Pay TV executives in Europe agree that innovation (using a narrow definition of developing viable new customer-facing offerings) is becoming more important and more urgent. Many Pay TV service providers have migrated to more advanced technology platforms and adopted agile development methodologies, yet executives have identified risk avoidance, dependency on content suppliers, limited funding for innovation projects, and a lack of flexibility and speed as important barriers to developing new products and services.
This is a challenge highlighted in a White Paper published recently by the Pay-TV Innovation Forum – the global research programme for senior Pay TV executives developed by NAGRA (which provides security and multiscreen user experience solutions) and conducted by MTM, the research and strategy consulting firm.
‘Mapping the European Pay-TV Innovation Landscape’ highlights a culture of risk avoidance. “The majority of industry participants think that Pay TV companies are too risk-averse and do not have the right incentives in place to stimulate innovation,” the study found. “Pay TV companies are not designed for innovation. There is a strong focus on return on investment across the organisation for all new projects and the ROI hurdle is usually quite high due to healthy margins in the core Pay TV business. As a result, experimentation is not encouraged and failure is not an option.”
According to the paper, Pay TV executives believe they have fallen behind in their approaches to innovation, particularly in the age of agile software development. They are hindered by content suppliers who are slow to respond to changing market conditions, particularly with regards to on-demand content and cloud-DVR rights.
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The findings in the White Paper are based on MTM research and analysis and extensive engagement with European Pay TV industry executives during Q2 2016. MTM also analysed the product and service portfolios of 93 Pay TV providers across the 18 largest European Pay TV markets. As part of this project, MTM took views during special briefings in London and Rome (including at Connected TV World Summit).
The White Paper considers the approaches to improving Pay TV innovation, revealing that most Pay TV operators follow balanced innovation models, trying to blend in-house with supplier-led innovation. “Pay TV executives believe that with the right incentives in place, the balanced approach enables their companies to stimulate creativity, accelerate product development and launch innovative products and services,” it says.
Large operators are still trying to maintain strong in-house capabilities to differentiate their Pay TV propositions. They are also engaging in corporate venturing and M&A to ensure better control of critical resources and capabilities.
Despite the innovation hurdles listed, the study makes it clear how the Pay TV industry is determined to improve existing services and make money from new ones. Industry executives see substantial scope for innovation in pricing and packaging of content (moving beyond big bundles and bundled subscriptions), advanced set-top box functionalities, and improving existing TV Everywhere offerings.
“European executives suggest that the introduction of more flexible pricing options – such as a la carte, daily or weekly passes and consumption-based pricing – will be a very important innovation for the industry and will drive customer uptake and satisfaction,” the White Paper declares. Executives also see a significant opportunity to improve their existing TV Everywhere (authenticated multiscreen) offerings, especially by providing a unified user experience across all screens.
When it comes to next-generation set-top boxes, the opportunity is to support intuitive user interfaces, content recommendations, voice control and UHD. According to the White Paper: “Some operators expect to generate value and improve customer retention by segmenting the user experience, providing different user interfaces depending on usage patterns and preferences.” You can read a separate story about that concept here.
Although one-third of all European Pay TV service providers have launched a standalone OTT service, the Pay-TV Innovation Forum reports scepticism about their commercial attractiveness. “Industry participants believe that few Pay TV service providers are well-positioned to build a successful standalone OTT business.”
The Pay-TV Innovation Forum paper highlights opportunities for innovation in what it calls ‘adjacencies’ – notably Smart Home and advanced advertising. But it argues that few operators are well-equipped to capitalise on these markets and they will have to be driven by major telcos and large-scale Pay TV operators.
You can find and download the White Paper at the Pay-TV Innovation Forum website, here.
