Using TV Everywhere to Drive Premium TV Services...cord shavers. As use of alternatives to the pay-TV operator grows, con-sumer acceptance and adoption of OTT services will increase.

A Parks Associates Whitepaper Developed for

Using TV Everywhere to Drive Premium TV Services

2

Few trends have affected the global pay-TV industry the way online video and over-the-top (OTT) video services have over the past three years.

In the U.S. market, Netflix has grown its Watch Instantly service from a novel sideline of its DVD-by-mail business to over

22 million subscribers. Hulu, the U.S.-based OTT television content service, has expanded to serve 27 million viewers,

with over 2 million of those users paying a monthly fee for access to content. Both of these giants see opportunity worldwide

and are expanding into markets in Latin America, Western Europe, Asia, and the Pacific. While terrestrial broadcasters are

currently the most popular online video destinations among consumers in Western Europe, OTT services including LOVEFiLM

and Acetrax have expanded their coverage to become multinational video providers. Other services are following the same

path. Regardless of market, these services have several commonalities, including access to a wide assortment of content on

a variety of Internet-connected devices and business models that have a low (or no) cost to consumers.

Consumers have responded to the availability of these services with broad adoption, integrating these services into their entertainment budgets, both in terms of time and money spent.

Online Video: Hurting the Adoption of Premium Services

While a segment of consumers have experimented with this extreme change, the overall cord-cutting

experience has proven to be much more fragmented, manual, and time consuming than the pay-TV ex-

perience. These inhibitors have limited the number of consumers willing to go with online video only. More

troubling for operators are cord shavers, a group of subscribers who retain a basic version of their core

pay-TV service but eliminate some or all of their premium TV services, including HD service, additional

channels, premium content, pay-per-view, and on-demand services.

While both cord cutters and cord shavers have reduced the amount paid to pay-TV providers and have replaced pay-TV content with online video, the motivations and behaviors of the groups differ.

THE INITIAL FEARS of service providers centered on the possibility that consumers would DISCONNECT their pay-TV service and REPLACE it with ONLINE VIDEO.

Cord Shavers’ Unlicensed Online Video Viewing

(As % of Monthly Online Video Sessions)

U.S.

U.K.

Germany

Spain

France

Italy

Canada

0% 60%30%

Source: Parks Associates Consumer Analytics | © Parks Associates

% of Cord Shaver Online Video Sessions that Access Unlicensed Content per Month (self-reported)

Awareness

Percentage of Broadband Homes that are Cord Shavers

U.S.

U.K.

Germany

Spain

France

Italy

Canada

0% 12%6%


% of Broadband HHs reducing their Pay-TV Service Package that Watch Online Video

3www.parksassociates.com | All rights reserved.


Those who sever their pay-TV relationship are

often marginal television viewers, watching less

broadcast TV than the average broadband home.

Free terrestrial broadcasts, ad-supported online

video, and DVDs are adequate to meet their video-

watching needs. In contrast, cord shavers value video

overall and will retain at least a basic pay-TV subscrip-

tion even while reducing their overall pay-TV spend.

Instead of total pay-TV cancellation, shavers replace

the premium portion of their TV services with OTT

services and ad-supported online video. Cord shavers

use both legitimate and unlicensed sources to sate

their thirst for video content.

Consumers’ elimination of premium services is a particu-larly troubling trend for pay-TV providers.

In the U.S. market, where most consumers subscribe to middle

tiers of pay-TV services, the loss of premium service revenues from

a small percentage of users is painful. In Europe, Asia, and other

parts of the world, the most basic service tier is most commonly

adopted by consumers. Moving consumers from basic subscriptions

to premium services in these markets is already a significant chal-

lenge, and losing even a small percentage of premium subscribers to

online video represents ground lost to an emerging rival.

Further, while the operator faces lower ARPU (an average of 27% low-

er in the U.S. market) for cord shavers, those providers that supply at

least broadband services experience an increase in broadband traffic as

consumers compensate for the lost content with content that they find

online. In markets such as South Korea, where broadband caps are not

feasible due to competitive forces, the increase in traffic translates into

higher capital expenditures and operational costs to serve these cord-

shaver customers now paying less than they did before cord shaving.

Importantly, the battle for premium services extends beyond today’s

cord shavers. As use of alternatives to the pay-TV operator grows, con-

sumer acceptance and adoption of OTT services will increase. Thus, the

groups of cord cutters and cord shavers are being joined by the “cord

nevers,” those who grow up relying on alternative video providers for all

of their content needs and never had a cord to cut or shave.

