The TV market has experienced a rapid transformation over the last couple of years. In fact, all sectors experienced a change as the internet widened the existing global market, altering how users behave and ultimately, replacing legacy technology stacks. For audiences consuming TV this has been a revolution, both in terms of the quality and amount of content on offer, as well as the overall experience. More content than ever is now being produced and made readily available via several streaming services, while traditional TV providers are offering channel bundles and including streaming services to maintain a relevant proposition.
However, from a provider perspective, this has introduced several challenges.
TV markets used to be constrained by geographical country borders as well as the limited reach of distribution technology. The network that was used to distribute the content inside a region, often exclusively licensed content, was also focused locally.
Some of the more obvious examples are the coaxial networks for cable TV or terrestrial networks for broadcast, which are technologies with limited reach due to technical constraints. The only technology with a more global reach was satellite TV, but this presented several cost barriers for smaller locally based channels. This brought about a small pool of competitors per market, both in sense of distributors, as well as TV channels. As the distribution technology stacks were exclusively used for TV distribution, the budget for technical investments was restricted, meaning that TV business was primarily about sales and marketing, fostering a status quo culture of slow innovation.
The rise of the internet and internet-distributed TV, as well as streaming, completely changed the game. First, technical and financial barriers to get viewers access are now gone. As the internet is now global, barriers related to local distribution technology are effectively removed, inviting global competition. Moreover, as the internet is a platform that stimulates innovation, fostering new ideas and concepts, TV has also started to face increasing competition from other types of services that we might not immediately refer to as television, such as YouTube, Twitch and TikTok. From a user perspective, this offers a new alternative for consuming video and naturally, new ways of distributing it. However, in order to stay competitive in this new reality, all providers must adopt not only the technology stacks used to distribute on the internet, but also the innovative culture and methodologies.
Today, we have a pay-TV market that is very fragmented, with smaller local players that cover specific regions. This presents many challenges for building, operating and evolving a service and its underlying technology. For example, in Europe, there are more than 200 pay-TV providers, and most of them have less than 500K subscribers. It’s clear that this scale pales in significance with other territories such as APAC and North America.
At the same time the internet presents a big opportunity for these small to mid-sized pay-TV providers. For decades now, a common practice has been to make use of managed services as part of an operational model. This focuses efforts on the core of the business, with a third-party specialist handling everything else. The problem here is that in the traditional model there’s limited ability to scale. While the managed services provider might argue that they can be more effective due to market expertise, running this on premise integrated and often customised, means having a lot of people physically inside the organisation. The customisation itself brings a need to understand other aspects of that integration rather than a wider industry expertise.
But, in the same way the internet helps to reduce distances and blur borders, it also enables new efficient models for operating and cooperating. This means that the one developing, installing, and operating a system, doesn’t have to physically be in the same place as where the service is based. With SaaS we introduce another abstract layer as the functionality is offered as an API and the user doesn’t have to think about configuring or managing the actual software behind the deployment. This offers a much smarter way to increase collaboration and achieve better scale advantage across many areas where running operations locally hinders efficiency. While there are components that may not be optimal to place in the cloud, like caches deployed near the edges of the ISP network, much of the logic also for those applications can still be executed in the cloud. This cloud-assisted or hybrid cloud model also enables anon-prem deployed infrastructure to be offered and operated in SaaS, drastically simplifying management and operations.
Its operational capacities, technical expertise, and successful integration means it can advance in the consolidation of the European pay-TV and streaming market enabling the value of scale in technology and operations. By unifying the world of content and broadband, the full potential of pay-TV and VoD services can be realised for telecom operators, with content owners equipped with monetization opportunities and the power to reach a wider audience.
