Operators Look to Premium TV Services to Increase ARPU
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.
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 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.
Senior Director of Research
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. Previously, 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.
Industry Expertise: International Digital Living Trends, Television Services (IPTV, cable, satellite/DTH, terrestrial/DTT), Broadband Services, Multiscreen Services, Value-added Services, Cloud-based Consumer Services, Set-top Boxes, Residential Gateways, Electronic Program Guides, Video Search and Recommendation, Video Metadata, Middleware, Technical Support Services