Cord Shavers’ Unlicensed Online Video Viewing

(As % of Monthly Online Video Sessions)

U.S.

U.K.

Germany

Spain

France

Italy

Canada

0% 60%30%


% of Cord Shaver Online Video Sessions that Access Unlicensed Content per Month (self-reported)

Awareness

Percentage of Broadband Homes that are Cord Shavers

U.S.

U.K.

Germany

Spain

France

Italy

Canada

0% 12%6%


% of Broadband HHs reducing their Pay-TV Service Package that Watch Online Video

Cord Cutters Cord Shavers

• 60% of all subscribers that cancel their pay-TV service watch online video (U.S. market)

• Heavy TV viewers, watching 4.2 hours of Internet video per week on their TV

• Broadcast TV remains the most important source of video content

• ARPU is $20 less (27% less) than average pay-TV subscribers (U.S. market)

• Cutters watch less broadcast TV than average household

• 66% of cord shavers reduce their channel package size

• Free, ad-supported content is also an important source for video

• 66% reduce the number of premium channels (e.g. movies, sports) received

• Use of DVDs and Internet video on the TV & PC is much greater than average homes but less than cord shavers

• 47% eliminate HD service

• OTT services are as important as ad-supported video sources

versus

vs.

4

TV Everywhere: Driving Premium Services

In the face of this online video threat, a number of pay-TV providers throughout the world have responded with

heavy investments in their own OTT services. These TV Everywhere services were introduced as value-added fea-

tures of pay-TV services to prevent subscriber loss to online video. Thus, many operators introduced the services at no

additional cost to their customers. In several markets, this approach quickly proved to be problematic. Offered for free,

the TV Everywhere service is a concrete provider cost, but reducing consumer churn is a difficult result to quantify.

Advertising a free TV Everywhere service not only adds more cost to the

service but also has an opportunity cost: those ads do not promote the

provider’s core TV service. However, without promotion, consumer aware-

ness remains limited, minimizing the effectiveness of TV Everywhere as a

defense against OTT services.

Given these challenges with a “free service” business model, operators in

several global markets are re-focusing their TV Everywhere strategies to

include premium services, using TV Everywhere services to drive consumers

to higher tiers of service and to produce incremental revenues. Pay-TV provid-

ers have several advantages that they can leverage to make TV Everywhere

services successful. With strong relationships with content owners, pay-TV

players have access to the most current, popular content available, and as

well-funded corporations, they have the capital to acquire such content. In

addition, pay-TV providers already have an established billing relationship

with consumers and can make the transaction process easy

for the consumer through existing billing mechanisms. Op-

erators can bundle TV Everywhere services with their core

services or other value-added services, making them

more attractive to subscribers.

Moreover, offering content via connected CE devices helps the operator reach new au-

diences with their content services, including the emerging “cord nevers.” Satellite service

providers in Europe are already testing these waters. ViaSat’s ViaPlay service and BSkyB’s

Sky TV Now service allow consumers to purchase TV service on connected CE devices only,

including computers, tablets, smartphones, and smart TVs. This approach allows

companies to expand outside of their traditional DTH customer base.

Pay-TV providers have tested a variety of TV Everywhere business models; a

few of the more successful models are particularly well suited to driving premium

TV services. Importantly, each of these business models complements or rein-

forces key aspects of the operator’s core TV-based video service.

TV EVERYWHERE and PIRACY

While TV Everywhere can be used to drive

premium services, it also has the added ben-

efit of providing a disincentive to content

piracy. Often, when consumers cannot find

desired content on a particular device from a

legitimate source, they will turn to unlicensed

sources in order to address their needs.

By offering a legitimate option for subscribers, operators not only grow usage and loyalty among their customers, but they also help minimize content piracy.



INCENTIVE TO UPGRADE

Strong benefits of “free” as a defensive business model are that

customers experience low barriers to adoption and competitors

cannot feasibly undercut the price. However, at the low ARPUs real-

ized for basic pay-TV service, a free TV Everywhere service is particu-

larly untenable for operators, eroding already minimal margins. By

attaching free live or on-demand TV Everywhere to the highest tiers

of pay-TV and broadband services, providers win in three ways:

• They achieve an adequate margin to support the service;

• They offer an additional value-add to spur upgrades; and

• They still preserve the positioning advantage that “free” provides.

