Technologies and access to content are evolving at an historically rapid rate, disrupting the way pay-TV businesses and markets operate, and changing the way consumers watch television. In this fast-moving $200 billion market, it is more important than ever to stay at the cutting-edge of innovation and develop technologies that transform how we watch, create and distribute content.
Traditionally, pay-TV operators have focused less on innovation and more on acquiring subscribers and investing in hardware. But today, with competition in the pay-TV industry increasing, the growth of traditional providers is slowing and the historically successful business model is showing signs of age. Innovation is consequently more important for success. But defining innovation is a complex process. Whether it comes from a brilliant insight, an ingenious strategy or just smart investment, innovation can ultimately be measured by the extent to which companies create valuable products and services. So how innovative is the pay-TV industry and what characteristics define today’s innovation leaders?
How do pay-TV companies innovate?
One growth area for the pay-TV industry is one of its largest sources of competition. By the mid-2000s, OTT (over-the-top content) had changed the rules of how content was delivered. According to DirecTV and AT&T consultant, Harry Yim: “The industry recognises that services such as Netflix, Hulu and HBO Go are a realistic alternative to a pre-packaged bundle and is now slowly shifting its strategy from competing against them to trying to cooperate and integrate them into pay-TV platforms.” As broadband connectivity improves, providers can increasingly deliver high-quality services over the internet. The most advanced operators are already launching standalone OTT services, offering consumers more choice with skinny bundles and mobile-first services.
The consumer preference for more flexible and affordable services has led providers to shake-up the pricing and packaging of their core pay-TV services. Many are following in the footsteps of telcos and streaming services by offering subscribers more choice with à la carte pricing, daily passes, and contract-free subscriptions. Millennials also offer providers the opportunity to develop new forms of content as they feed the demand for digital-first short-form content, virtual reality and gaming.
As we watch more content on the go, leading operators are responding by developing innovative multiscreen offerings, enabling subscribers to access live and on-demand video content on their portable devices. According to Koby Zontag, VP Media Sales and Business Development at PCCW Global: “TV Everywhere is slowly becoming a must-have service and will soon become part of the most basic pay-TV service offerings.” The challenge is to work out the best way to monetise such services. Solutions may include packages where pricing varies according to the number of devices they support as well as new advertising models.
Advanced advertising is another key opportunity for pay-TV providers to grow outside their core business models. By supporting new forms of targeted advertising and dynamic ad insertion, operators can leverage their existing assets and relationships to generate growth. The most advanced operators are extending these capabilities to their OTT offerings and also uncovering new ways to monetise the valuable TV viewing data they generate.
What makes innovation difficult?
However, many pay-TV providers face significant innovation challenges. One of the key hurdles is a lack of skills, particularly those requiring expertise beyond the core pay-TV offer. As it has become increasingly necessary to attract world-leading software developers, providers need to make themselves attractive employers to developers and software engineers. However many providers are unable to afford large in-house development teams, and those that can still need to compete for the best talent with technology companies around the world.
A culture of risk avoidance is also to blame, according to NAGRA’s Pay-TV Innovation Forum, a global study of innovation in the pay-TV market. Over half of industry executives (51 percent) believe that pay-TV providers are too risk-averse and, in many cases, do not have the right incentives in place to stimulate innovation. As Shuja Khan, VP of Revenue Growth Transformation, Liberty Global, points out: “Lots of pay-TV companies are not designed to be innovative; they’re designed to be efficient. A lot of them are still working in silos, with little collaboration.”
Although some providers are adopting agile approaches, speed remains a challenge for most. New products can take many years to develop, even for advanced providers, so many companies face the paradox that the larger, and therefore slower, they are, the faster they must innovate and spot new trends to stay ahead.
An evolving industry
Today’s leading pay-TV providers are not only experts in video content but also in product development, marketing and customer service. In many respects, they are uniquely well-positioned to innovate. But to deliver against these opportunities, operators need to have excellent insight into their customers and market, deploy platforms and processes designed to accelerate innovation, develop relationships with the best suppliers, and build partnerships with content companies that unlock new commercial opportunities. Above all, pay-TV companies should never stop trying to innovate. The race for technological supremacy is getting faster all the time. Only those who set out to innovate stand any chance of surviving.
For more information on this topic, download NAGRA’s Pay-TV Innovation Forum whitepaper
