Viewpoint: Why TV Operators Need to go OTT

Television viewers continue to “cut the cord” to their expensive cable and satellite subscriptions, while moving to adopt OTT services. TV operators need to adapt to these new viewer habits to get and stay ahead of the competition.

The media industry is entering a phase of rapid evolution. 2015 was the first year with declining viewership and declining number of subscribers for normal broadcast pay TV in the USA. The reason is of course that consumers shift consumption to OTT services. We expect to see similar trends all over the world, where developed markets with low cost broadband services will spearhead this development, and the developing markets following later. How can TV operators meet and succeed in these new market conditions? The threat is formidable, but it isn’t over for the TV operators, they just need to learn to adapt to the new market situation.

The attraction of a classic TV offering

A classic TV offering, a hundred channels packaged as a bundle, offers convenience and cost control. The TV package has been so successful that virtually no other business models exist anywhere in the world. The business model attraction has been universal and has been the fundamental driver of the pay TV industry’s growth over the past decades from the hyper growth phases of the 80s and 90s to the cash cow days of the 00s. Channels and distributors have both been happy with the bundled models and the industry has been very predictable for the past 20 years.

Today’s package of video needs to include a targeted, but popular, blend of channels that support both in-home and outside viewing.

Today’s package of video needs to include a targeted, but popular, blend of channels that support both in-home and outside viewing.

I believe that the attraction of the bundle can be found in the human psyche. Services that are considered “utilities” are absolutely vital for people’s home to function. To add regular purchase decisions to such utilities annoys consumers and adds a risk of churn. The less interaction with the customer the better. Services which are considered “discretionary” are, on the other hand, really difficult to move to becoming a utility. Naturally, consumer attitudes to different services change over time, but I think we can safely conclude that TV can be considered a utility today.

Finally, the addition of better and more content and better picture quality have offered a constant improvement of the service, leading to a consistent market growth for more than 30 years.

OTT services succeed with similar business models

Video services over the Internet are not new. Already at the beginning of the millennium, the first wave of OTT video services was launched. Most of these services failed and none of these were any threat to a thriving pay TV industry. Now, ten years later, technology has matured and the costs for delivering an OTT service make sense for a successful business case. What’s even more important are the changed business models. Subscription VOD services weren’t really possible 10-15 years, when all content licensing models were created for either the broadcasting model (one or two broadcast rights in a certain period of time) or the home video model (one time purchase or 24 hour rental). Almost exclusively, early online video services copied the home video model, which worked reasonably well, but never changed any viewing habits.

This generation of OTT services have been successful by emulating the decades old pay TV package but for a VOD model. The challenge with this model is to have enough content so content availability is never a problem in practice. Business models have slowly but surely become more attractive for these types of services and consumers are attracted to them for the same reasons as before: convenience and cost control.

Today’s viewers often have choices when it comes to selecting a content delivery company. While video channels are front-of-mind, keeping those viewers requires that operators excel in back-office areas like support and billing.

Today’s viewers often have choices when it comes to selecting a content delivery company. While video channels are front-of-mind, keeping those viewers requires that operators excel in back-office areas like support and billing.

Operators going OTT

So, having concluded that the OTT SVOD services are essentially the same type of services as a pay TV bundle, but without the channels, it follows logically that the same strategic challenges will arise as for an operator. Customer support, efficient billing, anti-churn campaigns, interesting bundling and tiering and low subscriber acquisition costs are all important for an SVOD player. A TV operator excels in these areas and can leverage both staff and systems in an OTT world. Furthermore, a TV operator can include linear channels and catch-up TV in an OTT service, making it possible to work closer with the broadcaster for mutual success.

In fact, the only hinder for an operator to launch an OTT service is technology. A new infrastructure is needed both for the video workflow and for the service distribution. Operators should embrace cost-efficient cloud infrastructure to be able to move quickly to deliver new OTT services.Part of the challenge is that TV operators are traditionally larger, slower organisations with an in-house infrastructure. The need to become faster and more agile to stay competitive is apparent. Some operators can manage the shift to become more agile in an OTT world, but for most operators I firmly believe that the route to deliver OTT services would mean that they will need to relinquish some of the control over the infrastructure and service offering to content partners or technology vendors.

A successful OTT operator will need to embrace new technologies and be faster with deployments than ever before.

A successful OTT operator will need to embrace new technologies and be faster with deployments than ever before.

Staying competitive in the OTT world

In a traditional TV world, technology cycles are typically years in the making. Introductions of new middlewares or new features can take a year or more to roll out in the operator’s network. In an OTT world, change needs to be much faster to stay competitive. New devices, technologies and solutions emerge on the market daily, allowing for a more flexible and dynamic way of running the service in addition to improved consumer experiences. This service evolution speed will be necessary not only for mobile devices but increasingly also so for the big screen consumption. Embracing OTT technologies for a reasonable service parity on all device platforms will be important.

To sum up, competition to OTT is increasing rapidly with new services being launched regularly and existing services evolving quickly. Consumers pick up these new services quickly putting pressure on traditional operators, beating them at their own game of convenience and cost control. I believe that the only way today’s TV operators can stay relevant is to embrace OTT technologies and beat the new OTT services at their own game.

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