Swiss telco Swisscom and Italian terrestrial pay-TV broadcaster Medi-

aset have both successfully used TV Everywhere offerings to migrate

subscribers to higher tiers of broadband or video services.

PREMIUM TRANSACTIONAL VOD

Rather than using TV Everywhere as a defensive tool, operators taking this approach perceive OTT

delivery of content as an extension of their existing VOD business, relying on premium transac-

tional VOD on connected CE devices for incremental revenues.

Transactional VOD offerings scale well with content and delivery costs, and the results

of adoption can be easily measured. While transactional VOD on connected devices is less

popular with consumers than the more cost-efficient (from the customer perspective)

subscription VOD services, pay-TV providers can extend the early windowing advantages

that they have with popular content on TV-based VOD to connected devices.

U.S.-based Verizon is one operator that focuses on incremental transactional revenues; it is using this business model to

drive its FlexView service.

PREMIUM SUBSCRIPTION VOD

Some operators directly confront the specter of OTT video services by offering their own. Bundling a subscription OTT

service with a traditional pay-TV service not only provides a convenient path to market the service, but also allows the

operator to subsidize the cost of the service. Thus, the pay-TV provider can either bear greater expense for more current,

compelling content or offer a lower price than OTT video service alternatives.

In either case, the pay-TV service can realize a notable market advantage over OTT competitors. U.S.-based Comcast and

U.K.-based BSkyB have both launched subscription VOD services. Comcast’s service, available exclusively to its pay-TV subscrib-

ers, is designed to lure customers back from the Netflix Watch Instantly service. Sky’s TV Now service is available to all U.K.

consumers, not just its pay-TV subscribers, effectively expanding the satellite provider’s reach to new potential customers.

6

TV Everywhere for Premium Services: Keys to Success

Appropriate business models, while important to acceptance and long-term viability, will not guarantee the success of a TV

Everywhere initiative positioned to promote premium services. Several other factors will also be critical to creating a service

that will drive ARPU and corresponding revenues.

Compelling content: Paying customers want the assurance

that each time they use a service, they will have something

interesting to watch. Several OTT services address this re-

quirement with massive libraries of content that include an

abundance of long-tail titles. Pay-TV providers can offer live

streaming of channels or use their early access to VOD con-

tent to supply customers with content that is unavailable

from OTT services.

User experience: Having compelling content is a wasted

benefit if customers cannot find what they want quickly. In

a market replete with options for potential video customers,

the user experience will be an increasingly vital differentiator

among services. Discovery tools that help users easily win-

now down linear and on-demand choices to a manageable

consideration set minimizes the time and effort required

by consumers in selecting content. While a good user ex-

perience is important to keep paying customers engaged

in subscription services, rapid discovery is essential to the

success of any transactional VOD services.

Availability on a wide variety of CE devices: One strong

attraction for OTT services is their widespread availability on

almost every connected CE device that the consumer owns.

Netflix’s near ubiquity on connected devices provides con-

sumers with the confidence that if they pay for the service,

it will be available on the devices that they most want to

use—wherever and whenever they want to use them. To

provide a strong premium service, operators must close any

existing device “availability gap.”

Secure and easy to use: Both the consumer and content

partners have a vested interest in the security provided as

part of a premium service. For consumers, using a service

from a trusted provider eliminates the risk of viruses, spam,

and other dangers that may be associated with accessing

unlicensed content online. At the same time, security meas-

ures cannot be so cumbersome or limiting that they hinder

the user experience.

Content partners will require any OTT service to deliver con-

tent securely, particularly for early release or HD assets. Thus,

security solutions used must be market proven, approved

by content creators, easily integrated into service provider

apps, and able to quickly support the variety of new devices

that are introduced each year. Consumers and content pro-

viders expect their operators to adequately address security

for current threats and over time as new potential risks arise.

Awareness and promotion: Greater adoption, use, and in-

cremental revenues from TV Everywhere services will occur

only with heightened consumer awareness. Unlike promoting

free services, promoting premium-oriented TV Everywhere

services will contribute to the bottom line while reinforcing

the operator’s core TV services.

COMPELLING CONTENT

Awareness

Security

User Experience

Availability

Content Options

DeviceOptions

VideoChoicesConsumer



Conclusions

TV Everywhere offers pay-TV providers an opportunity to gain traction in an emerging market area largely ignored until alternative service providers began to affect consumer viewing and spending.

