There is increasing clarity about what Pay TV operators must do if they want to thrive in the years ahead and it boils down to this. First, keep delivering a ‘classic’ Pay TV bundle of content, driven by the best sport and movies (hanging onto the rights you have), to ‘nail down’ loyal traditionalist customers. In parallel, create a much more diverse content offering that acknowledges the rise of born-digital genres like esports, welcomes popular free content from providers other than free-to-air broadcasters (like those found on YouTube) and accepts the best OTT services as potential ‘channel’ partners you can ‘onboard’.
Make sure you have mastered multiscreen. Then ensure the TV user experience accounts for every kind of viewing ‘personality’, from those who want recommendations and conversational search to drive what is almost exclusively on-demand viewing, to consumers who always start their content journey in the EPG, default to linear TV and are only interested in pressing a remote control button.
The research firm Ampere Analysis and NAGRA, the specialist in service delivery platforms, the UX/UI and content security for multiscreen TV, have just unveiled research that defines the different consumer types that Pay TV operators need to cater for today, in an increasingly fragmented marketplace. The study is focused on mature TV markets in Europe and the U.S.
There are actually five distinct ‘Television Tribes’ (which is the name of the study), but the two that matter most, because of their economic potential (a combination of market size and growth, and what they spend on TV) are the ‘TV Traditionalists’ and the ‘Content Connoisseurs’. The study identifies the actions operators can undertake to maximise revenue from these categories and it focuses on creating the kind of service these people value, so you can stay out of price wars and avoid “a race to the bottom”.
The study makes it clear that flexibility is the key to success, in terms of content, packaging, pricing and technology. As Ivan Verbesselt, SVP Group Marketing at NAGRA, puts it: “A one-size-fits-all strategy will not maximise value. Meeting the needs of distinct segments of consumers is the key to attracting and retaining subscribers, and growing revenue.”
‘Television Tribes’ identifies people according to their attitudes, so the groups transcend demographic and income categories, although they might over-index in some. It highlights ‘Broadcast Bingers’, a low-spending group best entertained when binge-viewing box sets. It categorises the ‘Super Spenders’ as linear TV experts with money to spend on a full content bundle. And it outlines the ‘Digitally Detached’ group: people who are generally older (and so numerous and often with time to watch television) but who unfortunately (for Pay TV operators) are disengaged not only from technology but also from content.
Guy Bisson, Research Director at Ampere Analysis, declares: “We call them digitally detached for a reason. They have a low interest in content, hate advertising and don’t like paying for things. They skew towards lower-income.” This is the group of consumers a Pay TV operator should focus on last when developing their next-generation strategies.
The TV Traditionalists are the second most valuable ‘tribe’ for Pay TV operators, representing 18% of market share and ready to spend $60 with their main entertainment provider, particularly for ‘tent-pole’ content like sport and movies. They are middle-aged and skew slightly male. They are linear TV consumers and are most interested in the big screen and, according to the Ampere Analysis/NAGRA research, they are often overlooked in the multi-device and OTT era.
“They are more traditional in their viewing, most of which is still linear,” Bisson adds. His data confirms that 75% of the self-reported viewing hours in this group are defined as scheduled linear TV (live plus DVR) on the main TV set. This compares to a 60% average figure across all consumer types. “With this Tribe, scheduled viewing remains the dominant mode all day long,” the report notes.
Bisson points out that as this group are interested in what he calls the traditional Pay TV ‘battering rams’ of sport and movies, keeping your existing rights is an important part of any strategy to satisfy the TV Traditionalists. This group is less likely to churn than any other Tribe (only 9% say they switched providers in the last six months), which probably explains why operators are willing to bid so high for premium sports rights, especially.
Bisson says this group are not into streaming and casting devices like the ‘Content Connoisseurs’ are, but they are comfortable with technology and should not be thought of as unadventurous. “The Sky Q box [Sky UK’s smart Wi-Fi enabled server/client solution that delivers Pay TV to any device around the home, from secondary TVs to laptops and smartphones] is the kind of thing that will be right up their street,” he says.
“The TV Traditionalists are important because they are solid and stable, they spend money, and they are low maintenance, assuming you get the offer right,” Bisson emphasises.
The group that receives most coverage in the study is the Content Connoisseurs, however. This is partly because they are the most valuable group, making up 24% of the global market already, and spending more than anyone else with their main TV provider, at nearly $70 a month. It is also because these are the most demanding consumers, and satisfying them is probably the biggest challenge facing the Pay TV market today.
The good news is that this ‘tribe’ is willing to pay for content. In fact, they are the most likely of all the tribes in the study to subscribe to a video service of some kind, with 76% doing so today. The bad news is that they are fickle and quick to churn if dissatisfied.
The ‘Content Connoisseurs’ are young, affluent and tech-savvy, well-informed and therefore aware of all the entertainment options around them, and happy to put together their own selection of services, whether that involves different mobile, TV and broadband providers (rather than taking a typical triple-play) or ‘stacking’ a bunch of SVOD subscriptions to self-aggregate the programming options they want.
They want everything available on-demand and are willing to pay for it. These early-adopters are gadget geeks, more likely (than the average) to own VR headsets, games consoles and voice control assistants like Amazon Alexa. They own more UHD devices and OTT streamers, like Roku boxes and Amazon Fire TV, than others.
What motivates this group more than anything else, according to Guy Bisson, is their hunger for all kinds of content. “Their content interests go well beyond sports and movies. They love Indie content, comedy, arts,” he observes. Comedy, Sci-Fi and action content are also high on their content priority list. He notes that the Content Connoisseurs do still like sport, but they are less motivated by it than traditional Pay TV homes are. “They like a more diverse range of content.”
