5 MSO strategies
If you haven't read the other posts in this series, you can find them here for context.
Pay TV vs. OTT:Part I: The business models
Part II: Managed devices and services vs. OTT
Part III: CE vendors and companion screens
Part IV: Clash of the titans
Part V: Appointment vs. on-demand
More developments will be presented at Monetizing OTT services - London - March 24/26
There are a
few strategies that have been enacted by MSOs to counter the erosion of their
margin and viewership brought forward by OTT.
1. Vertical integration
As control
of the value chain shifts from distribution to content, it is only natural that
some MSOs start to look upstream and concentrate channels, studio and
production with distribution in order to regain a dominant position in the
value circle. As an example, Comcast owns NBC Universal, which owns the MLB
network (in a joint venture with MLB) and the Philadelphia Flyers. In one company
you find premium content, production, channel and distribution.
This
strategy allows to control the content, with either exclusive or preferential
rights for distribution, which enables a captive audience and in return higher
advertising revenues, as long as the content remains popular.
2. Multiscreen
This
strategy allows MSOs to offer a portion of the live and on-demand TV
programming available to mobile devices (smartphones, Tablets, Phablets…) and
hybrid devices (hybrid set top boxes, video game consoles, PCs, smart TVs…). In this context, while the
medium of delivery is still the internet, it is not a true OTT play. To access
the content, the user must authenticate herself as a MSO subscriber. This
strategy enables MSOs to “spill out” of the traditional TV screen and to offer
programming on a growing medium that is favored by younger generations.
Verizon’s FiOS is, for instance available on cable, internet, on ipad, on LG,
Samsung TVs and on Xbox and Playstations. This strategy is one of retention, where,
recognizing that consumers want to watch in a more flexible manner, it is made
available on a variety of new devices, included in the regular subscription.
This is about keeping people loyal to the MSO programming, countering pure OTT
by offering an OTT-like experience. The strategy has not proven to increase
revenue, as it is usually included in the regular subscription. It is used to
reduce churn and increase loyalty.
3. Social TV
As Facebook,
Twitter, LinkedIn and other social media become part of our daily life, new
usage patterns have emerged. Social TV is such a trend, where content success
relies on recommendations, likes and sponsoring.
Popular
content can, in days become viral and amass millions of views. Psy, a South
Korean rapper became an overnight internet celebrity, with over a billion views
in six months on its YouTube channel with the release of “Gangnam style”. The
virality effect is hard to predict or influence, but live TV, particularly
sports and game shows are well suited for audience social interaction. By
creating interactivity, content becomes simultaneously more popular and more
“sticky”, as consumers watch more and longer shows when there is an emotional
connection. MSOs have started to try and integrate apps for social networks in their
managed devices in order to reinforce this engagement with users. The lack of
standards across platforms has hindered this integration to date and Social TV
remains more an experiment than a service at this stage. The strategy relies on
the assumption that engagement drives viewership, which drives revenue.
4. Going OTT
If you can’t
beat them, join them. There are a couple of sub strategies here. The first one
is to create a web site to serve content exclusively over the internet. For
instance, Hulu plus, the joint venture between Comcast (NBC Universal), Disney
and News corp. (Fox) allows its customers to watch ad-sponsored current and
back catalogue TV show for a monthly subscription.
A
second strategy is to package a channel as an internet content provider. For
instance, it was announced in October 2013 that Comcast is launching a new plan
for cord-cutters and cord-nevers, offering Xfinity Streampix, HBO and HBO Go
together with broadband for $39.99. A US Comcast customer will be able to watch
HBO over the web on their broadband subscription without having to be a cable
customer. The FCC (US regulators) mandates that premium channels have to be
bundled with basic broadcast, so that's in it as well, but this is a clear
tipping point moment. For the first time HBO is going head to head with
Netflix, going pure OTT. The implications are profound and it is a floodgate
moment. On one hand, Netflix has now more subscribers than HBO, which prompts
Comcast to start the self cannibalization. If you are losing subscribers, you
might as well lose them to yourself and a friendly content provider rather than
a competitor.
Verizon’s
Redbox instant is another example of a Netflix me-too strategy relying on
monthly subscription.
