The growth of IP services has disrupted the pay-TV market resulting in paid offerings becoming more diverse, with a focus on packaging and bundling innovation and new services to drive growth.
70% of pay-TV executives believe the rapid growth in OTT consumption will have a positive impact on their business, according to global findings of the 2019 Pay-TV Innovation Forum, a report released by
NAGRA, a Kudelski Group company, in partnership with research firm, MTM. According to the report, retaining tier-one sports is critical to the majority of executives surveyed, while partnerships with emerging sports streaming services are very valuable to pay-TV providers seeking to aggregate content and services. In addition, innovation in product pricing and packaging and super-aggregation are seen as major opportunities over the next five years, while 360-degree data enablement is considered key to success. Content piracy continues to be a significant concern for the global pay-TV industry, with more than half of executives considering it a challenge to their business.
The report summarises key findings and insights collected from industry executives across four regions: Europe, Asia Pacific, Latin America and North America. It examines key market trends and developments, the most significant challenges facing pay-TV providers and industry executive priorities for opportunities and investments going forward.
The global pay-TV market is in a state of transition, as the growth of IP services continues to disrupt the industry. Over the past year, the pace of change and disruption has accelerated, as digital services and connected platforms continued to grow, resulting in an increasingly fragmented and complex pay-TV ecosystem. Consequently, pay-TV offerings are becoming more diverse, with a focus on packaging and bundling innovation and new services to drive growth, particularly with connectivity offerings.
Against this backdrop, the 2019 Pay-TV Innovation Forum explored the key trends expected to shape the pay-TV industry over the next five years: industry response to the continued growth of OTT services; next generation content aggregation; the rise of advanced data, analytics and AI/ML applications; content piracy; and pay-TV digital transformation.
Key findings reveal that executive sentiment regarding the impact of standalone OTT services is mixed – some see an opportunity for pay-TV providers to evolve into super-aggregators. The rapid growth in OTT consumption is increasingly seen as both an opportunity and a challenge, with 70% of pay-TV executives believing it will have a positive impact on their business, while only 21% anticipate a negative impact. Despite initial anxieties, many believe that new standalone direct-to-consumer services, largely seen as complementary, will not pose a significant threat to the pay-TV industry. Instead, executives see opportunities for pay-TV providers to adopt a super-aggregation model for these services. 77% expect that super-aggregator platforms will emerge over the next five years and attract a significant proportion of customers who pay for video content. However, they do note that more rounded bundles from content providers, such as Disney+, Hulu and ESPN+, could be a competitive substitute when launched.
Pay-TV providers will have to introduce a wider range of pricing and packaging options to ensure their offerings stay relevant, particularly to younger audiences. Executives surveyed expect traditional pay-TV packages to be radically restructured in the next decade and an overwhelming majority (91%) agree 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.
Additionally, as a key priority, pay-TV providers must reinvent their offerings for the next generation of consumers and experiment with packages that cater to their unique needs and behaviors, such as their growing interest in free ad-funded services, their reduced brand loyalty and their limited willingness to pay for video services.
Retaining tier-one sports rights and aggregating sports OTT services have emerged as key priorities for pay-TV operators. The rise of sports OTT services has introduced a new wave of competition and innovation into the market, prompting traditional providers to adapt their business models and value propositions. As part of this shift, retaining key tier-one sports rights will be critical. Pay-TV companies appear well-placed to retain these rights given their ability to cross-subsidise sports from high-margin broadband businesses and their existing billing relationships. However, market indications suggest that pay-TV providers will continue to rationalise their investments in tier-two rights.
Additionally, the research highlights the emergence of a new generation of sports OTT aggregators, and direct-to-consumer services from leagues, clubs and broadcasters. 85% of executives believe that OTT sports streaming in their country will grow either moderately or strongly through to 2024, and 93% think that sports streaming services are some of the most valuable types of partners for pay-TV providers seeking to aggregate content and services.
Piracy is evolving, requiring deeper industry collaborations, new technical solutions and an evolution of anti-piracy services. Content piracy continues to be a significant challenge for the global pay-TV industry, with 60% of executives in 2019 seeing it as ‘a major challenge’ or ‘a challenge’ to their business. Moreover, 65% of pay-TV executives believe that the level of pay-TV and video piracy in their respective countries has either gotten worse or remained the same, continuing to affect their ability to generate a return on their content and technology investments. Nearly half (48%) expect that content piracy will lead to greater pressures on the pay-TV industry over the next five years.
Executives increasingly acknowledge that there is no one-size-fits-all approach to tackling piracy and believe that successful anti-piracy efforts will require a combination of improvements to pay-TV service offerings, deeper collaboration across the industry and new technical solutions.
Building a 360-degree, data-enabled business is key to successful innovation. A majority of industry executives (79%) believe that to remain competitive, pay-TV service providers will have to invest heavily in data capabilities in areas such as big data analytics, automation, artificial intelligence and machine learning. 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.
However, despite recognising its importance, executives remain critical of their companies’ ability to leverage data and AI/ML capabilities today. There is consensus that the industry can, and should, be doing more to invest in data and analytics capabilities.
“The conclusions of the 2019 programme, in its fourth season, show that the sustained growth of OTT SVOD and sports services is paving the way for super-aggregation opportunities across the pay-TV and video industry,” said Simon Trudelle, Senior Director, Product Marketing at NAGRA. “With shifting demographics, competition from new forms of entertainment and mainstream piracy, rights holders, broadcasters and pay-TV service providers are under intense pressure to evolve their business models to adapt to the new market dynamics. This program provides the new compass required to successfully navigate this new landscape.”
Jon Watts, Managing Partner, MTM added: “This year’s findings illustrate the ongoing need for transformation, as the pace of change across the industry accelerates. The wave of new OTT offerings entering the U.S. market are causing considerable anxiety, but the industry remains confident that it can continue to thrive. Pay-TV providers will have to continue to innovate, developing better offerings and services that deliver what consumers are looking for. Faced with ever-growing competition, increasing fragmentation, and fast-paced innovation, pay-TV businesses will have to decide which opportunities to pursue and which investments to prioritise.”