESPN+ bundle being offered by Disney — “could be a competitive substitute when launched.”

Is some/much of this wishful thinking? Take a look at the accelerating rates of cord-cutting, which reached new levels in Q3. The four big players that have reported so far — Comcast, AT&T, Verizon and Charter — saw a combined loss of 1.74 million video subscribers, or 1.23 million more than the 506,00 lost in the same quarter last year. Analyst firm MoffettNathanson estimates that that will translate to a worst-ever 6.2% cord-cutting rate for the quarter. (With MVPD subs thrown in, the estimate is a 3.8% loss, still the worst-ever for an MVPD-inclusive calculation.)

Sentiment about the digital giants (aka FAANG) — Facebook, Apple, Amazon, Netflix and Google — is considerably more mixed.

Of these, Netflix is expected to have the biggest impact on the pay-TV industry. As for the nature of that impact, 56% think it will be negative, while a third believe it will be positive.

For pay-TV operators hoping to become super aggregators, fearing the big tech platforms seems only wise.

After all, Amazon is clearly looking to make its streaming offerings (both paid and ad-supported) added drivers for the so-far-unlimited expansion of the services coming under its Amazon Prime subscription megalith.

And now, there’s every indication that Apple is preparing to launch a subscription-based business model — the so-called “Apple Prime” scenario — in which consumers could opt to buy and upgrade Apple iPhones and other devices via regular (say monthly) payments, which would also include software/services like Apple TV+.

Asked about subscriptions during Apple’s Q4 earnings report this week, CEO Tim Cook said, rather tellingly: "My perspective is that will grow in the future to larger numbers. It will grow disproportionately.”

Pay-TV operators also view retaining tier-one sports rights and aggregating sports OTT services as key priorities.

No surprise here, given that live sports are crucial drivers of pay-TV subscription acquisition and retention.

The rise of competition from sports OTT services and a new breed of aggregators has made retaining those tier-one rights—and partnering with these services — critical. “Sustained growth of OTT SVOD and sports services is paving the way for super-aggregation opportunities across the pay-TV and video industry,” noes the report.

It adds, however, that it looks like pay-TV providers “will continue to rationalize their investments in tier-two rights.”  

Pay-TV providers will need to introduce a wider range of pricing and packaging options to ensure that their offerings stay relevant, particularly to younger audiences.

Most executives said that they expect traditional pay-TV packages to be “radically restructured” over the next 10 years, and 91% agreed that innovation in product pricing and packaging “will not only be key to attracting and retaining customers, but also vital in their quest to become super-aggregators of content. “

They also recognize the imperative to “reinvent” their offerings to accommodate younger consumers’ interest in free, ad-supported video services and limited willingness to pay for services, as well as their willingness to switch services/lower brand loyalty.

Pay-TV operators know that they need to become 360-degree, data-enabled businesses, but realize they’re lagging on this score.

Most (79%) say staying competitive will require investing heavily in big-data analytics, automation, machine learning and artificial intelligence capabilities.

“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,” but are critical of their companies’ current capabilities, states the report.

It also quotes Xandr Media’s Matt Van Houten as pointing out that “To offer advertising buyers highly specific target audiences, pay-TV operators need to have vast user bases, and significant insights. Generating visibility into effectiveness requires access to insights on what viewers do after watching an ad. Brands don't want to know that a viewer saw the ad, brands want to know what it made them do.”

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