A new phenomenon is emerging in television – the SVOD home that takes not one, not two but multiple online video service subscriptions. Guy Bisson, Research Director at Ampere Analysis, the UK-based research and forecasting firm, talks of a ‘next generation bundle’ that often includes Netflix and anything up to six different SVOD payments in total. The latest figures his company has produced show that on average, a ‘Netflix home’ takes two SVOD services in total. “But this is the average,” Bisson notes.
Speaking after Cable Congress in Warsaw last month, he wondered why platform operators are directing so much attention towards Gigabit broadband and virtual reality when there is a great opportunity that could be attended to immediately. “The biggest challenge for the cable industry is to properly embrace OTT content providers and they have not done that yet,” he declares.
Bisson points to an ‘us and them’ attitude within the cable industry when it comes to SVOD services like Netflix. “They are viewed as competition but that is completely the wrong attitude to have.”
He admits that for a long time Netflix was not willing to work with Pay TV operators anyway, taking the view that they could build their business alone, but he is certain that this mindset has now changed. “Netflix’s attitude is changing and will continue to change very rapidly now, not least because they have achieved their international expansion and in future, growth will have to come from somewhere else. That growth has to come from a relationship with operators,” Bisson argues.
Cable operators should therefore embrace Netflix like they would any other channel. “They should bring the content on-network and bring it closer to the end-user. That means efficiencies for the cable operator and also for the content provider.”
This onboarding could take different forms, in terms of how deep the partnership is. Some operators will take responsibility for billing and customer care (for cable subscribers who take the SVOD service) and others will take a more ‘hands-off’ approach, happy to ‘simply’ integrate the app and provide some content discovery. “Both models can co-exist,” Bisson says.
Ampere Analysis acknowledges the opportunity for cable operators to present themselves as a marketplace for leading OTT services that can be accessed via their set-top boxes. Bisson does not expect any typical home to use more than six paid onboarded services, however, partly because of the money available to pay for them and partly because when you reach this number of services the effort of entering and exiting different app universes becomes a burden for consumers.
However, he also points out that in the linear world, people watch 5-10 channels on average, inferring that a small number of apps could account for a decent part of our total viewing on a platform. “The role of a Pay TV operator is to bring together smaller content applications and sell those packages,” he comments. “They must continue to fulfill the role of aggregator and provide the navigation.”
There will be battles over how brands are presented, given that the value-chain includes producers, distributors, online service providers and the Pay TV operator. “We are talking about thousands of pieces of content from different providers so this is orders of magnitude more complex than talking about how you present services on an EPG.”
These are the kinds of issues that need to be discussed in order to strike deals, and those discussions should be taking place, Bisson believes.
Originally, some of the popular SVOD and OTT services were envisaged as a ‘top-up’ television offer to free-to-air homes, and some were perceived as replacements for, rather than complements to, traditional Pay TV. So how easily does premium OTT fit into the Pay TV environment if you try to build an onboarded marketplace of this kind?
Bisson thinks they fit perfectly well. He reckons Disney’s direct-to-consumer offer in the UK, DisneyLife, is more of a reaction to the way children watch television today (more non-linear viewing) than an effort to target the non-Pay TV market. This service provides Disney movies, kids TV box-sets, books and music in an app for £9.99 a month.
Content owners can distribute via their own direct-to-consumer apps independently of a Pay TV operator, within the traditional Pay TV bundle and, increasingly, they could also allow their own apps to be onboarded.
Bisson notes that 40% of Sky customers in the UK also take Netflix. “So in that respect, OTT is complementary to Pay TV. Those homes are also more likely to be taking Sky Sports [as opposed to only the more basic Sky bundles] and Amazon [Prime video]. We are not really talking about lower-value customers here, who want to shave off some of their Pay TV spend and supplement it with low-cost OTT. We are talking about the highest value customers buying additional stuff. Lots of them are super-consumers and that is where the opportunity is.”
Previously, there have been concerns that if Pay TV operators onboard compelling SVOD services it would impact viewing on weaker broadcast channels – especially those made up of back-catalogue ‘repeats’. Bisson thinks this danger is limited by the fact that Netflix and Amazon are both investing in original content and streamlining their services.
“They are moving up the value chain towards the premium end of the market. Netflix is definitely heading in the direction of high-quality drama and reality TV. They are interested in kids content and are reducing the amount of old library content. In many ways, HBO is the perfect example of where Netflix is heading, and the same can be said for Amazon, too.”
As these two SVOD giants head towards the middle ground of mass-market premium entertainment, there is also an opportunity for thematic online video services from studios or niche players, according to Bisson. “These could be studio led, like they are today.”
Pay TV platforms may need to make space for social media apps as well, as these make moves into TV. Twitter now has a deal to live stream ten regular season NFL American football games, albeit non-exclusively as NBC and CBS are showing the same games on traditional TV. Snapchat has a deal to stream live content including user footage from the Wimbledon tennis tournament.
“If you want to target millennials and younger, these are the apps they are using every single day. The people using them are not even Netflix customers yet. I can definitely see brands like Snapchat becoming a destination for viewing,” Bisson says.
There will be room for free and ‘freemium’ in the onboarded OTT environment, but the vast majority of apps will be paid-for services, Bisson believes. He thinks operators can put together packages that include multiple OTT services and bill people for them. And this marketplace model will not fundamentally change the Pay TV model, he argues.
“The media industry always takes the attitude that what are actually small changes mean everything has to change, but this is gradual evolution. The industry view is too ‘black and white’ when really there are shades of grey, so people pull up the drawbridge and miss initial opportunities. Then sanity emerges. We are fast approaching the sanity stage for this. I do not see any logical reason why you should not do this [Pay TV/OTT onboard partnering) now.”
Photo: Unitymedia advertises Maxdome, the German SVOD service that it has integrated into its set-top box offer.