So what are the strategies to satisfy the Content Connoisseurs, keep them for longer and extract maximum value from them? First, operators can invest in their own original productions to differentiate themselves. Introducing digital-first streaming channels to the set-top box, or onboarding OTT apps is another possibility, but Bisson warns: “They want loads and loads of content, but they are called connoisseurs for a reason: it has to be good content. Adding lots of lower value content would be a mistake – you must get the mix right.”
Onboarding the best online services, like Netflix, should work. This consumer segment watches much more content from SVOD sources than the average household and the study reveals that 80% of the ‘Content Connoisseurs’ cite online video platforms as their main source of TV and film content.
They want to assemble their own a-la-carte TV bundles. In fact, Content Connoisseurs in the U.S. who take SVOD are paying, on average, for five such on-demand services, in an example of what Ampere Analysis calls ‘service stacking’.
There is an opportunity for Pay TV operators to become super-aggregators. Bisson says Pay TV is well positioned for this role because operators have the whole spectrum of content types and existing relationships with content owners who are currently developing direct-to-consumer OTT offers, and who may eventually be open to the idea of re-aggregation (on an STB platform but still within an ‘app’).
“It would be harder for SVOD providers to do this [super-aggregation role],” he argues. “Amazon would be the exception – they are developing a role as a platform and aggregator.”
Bisson thinks there is an opportunity for the Pay TV industry to apply its traditional discounting model to a bundle of online services that are onboarded. “The cost of service stacking quickly adds up [for consumers]. It is very difficult to say, at this point, what discounts might be possible. Nobody has fully committed to this [super-aggregator] approach of putting together a package of high-value SVOD services, but I would expect discounts of something like 10-25%.”
As for the online providers themselves, Netflix wants Pay TV operator onboarding deals. You can read about their efforts to woo EMEA service providers here. But are the channel owners who are currently building up their direct-to-consumer offers, like Disney, or NBCU with its reality TV focused Hayu subscription service, really going to allow these into a Pay TV bundle in the way they do with their linear broadcast channels? That could depend on how successful they are as standalone destinations.
The Television Tribes study says consumers have shown little appetite for such single-brand SVOD services to date (including NBCUniversal’s Seeso and HBO Now), despite their high-quality content. “There is a huge opportunity for operators to aggregate these, gaining access to a richer set of content to please Content Connoisseurs and others,” it suggests.
Direct-to-consumer services are a chance for content owners to shift the balance of power (in their relationships with Pay TV platforms) slightly in their favour. The business models adopted for them cannot be detached from power-politics, therefore, but Bisson thinks pragmatism will lead us to onboarding deals eventually.
“Some of these services are very niche. Hayu is aimed at middle-aged women and Disney Life is for children,” Bisson notes. “Direct to consumer channels have a relatively low uptake. Business models are in transition today but I think there has to be some aggregation of the direct-to-consumer offers.”
The updated Pay TV aggregation model (of online services or apps) could stretch beyond just video content, too, and include music streaming, the Television Tribes research suggests. Free OTT content should also be part of the new mix.
Simon Trudelle, Senior Director for Product Marketing at NAGRA, points out that Pay TV operators have traditionally aggregated the best free content [even if it was behind a pay wall], from free-to-air broadcasters. Consumers will expect the same moving forwards, even when some of the best free content is found in other locations, like on YouTube. “If successful new channels are created on YouTube, they have to find their way into the overall experience,” he declares.
Ivan Verbesselt (NAGRA) concludes: “The successful operators of the future must meet evolving and diverse content consumption needs, enabling tech-savvy consumers to create their own next-generation bundle of TV and on-demand services.”
It will come as no surprise that if you want to appeal to the Content Connoisseurs, you need a great multiscreen strategy. “They expect high-quality experiences across devices,” the report confirms.
“Operators need the commercial and technical agility to launch new services on emerging device categories as quickly and cost-effectively as possible,” NAGRA declares. “If they do not, these high-spending consumers will quickly find other providers who can. At best, this means their spending fragments. At worst, it means losing a customer altogether.”
The advice is to prioritise multiscreen over UHD for the Content Connoisseur consumer group. “Operators able to reach consumers on every screen and device, whether on the home network or on mobile and Wi-Fi outside, will maximise engagement. This may prove a better investment than adding features like UHD linear TV. After all, the biggest linear watchers are the ‘TV Traditionalists’, at nearly three hours per day, who have much less interest in new [multiscreen] technology.”
You need a complete set of multiplatform content rights. “High-paying Content Connoisseurs will not put up with blacked-out content on their favourite device, so content rights must cover all platforms and delivery methods,” NAGRA points out.
The bottom line is that if you want to keep this demanding consumer segment happy you must give them every kind of content, everywhere. “Their consumption is distributed across multiple sources: Pay TV VOD, free online video like YouTube, subscription VOD like Netflix, Hulu and Amazon Prime, scheduled TV, self-recorded DVR content, and broadcaster catch-up.
“Operators must deliver this smorgasbord of material to an ever-increasing haul of gadgets. Some will be carried over traditional cable or satellite infrastructure, some will be provided by operators via their own IP, some will be over-the-top. It may be viewed at home, at a coffee shop Wi-Fi hotspot or via mobile.”
So, if you work for a Pay TV operator and are currently on your coffee break, maybe you should get back to your desk!!
You can download the report here.