PayTV vs. OTT VI: 5 MSO strategies

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

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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.

5.    Cost reduction

The last strategy implemented lately has been about creating the infrastructure necessary to deliver a massive amount of video, securely with high quality. While MSOs have traditionally relied on third party infrastructure, Verizon has recently innovated with the acquisition of EdgeCast in January 2014. By purchasing the CDN, the MSO will be able to reduce its delivery costs, while controlling user experience and offering wholesale service to other MSOs and OTT alike.