TV not going anywhere

There were some pretty brutal findings for pay-TV providers in a survey released this week by Rovi-owned content discovery and recommendation company Digitalsmiths. And they don’t just involve the 43 percent of subscribers Digitalsmiths describes as “at risk” of either switching to another video provider or cutting the cord altogether.

Equally alarming, the survey suggests that pay-TV providers’ efforts to position and market themselves as something more than mere conduits for plain-old-TV content to the living room TV set have so far made little headway with consumers. The ugly facts:

  • Nearly 53 percent say they do not know whether their pay-TV provider offers an app for watching TV on smartphones and tablets (i.e. TV Everywhere);
  • Only 22% have such an app installed on at least one mobile device, and even among those, nearly 58 percent say they rarely or never use it.

The situation is no better when it comes to pay-TV providers’ video-on-demand platforms:

  • Nearly 73 percent say they have never rented a movie or TV show from their providers’ VOD library — a figure that is essentially unchanged over the four quarters dating back to Q4 2012 in which Digitalsmiths has conducted the survey;
  • Among the rest, 12.5 percent report renting one movie a month, while 8.4 percent rent less than one a month.

As Digitalsmiths dryly puts it in in its report on the survey, “It is a safe assumption that there has not been significant growth in VOD rentals. Pay-TV providers have invested heavily in their VOD efforts in recent years with little evidence of revenue growth.”

The survey did not ask about free-VOD usage but that does not produce incremental revenue in any case.

Use of over-the-top services, meanwhile, continues to grow:

  • 45.3 percent of pay-TV providers also use an OTT streaming service such as Netflix or Hulu;
  • Nearly 29 percent report using third-party pay-per-view rentals service such as Amazon, iTunes or Redbox Instant.

Both numbers are well above the percentage of consumers who have ever used a comparable service from their pay-TV provider.

Perhaps the toughest finding for pay-TV providers, however, is that the most prominent reasons respondents cited for preferring OTT and third-party services are not things operators can do much about.

The two most frequent reasons cited were “convenience” (59.2 percent) and “cheaper” (50.1 percent), followed by the ability to watch particular shows or whole seasons, which could be translated as “content” (38.5 percent).

With respect to “cheaper” — presumably a reference to transactional VOD — operators are constrained in their ability to compete on price. For the most part, content owners set the price of VOD rentals through the minimum, per-transaction licensing fee they impose. Unless an operator wants to cut deeply into its own margins, there is an effective floor under the price it can charge.

“Convenience” is a subjective term, but there probably isn’t much operators can do their either, at least on their own. Certainly they could improve the navigation of their VOD platforms, which would help. But when it comes to TV Everywhere, even those consumers who know about it face a far from ideal experience due to the pay-TV industry’s still-kludgy methods of authentication.

That’s an industry-wide problem, however, that no one operator can really fix by itself. In the meantime, its much easier for most consumers to simply grab their tablet or their laptop and open Netflix.

The “content” challenge is also largely beyond operators’ ability to solve. Most pay-TV operators are not in the business of producing content themselves, as their OTT competitors like Netflix, Amazon and Hulu increasing are. As for who gets access to what content when, that’s under the control of rights owners.

That’s not to say there is nothing pay-TV operators can do to improve their lot. Their marketing of their own services clearly leaves a lot to be desired given how few of their subscribers are even aware of them. But they don’t have a lot of levers to pull in the ares that seem to matter most to consumers.

Good thing cable and telco providers, at least, make such fat margins from broadband.

Relevant Analyst
Sweeting

Paul Sweeting

Principal Concurrent Media Strategies

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