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An analysis by the consulting firm MTM on behalf of NAGRA’s ‘Pay TV Innovation Forum’ suggests that if every Pay TV operator worldwide that ranks below average in terms of service and product innovation (judged by how advanced their portfolio is) could raise its game to the level of the average innovators, it would improve total (global) industry revenues by 11%, or $20 billion a year. This assumes that ARPU at the improving companies could rise to the levels seen at the service providers with the more advanced offers.

The figure is not offered as a firm forecast but as an indication that money is potentially being left on the table if service providers do not innovate quickly enough. The figure should be considered in the context of growing fears about competition, and increasing pessimism about the ability for the Pay TV industry to increase revenues – both sentiments that were uncovered by the latest Pay TV Innovation Forum research.

MTM received insights from 125 Pay TV industry executives in an online survey conducted in the early summer and analysed the product and service portfolios of 233 service providers across 42 major Pay TV markets (accounting for 93% of the industry outside China). The conclusion was that the Pay TV industry needs to focus more on innovation as market conditions become tougher. 69% of executives think that innovation has become more important to the Pay TV industry over the last 12 months.

85% of executives agreed that to grow, Pay TV service providers will have to innovate strongly over the next five years. That figure is up from 78% in 2016.

When it comes to product innovation, priorities are seamless Pay TV experiences across multiple devices (with a need for next-gen platforms and user interfaces), new content offers, and online TV services that encompass standalone OTT services as well as TV Everywhere. In emerging markets there is an increasing interest in app-based Pay TV services where operators reach television screens without a set-top box of their own (as witnessed on a Smart TV).

In terms of commercial innovation, the priorities are: finding new ways to price and package content; taking a more segmented view of customers [i.e. a lower-value market and higher-value market, etc.] and establishing innovative partnerships with content providers. Device/platform priorities include the onboarding of third-party apps, voice control, search and 4K video quality. 39% of the Pay TV providers surveyed plan to launch VR and/or 360-degree video propositions in the next five years.

There is a growing emphasis on strong relationships with content suppliers and technology providers, the report reveals. “Executives stress the need for close, collaborative relationships with content suppliers to provide the commercial flexibility required to develop new ways of packaging, pricing and distributing content to subscribers. They want close relationships with technology providers to deliver the agility and robustness required to remain competitive. In both cases, Pay TV providers are looking for new kinds of relationship, beyond rigid commercial structures.”

The main challenges when innovating are listed as: the cost of replacing legacy technology and infrastructure; lacking the processes and culture needed to support innovation; and risk avoidance and fear of failure. But there is evidence that Pay TV operators are getting their organisations in better shape for an innovation-driven future. Far fewer executives listed ‘lack of internal skills and capabilities’ as a challenge this year compared to 2016. Far fewer respondents listed ‘limited time from key personnel’ and ‘lack of senior management consensus’ as innovation challenges this year, too.

The Pay TV Innovation Forum report, called ‘The Global Pay TV Innovation Landscape’ can be downloaded here.

There is growing pessimism about future Pay TV industry growth as things stand. “71% of executives agree that Pay TV service providers in their country will struggle to grow their businesses over the next five years, up from 57% last year,” the report says. “During the last year, the pace of change has accelerated, with 67% of the 42 major Pay TV markets covered in the [research] programme seeing lower subscriber growth compared to the year before.”

The report lists the three biggest market challenges for Pay TV, based on the opinion of the executives who responded. These are:

  1. The proliferation of OTT services
  2. Changing consumer behaviour and demand
  3. Content piracy, fuelled by illicit streaming devices

67% of executives agreed that ‘competition from subscription OTT services will have a negative impact on the Pay TV industry, pushing down prices and increasing customer churn.’ Free OTT is also worrying people. “A large number of executives believe that the increasing availability and quality of free video content also poses a significant threat to Pay TV providers as the likes of YouTube, Facebook and Twitter grow and develop their free advertising-funded video content offerings.”

62% of executives agreed that ‘The increasing availability and quality of online video content on services like YouTube will make it harder to grow Pay TV industry revenues.’ What are described as seamless TV Everywhere services were viewed as the primary means for competing successfully against OTT services.

23% of the service providers who were surveyed plan to launch their own standalone OTT service in the next five years. 64% of executives see standalone OTT as commercially attractive, up from 53% last year. 35% plan to launch a mobile TV service within five years.

On their existing platforms, some operators and especially telcos are looking to onboard OTT content apps and there is a focus on personalised, easy-to-use user interfaces and great content discovery. In general, Pay TV providers are also keen to explore content that appeals to younger audiences, including esports, gaming and Virtual Reality, the MTM/NAGRA research found.

The report revealed that most executives expect traditional Pay TV bundles to co-exist with more flexible offers that charge on an a per-event, weekly or monthly basis, for example. Content pricing and packaging was identified as a significant opportunity for innovation and new business. Most industry participants expect a gradual shift from traditional big bundles sold with long-term contracts to flexible skinny and personalised bundles.

Piracy was identified by the report as a growing concern. “50% of respondents (up from 41% last year) think that piracy will lead to greater pressures on the industry over the next five years and only a quarter (26%) believe it is a diminishing problem,” the Pay TV Innovation Forum reports.

Commenting on the findings, Ivan Verbesselt, SVP Group Marketing at NAGRA, says: “Everyone should be obsessed with innovation. There are alternative offers out there for consumers. It is clear that the television industry cannot sit on its hands.”

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