The outlook for smaller pay-TV providers, like those in Europe, seems bright. While it might look like a tough mountain to climb, consumers are on the hunt for a more seamless, less fragmented viewing experience. If pay-TV providers can successfully consolidate the European pay-TV and streaming markets, they can deliver an entertainment centre that meets consumer demand more successfully than what some streaming services currently offer. With consumers used to the power of choice, providers must deliver exactly what consumers are after in order to build back a subscriber base substantial enough to rival the streaming service giants.
The gap – and competition – between over-the-top (OTT) TV and pay-TV is one that continues to evolve. In 2018 we saw the demand for streaming services overtake the number of pay-TV subscriptions for the first time ever, marking a major shift in the way viewers consume content. Fast forward to 2020 and the start of a global pandemic and this insatiable consumer demand was amplified, resulting in further growth of the SVoD market. Recent reports show that even though this is beginning to slow, viewers still pay for four streaming service subscriptions on average, with the United States maintaining its undefeated title as the largest single OTT market. While OTT TV has seen growth and stability, particularly in North America and China, smaller pay-TV providers in Europe have been witnessing a gradual decline in their subscriber bases due to the shifting consumer viewing habits.
Today’s consumers are spoilt for choice, from what they watch and where they watch TV to the overall user experience and competitive subscription prices. The market is flooded with options. Streaming giants like Netflix and Prime Video who undeniably rule the playground – and have done for many years – are now faced with fierce competition from the “new kids on the block”. This extremely over-saturated market is a result of viewers’ pursuit for content tailored to them and competitive prices which, in turn, has driven the transformation in internet-delivered media, accelerating the growth of international SVoD key players.
With streaming – both from the giants and smaller SVoD providers – continuing to grow rapidly, how can smaller European pay-TV providers compete? The answer is wrapped up nicely in one neat bundle, by consolidating the current Pay TV and OTT markets.
Presenting a new era of consolidation
More and more media giants like Paramount and Disney are looking to capitalise on existing consumer demand while monetising their own archives by going direct to consumer (DTC) and launching their own OTT streaming platforms. With pay-TV models suffering subscription losses from changing consumer viewing habits, aggregation looks to be the key to a successful bounce back for the smaller operators.
But while streaming continues to dominate, consumers are also becoming increasingly overwhelmed by the choice of content available. They want to spend more time watching and less time scrolling or searching. ‘Subscription fatigue’ is a term that refers to consumers growing increasingly frustrated with the fragmented way in which they have to consume their desired content. A recent study indicated that close to half (47 per cent) of US consumers felt this way, despite the US being the largest single OTT market. It’s therefore crucial to provide viewers with a more seamless integrated viewing experience to fulfil consumer demand.
Pay-TV providers can provide this end-to-end viewing experience through consolidation of the pay-TV and SVoD market. In order to do this, careful consideration and effort must be given to how the service is operated. Some of the challenges that providers face when going about this is the complexity of the solutions, the growing size of content catalogues, and managing increasing volumes of data. The problem is that this can result in fixed costs or scaling with the amount of content rather than the number of subscribers, meaning many pay-TV providers face a scale challenge – this is particularly the case for the 177 smaller providers currently operating in Europe.
Innovation and scale through consolidation
Going forward, as we push inside a new era of video content consumption, we’ll begin to see more and more of these smaller pay TV providers looking to reinvigorate their offering through consolidation with other streaming or OTT services. In a bid to offer more enticing packages that better meet consumer demand, we can expect to see an increase in partnerships and exclusive rights deals – maybe even mergers and acquisitions. Smaller pay-TV providers will look to aggregate other pay-TV platforms and OTT services in order to enrich their content libraries, provide more cost-effective solutions and increase their presence in the competitive market.
To steer clear of ‘cord-cutting’, smaller pay-TV providers must maintain and evolve a successful service that can compete with the streaming giants. European pay-TV providers need to be armed with industry expertise, experience, and the capacity to constantly evolve the technology. With TV transitioning into an internet service, user expectations for continuous innovation are increasing, as has the demand from viewers to consume content simultaneously across multiple connected devices.