Home internet and media service providers face a unique opportunity to meet the unserved needs of an increasingly important and overlooked market segment — value-conscious consumers. The second annual EY report on the digital home is based on a survey of 5,000 U.S. households, with 43% representing the value-conscious Segment, defined as those with an annual household income between $10,000 and $50,000.

This is the cohort hit hardest by COVID-19, with 29% saying they have difficulty paying for their home internet service. As a result of the pandemic, this group is set to grow in both size and influence as value becomes an increasingly important driver within the digital home.

Here are five notable trends driving value-conscious consumers and some actionable recommendations on how providers can respond to their unique needs:

1. Leading the next wave of cord-cutting — putting mobile first. Value-conscious consumers are considering cutting their fixed internet connection in favor of mobile. Nearly a third (32%) of value-conscious consumers agreed they would be willing to drop their fixed home internet connection if a mobile option could meet all their needs, up seven percentage points from last year.

This reflects the finding that value-conscious customers tend to look to mobile first for connectivity, with 11% saying they use their mobile phone as their primary internet provider, compared to 3% for other income groups.

This preference is now being compounded by COVID-19. Of the households planning to switch their home internet providers as a result of the pandemic, 28% are planning to switch to mobile-only connectivity and cut their fixed internet services.

2. Unbundling the bundle — flexibility is crucial. Value-conscious consumers are increasingly unbundling from traditional pay TV packages in favor of streaming services. Forty-three percent of value-conscious consumers said that streaming is the primary way they watch TV/films at home, and 58% strongly agree it is a better value than pay TV. The value-conscious consumer prefers a la carte internet connectivity and entertainment to bundles — 40% do not purchase any other service from their home internet provider. Nearly half (46%) of value-conscious consumers said they are unlikely to bundle their home internet and wireless service. The top reasons for not wanting to bundle include: the discount is not large enough to warrant it (33%); customers don’t want to consolidate billing information for wireless and home internet (21%); and don’t want to pay for all communications services at the same time every month (16%).

This highlights two compelling drivers for this segment. First, they want to be able to add and drop services as their household finances change, rather than being tied to lengthy fixed-price schedules. They also require products that can adapt to a more transient lifestyle, preferring to access connectivity on-the-go rather than having it tied to a property address. This trend is underscored by data that shows value-conscious consumers are twice as likely to switch internet providers, compared to other households.

3. Low budgets do not mean low expectations — quality counts: While it’s tempting for providers to remove barriers to entry for this segment by offering low-cost, lower quality options, that would be short-sighted and unappealing for the value-conscious consumer. These customers don’t want the cheapest products, they want the ones that offer the best value. Nearly half (49%) of value-conscious respondents said the quality and functionality of the equipment that comes with an internet service played a significant role in choosing their provider. This is a crucial learning point for service providers, which have traditionally offered this segment stripped-down products and services.

4. New technology adoption is driven by value, not awareness: Value-conscious consumers own fewer smart-home devices than higher-income households, but this is due to a lack of perceived value rather than a lack of awareness. Only one in four value-conscious respondents said that the prices of smart products are reasonable. Although these consumers are not early adopters of new technology, they are not laggards either. They look for a strong value proposition before purchasing new technology and services.

It’s a similar story with 5G — 43% of value-conscious respondents said they are aware of the features and benefits of 5G mobile technology, not far behind high-income respondents at 47%. However, only 30% are interested in upgrading to a 5G mobile plan because they don’t see a tangible value-add for their needs.

5. Privacy and data security concerns are universal: Value-conscious households have similar adoption rates for data-protection tools as other income groups and are equally aware of the impacts of data privacy and security. Nearly a quarter (23%) of value-conscious households said data security/privacy products were an important factor when looking for a new internet provider — up 5 percentage points from the previous year and only just below high-income households (26%). 

Providers have the opportunity to adjust their go-to-market approach and value proposition to meet the needs of the value-conscious consumer, and not just because of the pandemic. Such consumers are driving new consumption and adoption trends that are going mainstream. Thirty-three percent of respondents of all income levels said they are trying to pay less for their communications and content services during the COVID-19 crisis.

