With increasing broadband access, the economics of the broadcast TV industry is bound to change. Just like the newspaper, music and travel industries before it. Is a Netflix threat actually the catalyst that causes the pay-TV operators to review how to capture and retain consumers’ attention?
Pay-TV is dead! Long live OTT services
Consumers want easier access to desirable content, on any device at any time. And value. Not a pre-defined package of 100 channels of which only 4 are watched. The OTT services have capitalized on this, attracting consumers with cheap packages. This so-called cord cutting has seen some pay-TV operators lose subscribers. Netflix are a competitor – no doubt about it. Or are they?
What can be learnt?
With net profits of USD 112million and 48 million members in 40 countries, Netflix are certainly formidable. They offer good content, on any device at a fantastic price. That equals great value. What’s more they are expanding into content creation. And it’s being lapped up. If piracy levels can be used as an indication of popularity, then Netflix is up there with the best. According to Irdeto’s April 2014 piracy report, on specific titles, Netflix has 2 out of the top 5. But Netflix is not without challenges. They are facing more competition and the US net neutrality ruling leaves Netflix open to increased charges from ISPs. Cost of streaming rights rose 30% from 2012 to 2013 and shows no sign of reversing. Their international expansion continues with that loss making division being subsidized by the US. And price increases loom on the horizon. What can the pay-TV operators learn from them?
Pay-TV is alive! Long live Pay-TV
Put simply, operators who can securely offer great value content on as many devices as possible will grow market and revenue. And operators already have premium content including high value live sports, relations with advertisers and audience. Agreed, they are not exactly sitting pretty but they have a powerful position to leverage. For instance, they could define the “new” TV centric experience by offering a multiscreen option initially within the home and extend it to on the move. Include personalization features such as search and recommendations to enhance the user experience. And let’s not forget they have live sports – the biggest draw for large audiences. Netflix doesn’t have this. If operators can balance all this with great pricing, the competition may not look as fierce. Indeed some, such as Virgin Media UK, Atlantic Broadband, are integrating Netflix as a complementary option into their current plans, with more following suit: e.g Deutsche Telekom. In fact Netflix may not be that different. After all they also just offer a bundled business model to their consumers. Maybe it’s a business model revolution which will ultimately define the competitors and catalysts?