Segmentation of consumers into higher spenders and lower spenders is nothing new in Pay TV. Historically, Pay TV operators have used entry-level packages to entice consumers who might not otherwise be interested or who are on the verge of giving up their subscription. But the segmentation we now see in the Pay TV market is different.
First, the lower-cost packages are being offered through the same companies but away from their traditional platforms, often under independent brands, using completely different delivery technology – online streaming across open networks to what are often unmanaged connected devices. These are the so-called skinny bundles – or Pay Lite. NOW TV from Sky, Sling TV from DISH Network and more recently DIRECTV NOW from AT&T are examples.
The attempt to attract lower-cost users (using Pay Lite) is now more determined and the demographic target broader. Where lower-cost incentives were often temporary in the past, responding to short-term customer acquisition problems, the Pay Lite low-cost market already has a permanent look about it.
As Guy Bisson, Research Director at Ampere Analysis, the UK-based research and forecasting firm, points out, Premiere in Germany (the predecessor to Sky Deutschland) had a EUR 5 starting offer last decade as an attempt to kick-start a struggling Pay TV market. “French and Scandinavian operators experimented with a la carte and low-cost offers througout the 90s and noughties. There have always been skinny bundles and experiments around low-entry price points; this is not new.”
Then, prices could be raised when customer acquisition became easier. “Back then you had the choice of either taking Pay TV or not taking it. Now there are other options like Netflix, Amazon and, for transactional video, iTunes.”
This change in market fundamentals makes it harder to raise the floor price if you want to keep targeting less affluent consumers. “You cannot go backwards. Ten years ago you could constantly change packages and experiment but with [online] SVOD services coming into the market and offering something that is half-decent at a very low price point, there has been a reaction to that [from traditional Pay TV providers]. The lower cost option is here to stay now,” Bisson declares.
He thinks Pay Lite options are how some operators will now target the lower-ARPU market. Does this development mean we will see less price/bundle segmentation on the traditional TV platforms? He thinks so, certainly in Europe.
“In the U.S. it is slightly different and there will be more segmentation within the traditional Pay TV offer because it was more expensive to start with,” he notes. And yes, there is such a thing as luxury Pay TV and operators should make sure they keep delivering it to satisfy their power users who are less price sensitive and want all the best content.
Simon Trudelle, Senior Product Marketing Director for Multi-Screen & Cloud Services at NAGRA (which provides multiscreen solutions, customer premise equipment and content security), told Videonet two years ago: “We are seeing a paradigm shift on the marketing side. We used to sell Pay TV as a big bundle with one or two content options, but generally we wanted to sell the whole package. Now there is an opportunity to aim more precisely at a given market segment.”
Trudelle now predicts that in the long-term the line between what is a skinny online Pay TV offer and a lower end traditional package will blur. As online video delivery technology becomes more efficient and copes with greater scale, and the streaming user experience becomes equivalent to broadcast, we will stop differentiating between the two. “You will deliver the right package to the right segment with the right technology and we will be able to focus on the real business of consumer marketing.”
In this continuum, some consumers will be television traditionalists who put the big screen experience first, with second screens as the complement. “And there are consumers who want to be exposed to content on the second screen initially, using the big screen as their second step. At some point, content packaging will reflect those differences in consumer priorities. That chasm between skinny OTT and traditional broadcast will blur.”
Ironically, as OTT and broadcast technologies and their user experiences become more like each other, the evolutionary roadmap for Pay TV operators could reach an important fork. “The U.S. market could split into two major markets, one more broadband-centric, in urban areas, and one more broadcast-centric in rural areas where broadband is not so good,” Trudelle suggests.
This is an excerpt from the new Videonet report: ‘How device innovation is changing the Pay TV landscape’.
The report investigates how Pay TV operators can segment the consumer market more precisely and deliver service and pricing innovations thanks to a new breed of customer premise equipment (CPE) and a more agile Pay TV device ecosystem. It considers Pay Lite services and OTT onboarding, the potential for tailored CPE bundles, and implications for content security. There are insights from DISH Network, SES/HD Plus, Sling TV, NOW TV (Sky), Ampere Analysis, Futuresource Consulting, Parks Associates, Strategy Analytics, IHS Markit, Pay-TV Innovation Forum, NAGRA, SoftAtHome and others.
Download report here (free).
The 8,000 word report covers:
- Segmentation of traditional Pay TV
- A growing low-cost paid video market
- How Pay TV providers are chasing new opportunities
- The Pay Lite, online skinny bundle
- The role of technology in service segmentation
- Delivering a more tailored bundle of CPE
- Yet more ways to deliver and market Pay TV
- Whole-home, 4K and Android TV
- ‘Onboarding’ the best of OTT
- Greater innovation in the Pay TV device ecosystem
- The diversity challenge for content security and UEX
- Co-existence and long-term economics