Instead of basic “budget” services, value-conscious consumers want services designed around their specific needs. Providers should also consider offering customized services and payment schedules that can adapt to changing household cash flows and lifestyles. 

There’s no doubt that fully meeting these needs will be a challenge for service providers. However, those who embrace this growing segment and create products and services specifically tailored to them will be rewarded with a unique opportunity to capture market share, build brand affinity and generate new avenues to growth.

Applications enabled by the Internet of Things (IoT) could help media companies unlock revenue possibilities and make accessing new platforms and content easier, according to a new study by consulting firm EY (formerly Ernst & Young).

EY’s report – Internet of Things: Human-Machine Interactions That Unlock Possibilities – states that the potential for IoT in media is expansive, enabling providers to create deliver and tailor content for new platforms and to measure the context of media consumption through analytics.

The media and entertainment industry already is using IoT to some extent, according to the report, via inertial, motion and image sensors used in animation, gaming, video images, camera stabilization, sports and 3D.  

 “Armed with meaningful insights about consumer behaviors and preferences, M&E companies will be able to use data to deliver highly personalized, contextually relevant entertainment experiences to help people reimagine their experiences on devices they already own,” Chris Gianutsos, EY executive director, Media & Entertainment advisory services, said in a statement.

"To fully exploit the potential of IoT, there’s also an opportunity to expand to platforms that may not be considered part of the entertainment ecosystem or even exist today," he added. "Think about having news and information delivered on household appliances or video streaming in self-driving cars. We expect this will dramatically redefine consumer expectations in the near future.”

Those sensors also could provide data on consumer habits, preferences and the context in which media is consumed. Better data also could help address measurement deficiencies, like the duplication of unique users across platforms, and enhance what marketers know about their audiences.

“In an IoT world, media companies will be able to understand what a person is watching, as well as measure how, where, why and with whom consumers are viewing content,” said partner and EY global media & entertainment advisory leader Howard Bass said in a statement. “This new level of insight and context provided by smart devices will allow M&E companies to deliver targeted advertising that is relevant to a person’s mood, physical activity or location in real-time. IoT will not only improve the content experience for consumers, but it will also encourage the advertising industry to completely redefine its measure of success.”

There are risks to IoT, mainly regulatory hurdles, legal precedents, intellectual property rights, lack of connectivity standards and lack of IoT scale to reach critical mass, the report said. The biggest challenges are around privacy and cybersecurity, as protecting personal privacy and information will become increasingly difficult as more data is accumulated and more devices are connected.

“IoT is both disruptive and inevitable,” Gianutsos said. “For M&E companies to be successful, they will have to address risk and quickly innovate to respond to evolving customer needs and deliver rich content experiences. Only then will the M&E industry find real value in its IoT investments.”

Bouyed by high-margin broadband and commercial business products that continue to make up for a declining video business, cable operators continue to lead their media peers in terms of profitability, according to a report issued earlier today by consulting firm EY (formerly Ernst & Young).

According to the report, cable operators will lead the sector with 2014 EBITDA margins of 41%, followed by cable networks (37%), interactive media (36%), electronic games (29%), conglomerates (26%), satellite television (26%), publishing and information services (21%);  television broadcast (19%); film and television production (12%); and music (11%).

“We are seeing that digital is very much driving profits now, instead of disrupting it. Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry,” said Global Media & Entertainment Leader John Nendick in a statement.

In an interview, Nendick said while the sample used in the report included international as well as domestic cable operator and networks. And he added that EBITDA, which is more a measure of efficiency, does not include capital expenditures, which could affect the bottom line.

“Our experience to date has been to date that while there has been some minor subscriber reductions, or cord shaving, it hasn’t really moved the meter in terms of overall performance,” Nendick said in an interview.

Other highlights from the report include:

•  Cable networks are seeing growth in affiliate fees, international syndication and digital

licensing which is spurring EBITDA margin growth making it the second most profitable

industry sector.

•  Interactive media companies are driving their margins through innovation in search and

online video advertising combined with growth in premium video subscriptions.

