Parks Points

Operators Look to Premium TV Services to Increase ARPU

by Brett Sappington | Dec. 12, 2016

ARPU is more than just a leading KPI for the pay-TV industry; it is its lifeblood, funding innovation, infrastructure, operation, and the creation of content. Operators have been feeling the pinch between rising licensing fees for channels and the amount that consumers will ultimately pay for a pay-TV service. In an environment of online pay-TV services and skinny bundles, many operators are looking to premium pay-TV features as a way to continue to gain improvements in ARPU.

Almost two-thirds of U.S. pay-TV households receive a premium subscription option from their current pay-TV provider. Among the U.S. households that do subscribe to a premium option, 44% subscribe to two or more services. Adoption of premium service features is lower among European broadband households and the services taken differ from the U.S. market as well.

Adoption of Premium Pay-TV Subscription Services by Country

New competitors, consumer habits, and technologies are changing the arena for premium pay-TV services, affecting the outlook for future uptake and for the ARPU that these services generate.

Pay-per-view (PPV)

Pay-per-view was one of pay TV’s earliest premium services, and it still plays an important role for consumers and operators despite the addition of other new premium options. PPV remains the primary method for many global satellite operators to provide movies to customers. Though broadband connections to the satellite operator’s set-top box provide greater selection and functionality for video-on-demand (VOD), some consumers continue to use PPV out of habit. Fixed-line operators that have added on-demand capabilities indicate that some consumers, particularly older consumers, continue to use PPV, calling to order access to an event though more convenient ways of ordering are available. For homes without fixed broadband connections or with limited connectivity, PPV is still a critical option for accessing movie content, including data-intensive formats such as HD, 3D, or 4K/Ultra HD.

The shift to OTT is having an impact on pay TV’s PPV outlook. Sports leagues and major events are increasingly looking to self-distribution to consumers via OTT. The WWE has transitioned its business to include its WWE Network OTT service, providing a stream of revenue throughout the year and making the company less reliant on pay-TV PPV to drive revenues.

At the same time, the new trend in livestreaming (via Periscope, Facebook Live, or other apps) could be a boon to PPV. Livestreaming during major events could heighten interest in major events and allow users to watch behind-the-scenes live content, ultimately driving more consumers to watch.

Video on-demand (VOD)

Changes in viewing habits and the introduction of OTT VOD alternatives have worked both for and against operator-provided VOD. The increased consumer preference for time-shifted viewing as well as Netflix use has whetted consumer appetite for VOD. Operator VOD benefits from its placement early in the movie release window, providing consumers with access to recent, popular film content. At the same time, OTT subscription video-on-demand (SVOD) offerings are offered at a much lower cost for consumers on a per-video basis. The net result is that aggregate operator VOD consumption has remained fairly stable in the U.S. market over the past few years, despite alternatives from OTT providers.

Operators appear to be taking two approaches to OTT SVOD services—adding their own services or partnering with OTT players to supplement their pay-TV or broadband offerings. Sky, Telekom Austria, DISH Network, and AT&T are a few of the operators that have either launched or stated plans to launch their own OTT services, with VOD playing a prominent role. In contrast, DT (Deutsche Telekom) and Altice USA (via its Cablevision acquisition) are examples of operators partnering with OTT SVOD services.

Read the full article on FierceCable.

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Brett Sappington

Brett Sappington

Senior Research Director and Principal Analyst

INDUSTRY EXPERTISE: Pay TV and OTT video services, entertainment content distribution, video and cloud technologies, broadband services

As Senior Research Director and Principal Analyst, Brett Sappington leads Parks Associates research practice for entertainment, broadband access, and consumer electronics markets. His personal and custom research focuses on trends and technology innovations among major service providers, content producers, networks, and technology vendors and the market forces affecting their businesses. Brett is an internationally recognized thought leader in the television, broadband, and online video service industries.

Brett has spent over twenty years in the industry as an analyst, executive manager, and entrepreneur for companies specializing in cloud, communication, and IP-related technologies. He founded a successful networking technology startup, built new divisions of wireless networking and audio software products, and was involved in the development and marketing of early-market products for Wi-Fi, VoIP, video-over-IP 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.

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