Although they initially undertook TV Everywhere for defensive purposes, pay-TV providers

need to adapt It as an offensive strategy. This change demands a vital distinction in the

way that the service is designed, positioned, and promoted. Whereas a defensive approach

minimizes the loss of subscribers, an offensive approach seeks to use TV Everywhere capabilities

to acquire customers and improve ARPU. In this way, the operator not only positions its offering

aggressively against OTT services but also against other pay-TV providers that may also offer TV

Everywhere to consumers in the provider’s footprint.

In many cases, operators have added TV Everywhere as an “extra” service rather than as an

integrated part of their overall business, both in terms of service positioning and technology

integration. Instead, pay-TV providers need to integrate TV Everywhere in a way that supports

the provider’s core service portfolio and minimizes risk.

Finally, pay-TV providers need to adopt TV Every-

where business models that drive premium services.

Not only will these models drive incremental revenues

and higher ARPU, but they will also address the pay-TV

provider’s key vulnerability to OTT services.

The majority of video consumption on connected CE devices supplements consumption

on the television. Thus, the business model for and delivery of the TV Everywhere service are

best positioned when complementary to TV-based linear and on-demand services. In terms

of technology integration, adopted TV Everywhere solutions must reinforce their tie to core

services and minimize risks to the consumers, pay-TV provider, or content partners that result in

a loss of trust or greater cost. At the same time, any solution must be able to scale quickly and

securely to new CE platforms as they emerge. Solutions

must not only allow swift deployment but also have

the flexibility to adapt to the rapidly changing needs of

the consumer. Having quick scaling capability will allow

the operator to reach new connected CE platforms as

rapidly as OTT rivals.

Adapt TV Everywhere services into the

main component of an offensive market

strategy.

Integrate TV Everywhere into

the provider’s core service portfolio.

Drive adoption of premium services.

Position TV Everywhere services

to complement TV-based linear and on-demand

services.

8

BRETT SAPPINGTON, Director, Research, Parks Associates

As a director of research at Parks Associates, Brett Sappington leads Parks Associates services research team,

including access and entertainment services, digital media, OTT, cloud media, video gaming, and technical

support services. Brett is an expert in worldwide television and broadband services. His personal research

focuses on the activities and trends among operators and the market forces affecting their businesses. Brett

is a regular speaker and moderator at international industry events.

Brett has spent over eighteen years in the industry as an analyst, executive manager, and entrepreneur. Previ-

ously, he founded and served as vice president for Teligy, a software company specializing in software for wired

and wireless communications systems. Brett established new divisions for networking and audio/multimedia

software for Intelligraphics. He has also been involved in the development and marketing of early-market

products for 802.11 wireless networking, VoIP, and other technologies. Brett holds an MBA from the University

of Texas at Austin with a concentration in high-tech marketing and a BA in physics from Baylor University.

Parks Associates is an internationally recognized market research and consulting company specializing in

emerging consumer technology products and services. Founded in 1986, Parks Associates creates research

capital for companies ranging from Fortune 500 to small start-ups through market reports, primary studies,

consumer research, custom research, workshops, executive conferences, and annual service subscriptions.

The company’s expertise includes new media, digital entertainment and gaming, home networks, Internet and

television services, digital health, mobile applications and services, consumer electronics, energy management,

and home control systems and security. www.parksassociates.com | 972.490.1113 | [email protected]

Irdeto is a world leader in content security, management and delivery for pay TV, online operators and con-

tent owners. Through its innovative conditional access, dynamic monetization and content security technologies,

the company allows new forms of distribution for broadcast, broadband and mobile entertainment, as well as for

the world’s most popular apps, eStores and consumer devices. Regionally headquartered in Amsterdam, Beijing,

and San Francisco, the company employs more than 1,000 people in 25 locations around the world. Irdeto is a

subsidiary of multinational media group Naspers (JSE: NPN). Please visit Irdeto at www.irdeto.com

ABOUT THE AUTHOR

ABOUT PARKS ASSOCIATES

ABOUT IRDETO

Attribution: Authored by Brett Sappington | Published by Parks Associates | © Parks Associates | Dallas, Texas 75248

All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America. Disclaimer: Parks Associates has made every reasonable effort to ensure that all information in this report is correct. We assume no responsibility for any inadvertent errors.

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Using TV Everywhere to Drive Premium TV Services...cord shavers. As use of alternatives to the pay-TV operator grows, con-sumer acceptance and adoption of OTT services will increase.

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