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Is Pay TV Ready to Disrupt the Disruptors?

There’s no denying the likes of Facebook, Apple, Amazon, Netflix and Google (known collectively as FAANG) have altered the content landscape and made traditional TV sit up and take note. Their wide reach and subsequent ubiquity in many markets across the world has even contributed to the ushering in of the “post-OTT era” — a world where Internet delivery has now become mainstream.

In fact, the very notion of over-the-top now refers to a technology conceived to deliver media and entertainment services directly to the consumer, making a total abstraction of the broadband delivery infrastructure in between.

Ivan Verbesselt

Ivan Verbesselt

Findings from Nagra’s 2019 Pay TV Innovation Forum paint a picture of an industry that isn't immune to the influence of digital disruptors. That said, operators are becoming more optimistic about responding to OTT disruption. With 70% of providers now believing rapidly growing OTT consumption will have a positive impact on their business, it is arguably the time for OTT and pay TV to work together for the benefit of the consumer.

How? By bringing OTT offerings into the pay TV environment, operators can become super-aggregators of content. According to the Forum’s findings, 77% of executives expect super-aggregator platforms to emerge over the next five years — and that’s a role every operator could potentially take up, especially as consumers fundamentally don’t care where their content comes from, they just want access to it.

The Sports Wrinkle

There is one potential complication to this, though: sports. Historically a significant revenue stream for operators and content owners, live sports programming is a vital part of any pay TV business. But the supply of sports content into the market is expanding significantly, as new sports OTT services and providers proliferate, potentially reducing demand for pay TV. Eighty-five percent of executives believe that OTT sports streaming in their country will grow either moderately or strongly through to 2024, so it’s imperative to act now.

While DAZN may be one of the best-known, one of the biggest challenges currently facing the streaming sports industry comes from Amazon, should it decide to prioritize tier-one sports rights in key markets. Major sports broadcasters such as ESPN, reserving key rights for their own offerings, also pose a potential threat. According to our special report looking at the global market for premium sports OTT services, it is mission-critical for pay TV providers to maintain the rights to tier-one live sports. Thankfully, in part due to the investment sums required to purchase the licenses and protect the content, providers are well placed to maintain this control.

Providers should consider continuing investments in tier-two sports, too, the report advises, as they still encourage a wide enough customer base. Specialist sports OTT providers will often target niche products that aren’t profitable enough — but pay TV cannot simply ignore them. To ensure subscribers don’t churn away, they need to consider new bundling methods that enable subscribers to come and go alongside major sporting events as they wish. Sports OTT may have disrupted how consumers watch TV, but pay TV can take back control and offer a full suite of sporting content — but the industry must act now to do so.

With competition from OTT gaining traction on what is traditionally pay TV content, providers must act now if they’re to take back control and disrupt the disruptors. Thankfully, they’re under no illusions: Executives recognize their existing aggregation models must evolve in response to the rising popularity of OTT services and an anticipated decline in the number of l inear channels.

In the U.S. findings of the Pay TV Innovation Forum, industry participants widely expect traditional pay TV packages to be radically restructured during the 2020s — with fewer linear channels, a more diverse range of prices and packages, including bring-your-own-device offerings targeted at Smart TV owners and sell-through models similar to Amazon’s Prime Video Channels. There is also a strong consensus that channel providers will be asked to take on more risk and that up-front per-sub carriage fee payments will decline for many companies.

This changing dynamic from linear to on-demand viewing means that some smaller content products will become unsustainable for pay TV to carry alone, and which should be ripe for the disruptors to take over — and pay TV should encourage that. By shifting the burden of broadcast costs out of the business and onto third-party OTT providers that they can aggregate, pay TV providers can adapt their business models into the central gateway to all the content consumers want and love.

Turning the Tables

With more direct-to-consumer (DTC) products coming onboard, and already planning how to reach a wide audience — such as Apple TV launching on Roku — service providers have their work cut out for them. But by investing and innovating in new bundling, services and content, operators cannot just disrupt the disruptors, they can have the advantage by creating a new system that works for the consumer.

Operators that adapt their business models to become super-aggregators and take steps to manage piracy will be able to successfully do more than just compete with the “FAANG” companies. They will be agile enough to no longer think in terms of “pay TV vs. OTT,” but embrace one holistic and super-aggregated solution that delivers the best of pay TV with the best of streaming to the consumer.