Executive Trends: To Be or Not to Be, the Pay TV dilemma

The recent NexTV Series conference hosted by consultant Dataxis in Buenos Aires resulted in a surprising amount of definitions about the current evolution of the pay television industry and the changing role of the streaming services in what is expected to be the balance of power by 2023.

(Private Advisor, May 2018) While the future of linear pay TV as a business is not considered to be in danger, there are alerts about its lack of future growth and maybe some declination, as “cord cutters”, “cord nevers” and “cord shavers” (those keeping their basic subscription but cutting down on premium content) grow in terms of percentage of the total user base. Even those who keep their cable or DTH traditional subscription appear to be adhering to one (presumably starting with Netflix) or more streaming services. This line of discussion obliterated this time what was earlier the OTT’s main cause of concern: collecting their fees in countries where credit cards are not so common as in the U.S. and Europe.

The traditional ‘Content is King’ phrasing was replaced by ‘User Experience is King’. Several speakers suggested that the satisfaction viewers get from watching prepackaged content and its VOD platforms can be vastly improved, sometimes just by describing the inventory available. The Netflix search engine has clearly impressed the industry; there were several proposals to add a similar feature to cable TV, even broadcast.

The problem with the ‘User Experience is King’ mantra is that the price of the experience becomes relevant. Unless the user feels highly engaged with the content, the price factor will be weighed in. Netflix, with 125 million accounts worldwide, is a clear evidence that now you may obtain lots of content for 12 dollars a month or so, while a cable TV subscription may cost you somewhere between 25 and 160 dollars for fifty to 150 channels, including no more than six that you really watch. That’s the ‘scarcity vs. multiplicity’ dilemma for the content producers and distributors, put in easier words through another motto: ‘analog dollars or digital pennies’.

At the NexTV conference it was mentioned several times that the content producers are on their way to establish direct contact with the final user, a move that is possible if and when the broadband penetration index exceeds pay TV penetration, and --at least in theory-- allows the programmers to bypass the middlemen, in this case the cable and DTH operators. Of course, this affects cable operator loyalty and jumpstarts the eruption of ‘Netflix buttons’ that turn this platform into ‘one more channel available’, as a couple of operators described it in Buenos Aires. This trend is reinforced by the surge of a variety of streaming operators --more than 300 are currently available in the States, probably there are as many in Latin America-- which so far have been unable to challenge Netflix as market forces, but will eventually find their way, probably with support from the telcos.

All in all, the linear pay TV industry is at a crossroads. On the one hand, the social networks and YouTube are providing content at virtually no cost. On the other hand, the Gen Z consumers are now displacing millennials as a vital market force, they feel restless when forced to watch TV screens that look like a painting on the wall when compared to Play Station consoles, computers or smartphones displaying videogames. Many TV producers have learned the lesson and try to provide content with takes no longer than 2 to 3 seconds each, but the younger users still object another prepackaged TV feature: having to wait until they are allowed to watch the ‘Big Bang Theory’ finale or anything else, except sports.

The obvious solution, consisting in moving all video entertainment to IPTV and charging customers Per View, is unacceptable to the entertainment industry financial executives, who immediately foresee a dramatic drop in revenues. So, to maintain the status quo it will be probably necessary find a settlement. This could be obtained by:

a) slashing the number of channels being offered to the audience.
In Latin America, ratings statistics by Kantar Ibope show that a select 30-channel lineup accounts for close to 80% of the total audience.
b) migrating to VOD the content they now carry, adding inventory by restoring content that has been phased-out but still attracts views, and introducing a search engine to allow the customer find it.
c) redrawing, often within the same organization, the rights issue, now still fragmented according to the old “syndication” model that no longer exists on broadcast TV.

This reshaping would take advantage from the fact that most cord-cutters and cord-nevers have to subscribe to more than two streaming services, plus pay for broadband and, on top of this, somehow still access the free-to-air (FTA) broadcast channels in a wired environment era. And, it would allow linear pay TV to offer a more competitive price as well as, hopefully, deliver a nicer ‘user experience’ to several hundred million linear pay TV subscribers. Difficult to imagine? Maybe, but not impossible.


See others Executive Trends analisys:
Executive Trends: 'Scarcity' vs. 'Multiplicity', that is the question (April 2018)
Executive Trends: On disruption and more (March 2018)
Executive Trends: Content as Commodity (February 2018)
Executive Trends: Competing with Netflix (January 2018)
Executive Trends: A Brave New World (December 2017)
Executive Trends: The wild world of co-production (November 2017)
Executive Trends: Is Big Data Overrated? (October 2017)
Executive Trends: From content packaging to original production (September 2017)
Executive Trends: The Mother of all Battles (August 2017)
Executive Trends: Power Game makes U-Turn (July 2017)
Executive Trends: Digital Content, Piracy and Credit Cards (June 2017)
Executive Trends: The other crisis (May 2017)
Executive Trends: Reinvention needed (April 2017)