Premium Video Service Market Trends
While a variety of global technology and market trends are reshaping the face of the TV industry, some have a unique impact on the design, marketing, and uptake of premium services. Those that involve major shifts in the business or revenues of pay TV are causing significant market disruptions, as are trends that define substantial changes in viewing habits. Not all of these disruptions work against the uptake of premium video services—several serve to encourage consumer use or adoption.
A Shift to On-demand Consumption
As of 2015, broadcast television represents less than half of U.S. consumer video viewing on the television across all sources, down from over 62% just three years ago. Together, pay-per-view, VOD, and DVR viewing in the U.S. market has increased slightly overall during this period, from 16% of viewing in late 2010 to 24% of viewing in 2015. Consumer awareness and use of free catch-up VOD content from pay-TV providers has a mild substitution effect on the quantity of DVR-recorded content viewed. Because consumers can access missed TV programming through the operator’s VOD library, some are watching that content rather than recording the content on the DVR.
This change to on-demand consumption and reduction in broadcast viewing is placing increasing pressure on advertising-based revenues for broadcast TV and on the fundamental economics that underpin the pay-TV industry.
An Increase in OTT Video Service Options
Some players, emboldened by Netflix’s success, have launched a variety of new services to capture their share of an emerging market. Others were spurred to launch services prior to—or soon after—Netflix entered their target market, for fear that the streaming services giant will gain a dominant market position. As the number of services increases, the pressure mounts for others to enter the market, particularly large traditional players that have remained on the sidelines.
Operator premium services have felt the immediate impact of the increase in OTT video services, particularly in the increase in alternatives that pull viewing and spending away from pay-TV options. However, the increase in OTT services and their acceptance by consumers impacts premium services in other ways:
A La Carte and Greater Consumer Choice
A la carte pay-TV services, long opposed by broadcasters and cable networks, have finally emerged in North America after their earlier introduction in Asia. Pay-TV providers and content producers around the world are closely watching these markets and players in order to assess consumer reaction and the impact of the change on operator and content producer revenues. The changes stand to affect premium channels in several ways:
Virtualization of Service Features
Increasingly, operators are investing in new architecture and virtualization technologies, moving features from the set-top box into the operator network and enhancing the network for greater flexibility. These systems can be more easily adapted to new services or business models without the need for entirely new systems or massive integration projects. In addition, many vendors have moved to a SaaS or PaaS business model, allowing operators to better scale costs with revenues.
Some of the examples of this change include:
Experimentation with Business Models
Operators are experimenting with new business models to better suit the interests of today’s video consumers.Some service providers are making subscription options more transactional. While operators far prefer subscription premium services due to their contribution to customer ARPU, some are testing new options to capture revenues from consumers based on spontaneous interest or short-term need. For these options, consumers pay a higher price relative to the volume of content received but have a substantially shorter commitment period. An example of this approach is Sky, which makes individual sports matches available on a transactional basis along with options for single day or week-long subscriptions. Other operators are adding subscription on-demand options for consumers, particularly on-demand OTT video services, providing a direct response to Netflix. Examples include Comcast’s Streampix, Bell Canada’s CraveTV, and shomi from Rogers Communications and Shaw Communications.
This article originally appeared on Cablefax.
Senior Director of Research
As a director of research at Parks Associates, Brett Sappington leads Parks Associates services research team, including access and entertainment services, digital media, OTT, cloud media, video gaming, and technical support services. Brett is an expert in worldwide television and broadband services. His personal research focuses on the activities and trends among operators and the market forces affecting their businesses. Brett is a regular speaker and moderator at international industry events.
Brett has spent over eighteen years in the industry as an analyst, executive manager, and entrepreneur. Previously, he founded and served as vice president for Teligy, a software company specializing in software for wired and wireless communications systems. Brett established new divisions for networking and audio/multimedia software for Intelligraphics. He has also been involved in the development and marketing of early-market products for 802.11 wireless networking, VoIP, and other technologies.
Brett holds an MBA from the University of Texas at Austin with a concentration in high-tech marketing and a BA in physics from Baylor University.
Industry Expertise: International Digital Living Trends, Television Services (IPTV, cable, satellite/DTH, terrestrial/DTT), Broadband Services, Multiscreen Services, Value-added Services, Cloud-based Consumer Services, Set-top Boxes, Residential Gateways, Electronic Program Guides, Video Search and Recommendation, Video Metadata, Middleware, Technical Support Services