vMVPDs represent a small but growing percentage of the total pay TV market, and over time will become a significant method by which “pay TV” is sold and consumed. Online pay TV overall, including vMVPDs, is poised to overtake traditional pay TV over the long term.
COVID-19 has merely accelerated the pace of trends that were already taking place across the TV landscape prior to the pandemic, and re-acquainted many with TV services, albeit via a different medium – the Internet. While traditional pay-TV subscribership continued to fall, streaming service adoption and viewership rose. Broadband subscriptions have continued to grow over the same period that pay TV has declined. While cellphone sales continued their slow decline, smart TV sales still grew strongly in North America over 2020 and accelerated during COVID-19. OTT video’s overtaking of traditional pay TV in US household adoption has thus itself been accelerated. These all point to a future where OTT delivery will be a preferred delivery medium, particularly as lockdowns end and the growth in mobile video consumption resumes apace.
This future will also be one where simply delivering traditional pay TV packages and prices over a different medium will not be a recipe for success for either vMVPDs or the ecosystems around them. Implications and possibilities to consider for traditional pay TV & broadband service providers
· Broadband is Becoming the Service Linchpin from Which to Upsell, Bundle, and Differentiate. The number of consumers that are subscribing to broadband only is on the rise. How service providers sell, and cross-sell services will need to evolve in accordance with consumer tastes. Broadband is the indispensable service base, but service providers need to explore how to use bundled OTT TV services to differentiate themselves from being just another broadband provider. The opportunity to raise ARPUs by bundling multiple services is decreasing as far as traditional pay-TV services are concerned but combining broadband with a vMVPD service offer is an example of newer bundling possibilities. For some service providers either unable/unwilling to offer a TV service, or those considering divesting an unprofitable TV service business, partnering to offer broadband bundles with a third party vMVPD may be an increasingly viable option to gain and retain customers. While TV services were formerly the indispensable base from which to upsell and bundle, increasingly it is becoming broadband.
· Online Pay TV is a Viable Option – If Done with Today’s Consumer in Mind. For pay-TV operators, the cost of offering a vMVPD version of their TV service is offset by it being a viable evolution to stay abreast of current consumer needs. Additionally, for service providers pay TV’s margins are better than those for broadband service, and it makes sense to continue offering pay TV and take advantage of online delivery. Online delivery brings cost advantages in service delivery and reduced installation costs thanks to self-installation / BYOD. A vMVPD service can be used to enhance the value of high-speed broadband packages, encourage bundling, increase ARPU, and enhance stickiness/loyalty as well.
In regards to the vMVPD service itself, its odds of competing for the successfully long-term hinge on whether or not the service is designed around today’s most significant consumer preferences from the beginning – accessible pricing and content package flexibility. With today’s price-sensitive consumers and the inherently higher churn of vMVPD services, vMVPD operators will need to concentrate on increasing subscribership and retention via fitting the service to consumers first – not the opposite.
· Broadband Subscription Growth is Healthy, in Contrast to Pay TV Subscriptions - Though pay TV is on the decline, broadband subscribership and retention is doing well. Broadband providers report that new customer acquisition is at an all-time high – Parks Associates Q3 2020 survey of US broadband households finds that almost 4% of broadband subscribers recently subscribed to an internet service after going without for a year or longer; 3% subscribed for the first time. Service providers should prepare for future generations that need only broadband, and not a “pay TV” subscription. Content needs will be fulfilled through one or more apps, or a non-traditional TV service provider. Future consumers are unlikely to pick a Comcast, AT&T, or Verizon over Hulu + Live TV, YouTube TV, or Sling TV for example on a pure content provider basis, unless there is a significant price differential as an incentive to do so. Increasingly, consumers are finding legacy pay TV, its packages, and its pricing expendable - while broadband is becoming increasingly irreplaceable.
· Resurgence of Antennas and Content Consumption –Today’s consumer, particularly Gen Z and younger, is increasingly savvy about how to consume TV services. This includes the use of antennas to receive local digital terrestrial channels for free, combined with a broadband subscription and select OTT services. The percentage of broadband households utilizing antennas for local channel reception jumped to 25% in 2019, and is expected to continue rising due to COVID-19 keeping more consumers at home throughout most of 2020. While pay TV offers above a certain price point will be an increasingly difficult sell, this trend indicates that broadband will be the must-have that households’ discretionary expenditures will revolve around – it is no longer TV services.
· Streaming media devices with vMVPD Integration Can be a Retention Aid – For service providers seeking to concentrate on broadband and less on the heavy cost structure of a pay TV service offering, a discounted streaming device offer or bundled device offer may be a viable way to increase broadband consumption and subscriber retention. Optimally, a device offering broad access to content, vMVPD integration, and voice assistant access to the largest smart home ecosystems (Google, Amazon) would give broadband subscribers the most flexible consumption options and the stickiest retention potential.
This is an excerpt from Parks Associates library of research. We welcome all feedback and comments. Thank you for reading our research!
