Wednesday, September 28, 2016, 9:50 AM ETPosted by:Robin Wilson
VP, Business Development, NAGRA
The pay-TV industry has undergone a seismic shift since the introduction of OTT streaming. Although broadcast TV viewing remains robust in the U.S. with TV’s weekly reach remaining steady at 86 percent in Q4 2015, according to Nielsen viewing figures, both online video and subscription video on demand (SVOD) services, like Netflix, are growing. SVOD penetration rates in the U.S. are currently around 20 percent but are expected to reach 30 percent by 2020. Online video streaming is on the rise as well. As YouTube points out on its own website, consumers watch “hundreds of millions of hours” of its content on a daily basis.
This rapid shift is driven in part by the increase in connected consumers. Young people, in particular, are straying from TV in large numbers. Those ages 18 to 24 watched 38 percent less TV in Q1 2016 compared to the same period in 2011.
However, for all this change, traditional pay-TV providers remain a significant part of the television landscape. Most notably, traditional TV still brings in the largest advertising share at a projected 38.7 percent of advertising spend worldwide, according to McKinsey & Company. As Rich Lehrfeld, senior vice president of global brand marketing at American Express recently said, “We need to run two weeks of digital [advertising] to get the reach of one day of broadcast.”
Still, as digital options take an increasingly larger share of advertising dollars, the new media landscape requires pay-TV providers to adopt the right strategy. Players in this space should consider the following:
With increasing personalization, data cultivation that can mine who’s watching what, will play a big role in the future. More and more content delivery systems must offer advertisers the ability to intelligently target ads.
Embrace OTT and, if appropriate, Ad-Tech Seriously:
Many ad-supported OTT platforms currently offered by operators are neither consumer- nor advertiser-friendly. The same ads may be repeated over and over again. Worse, when a broadcaster puts an event online, the viewer must often endure identical 30- to 120-second ad breaks in each short segment. Compounding this nightmare, ad skipping is usually blocked (without informing the viewer). This maneuver leads to distorted reports on ad views that suggest promising brand penetration is occurring, when, in fact, advertisers are only hurt by this strategy.
Ad-tech has so much to offer in OTT, but it’s a work in progress. Leaders in the linear TV world should follow Google’s approach in the art of enticing ad views while actually adding value to the experience. There is no reason why OTT’s current ad economics cannot improve to greatly surpass broadcast models. However, this will require the evolution of ad-tech with campaigns run strategically, not abusively.
Tapping into new markets:
Beyond advertising, there are many other pockets of opportunity for pay-TV providers. A recent study found that 22 percent of consumers who have never had a pay TV subscription are already paying for OTT content services. This indicates a willingness to pay for subscription television provided they are offered a package that’s right for them.
New business models for a new world:
A one-size-fits-all approach does not match viewers’ desire to customize entertainment to fit their specific needs. Self-service bundling where consumers pick and choose from a variety of options to create their own, more personal packages is another fertile market. Some high-profile pay-TV providers are already introducing innovative “skinny” bundles that deliver this type of flexibility.
In an increasingly fragmented market, these factors can help service providers continue to strengthen their relationship with subscribers and offer them a high-quality multiscreen TV experience. TV is, in fact, the future of TV. And, the providers that can offer consumers greater reach while delivering widest choice will be the success stories of the next generation.