Content and cannibalization are key Pay TV Lite challenges

The new Sling TV OTT offering from DISH Network is aimed squarely at millennials, as DISH President and CEO Joseph P. Clayton made clear when he unveiled the ‘Pay TV Lite’ service at CES earlier this month. He called it “a viable alternative for live television to the millennial audience” and a service that fills a void for an underserved audience and which “gives millions of consumers a new consideration for Pay TV”. There are already services like it in Europe, most notably NOW TV in the UK and more recently Sky Online in Germany, both from Sky. 

While standalone, cross-genre Pay TV operator OTT services (Pay TV Lite) have an immediate purpose, targeting lower ARPU groups and so segmenting the overall (possibly expanded) pay market more precisely, and also competing with pure-play online media companies, they could have a longer-term significance. First, they will allow Pay TV companies to explore new avenues for content that may not be possible on traditional platforms (maybe more millennial-focused, and maybe content that requires a lower cost base). Secondly, they could bring more [traditionally] broadcast linear channels within the reach of ‘digital’ online advertising solutions.

Stephen Adshead, Associate Director at the London-based strategy and consulting firm MTM picks up on the first point. “Operators want a strategy where, on the one hand they target a new tier of low ARPU customers and, at the same time they position themselves defensively against the perceived threat of Netflix and other OTT services. Remember that their core business is fairly mature and it is hard to find growth, so it is good to target a group of customers that previously they could not reach.

“As a concept, online standalone offers [from Pay TV operators] have legs and in the long-term it is highly likely that these propositions will develop and operators will get a sense of where the demand is and what content they can put into the market that is complementary and not cannibalistic to their original service. That could involve new channels and create a richer service, especially if the threat from other OTT providers increases during the next few years.”

Meanwhile there is a view that services like Sling TV and NOW TV blur the lines between the worlds of ‘television’ and ‘digital’ advertising, where the latter term describes online marketing including everything from display and search to video pre-roll and online linear television ads. Tal Chalozin, CTO & Co-Founder at Innovid, which provides a video serving and analytics platform designed for cross-screen and addressable advertising, believes services like Sling TV introduce a hybrid model for advertisers. They allow the fusion of traditional media (which may even be making its debut outside traditional Pay TV bouquets) in linear form, online.

“From an agency and marketing standpoint, television and digital are still separate buckets [of budget], measured and bought in different ways,” he notes. “Activities like DISH’s Sling TV provide a full-on TV service where you can watch TNT, ESPN and other linear TV, but which have all the capabilities that digital gives you, like targeting of individual users and measurement without the need for an [audience] panel. In a digital environment you can apply targeting and change the ads in real-time and do other things that are prevented by technology using the traditional TV model.”

On the channels that take advertising, the Pay TV Lite platform could be an interesting opportunity for brand advertisers. “They are aimed at what is a very appealing demographic group that is becoming harder and harder to reach with traditional TV models and traditional TV shows,” Chalozin argues. “The younger generation are watching linear TV but they are definitely moving towards online alternatives. This is a way to give networks [broadcasters] access to those demographics and it is a way to bring those consumers to the Pay TV world.”

There are challenges for the Pay TV operator standalone OTT service, however, with marketing and content heading the list. Stephen Adshead observes: “Any segmentation into low and high ARPU markets is somewhat artificial and it is inevitable that when launching a platform like Sling TV, an operator will cannibalize some of their existing customer base. The challenge is positioning the new proposition to avoid too much of that occurring.”

In terms of content, the challenge is getting the right channels to appeal to millennials and that may not be easy. After all, the online space is somewhere that channel owners can pursue their own initiatives to establish direct customer relationships and gather some data, if not some revenue. 

“Some of the thinking behind these services is that they will target 18-34s, the millennials that marketers refer to,” Adshead continues. “To attract a low-ARPU, millennial audience you need the right content package. In the case of Sling TV, I wonder if those people will be attracted by the current line-up of channels, which seem very family orientated, like ABC Family and Cartoon Network. Based on the content, it looks to be targeting the low ARPU family segment.

“18-34s are the more logical target because they don’t necessarily use televisions as their primary viewing platform. [Joint research by NATBE and the Consumer Electronics Association claims that only 55% of millennials use TVs as their primary viewing platform]. “It is probably the case that behind the scenes DISH did not get the full choice of channels they would like.”

DISH unveiled Sling TV during CES in Las Vegas, a service that was widely anticipated. It costs $20 per month and includes ESPN, ESPN2, TNT, TBS, Food Network, HGTV, Travel Channel, Adult Swim, Cartoon Network, Disney Channel, ABC Family and CNN. Two add-on packs will be available at launch for $5 per month each, called ‘Kids Extra’ (Disney Junior, Disney XD, Boomerang, Baby TV and Duck TV) and ‘News & Info Extra’ (HLN, Cooking Channel, DIY and Bloomberg TV). More add-ons will follow including ‘Sports Extra’. You can read more about the new service here.

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