It’s an exciting time for pay-TV operators. OTT video consumption is growing, with research firm PWC predicting that global OTT video revenues will exceed $50 billion by 2020. Personalised TV is also gaining traction with viewers, opening up new revenue streams for operators. This article will examine five success factors for pay-TV operators. Learn why it’s important to avoid technology lock-in, the benefits of offering a one-stop shop for content, how mimicking features and functionalities of new players like Amazon can enhance traditional pay-TV offerings, how to increase ARPU through data-driven advertising, and ways that vertical integration is making an impact on the industry.
Adopt a best-of-breed technology approach
If you’re a pay-TV operator, it is important to avoid getting locked into sourcing large parts of your stack from monolithic technology vendors. It will limit your innovation and agility. Incorporating independence in the technology stack is key to avoiding lock-in. By de-coupling your stack and adopting a best-of-breed technology approach, where every component is replaceable, you’ll have more freedom to choose how your stack evolves in terms of the user interface selection, method of managing user data, deciding which client/back-end configuration is best for your business, and more.
Embrace the content macrocosm
The pay-TV landscape has become ultra-competitive, as new entrants compete for a share of viewers with traditional pay-TV operators. That’s why it’s important to offer the widest possible range of content to subscribers, including access to OTT services like Netflix and Amazon. The winners in this media race will be the companies that embrace the macrocosm and offer the broadest possible one-stop shop for content. Consumers will seek out “must-watch” content irrespective of whether an operator provides it or not but if you are the one provisioning it, you can control the consumer experience, capture metrics around viewing, and offer additional services to drive new revenue.
Be more agile and data-driven
Pay-TV operators need to mimic the features and functionalities of emerging content providers like Amazon. With respect to the hardware form factor in the home, think outside the “box.” Above all, the user experience should emulate the slickest aspects of the home control devices that are starting to dominate the threshold to the home. Operators should deploy an architecture that allows new content and services to be easily added, tested, and removed if they are not successful. It’s about being able to continuously update and personalise the user experience to drive customer satisfaction and maximize revenue. Operators also want to be agile in terms of deciding where to put functionality — in the cloud, in the home or in an app.
Look for ways to increase ARPU
Operators typically lose money when they deliver video to the home, and this was acceptable when TV services were viewed as just one plank in a telco’s triple- or quad-play offering. But now TV and entertainment services require significant investment to generate revenues and be profitable. To stay competitive, operators need to open up incremental sources of ARPU. The most significant opportunity is leveraging proprietary data to deliver more targeted advertising. Rather than looking at sample-based data on content consumption, which is derived from a small number of homes, operators should collect granular, proprietary data about what content their subscribers are truly watching. Using this data, operators can then work with the ad industry ecosystem — on the buy-side, sell-side, and with programmers — to enhance pricing, planning, and placement. This will enable everything from simple linear optimisation right through to true household-level addressability.
Consider the advantages of vertical integration
Media companies are becoming increasingly vertically integrated, as evidenced by recent deal flow. A great example is AT&T’s acquisition of the Time Warner programming business. Vertical integration occurs when a company controls both distribution facilities and content — in the case of AT&T bringing together its U.S. TV homes and a roster of programming that includes Turner, HBO and Warner Bros. The advantage of vertical integration is that operators then have a sell-side advertising business at scale and deep data around how that advertising can be associated with content during distribution. We believe this will move the yield curve on ad spend and will increase incremental ARPU. This degree of vertical integration also creates opportunities to differentiate entertainment offerings through exclusive content and also gives operators leverage in content negotiations and carriage deals with other content owners.
Operators create a lot of leverage through the smart use of data. By effectively managing data, they can deliver the content that viewers want. More importantly, they can increase ARPU. Beyond using data, operators need to be more agile, look for new partnerships, and adopt best-of-breed technology solutions while maintaining independence in their stacks. Operators should constantly embrace a macrocosm approach to providing content and consider the benefits of vertical integration strategies that will boost monetization and revenue. Providing a mix of linear and OTT content combined with using data analytics to trace and track content consumption is the winning formula to stay relevant and stimulate viewers.
Written by Jörgen Nilsson, Chief Executive Officer at Zenterio.
Published in CSI Magazine