• Electronic gaming companies are seeing growth in profitability from the increasing

number of users on digital platforms.

• Conglomerates are using their ability to spend on premium content to attract large

audiences and create a barrier to entry for smaller players.

• Satellite television companies are maintaining cost controls to counter slowing

subscriber growth, however rising programming costs will adversely affect the sector’s

profitability.

• Newspapers and magazines continue to see declining advertising and subscription

revenues. While digital revenues are growing, this only makes up a very small portion of

overall revenues.

• Television broadcasters’ ability to reach a large, albeit shrinking, audience continues to

be valued by advertisers. Consolidation among broadcasters is expected to help them

sustain increases in retransmission fees.

• Film studios are driving their profitability through increasing revenues from digital

platforms and investments in franchise-based films and higher-margin television shows.

• The music sector is driving record growth in profitability from the expansion of licensed

digital subscription and streaming services, growth in music publishing and rising

smartphone and tablet penetration in emerging markets.

Despite Time Warner's high profile rejection of 21st Century Fox's recent takeover advances, major media companies are shifting their focus from cost cutting to growth initiatives in the digital space, including mergers and acquisitions, according to a recent report.

According to a survey of chief financial officers at 50 top media companies like Time Warner, Univision and Fox by accounting giant Ernst & Young -- It’s Showtime! Digital drives the agenda, data delivers the insights -- CFOs are no longer worried about the global recession and are well-positioned to grow their companies through capitalizing on digital opportunities and through investments in technology, digital talent and infrastructure, as well as acquisitions and other deals. Only 26% of senior executives surveyed said global economic uncertainty would be a challenge during the next three years, compared to 62% two years ago, showing a dramatic decrease in concern over the economy.

“The CFOs told us in no uncertain terms that the economy is no longer an obstacle and now is the time for media and entertainment companies to invest in growth and focus on building their businesses," said Ernst & Young Global Media & Entertainment Leader John Nendick in a statement. "The industry is now poised to deliver on the promises it has been making the past several years but has been unable to achieve because of the economy. The CFOs recognize the recession is over and it’s showtime.”

But despite renewed optimism about the overall economy, the CFO's still see challenges ahead, according to the report. Among the greatest obstacles over the next three years: technology and platform disintermediation (64%), and an inability to persuade consumers to pay fair value for content (58%). Still others identified structural and regulatory uncertainty (42%) and reductions/reallocations of marketing budgets (26%) as major challenges for the future.

CFOs also are are placing significant emphasis on data to improve decision-making, systems and processes -- 59% of CFOs feel their companies successfully use data to respond to and upsell existing customers, but  only 33% said their companies do a good job of using data to generate new business. And while only 39% of CFOs believe their organization is good at sharing data, 58% indicated that sharing data between business units would improve their organization’s overall effectiveness.

Other key findings in the study include:

• About 74% said their top priorities are the evolution of digital and online distribution, followed by cost reduction and business efficiencies (34%), creatively differentiating content (32%), extending brands globally (32%) and growth in new market segments (30%)
• Emerging markets are no longer the top geographic focus for growth; 72% of M&E companies indicated their focus is on existing/core markets.
• About 72% said interactive media businesses were the best positioned to evolve and thrive in the future, followed by cable television networks and channels (42%), conglomerates (36%), film and television production (30%) and content and information services (30%).
• The top actions identified to make companies more effective are attracting/retaining talent (58%), improved IT capabilities (42%), deeper understanding of market trends, customers and competitors (38%) and getting new products to market faster (30%).
• CFOs prefer deals that give them either complete or majority ownership (61%) instead of making investments or having a minority interest (34%).
• The average deal value during the first half of 2014 was $939 million, compared with $220 million in 2013 and $157 million in 2012, with cable operators driving the rise.

“Recruiting and retaining talent is a significant concern for almost every CFO we surveyed, said EY’s Global Media & Entertainment Advisory Services Leader Howard Bass on a statement. "All agreed that talent, as well as establishing better collaboration between teams and different business units, are the most important factors for efficiently running their companies. The right talent means finding people who have the technical skills but are also digital savvy.”