Competition continues unabated: 82% of pay-TV executives surveyed expect fiercer competition from telcos, pay-TV operators and OTT providers over the next five years.
"And at the same time 71% think, as pay-TV providers, they will struggle to grow their business over the next five years. That is up from 2016, when it was 57%," Simon Trudelle, senior product marketing director at Nagra and head of the Pay-TV Innovation Forum, told UBB2020. "These two figures translate pretty much the temperature we measure in terms of a perception and, more than a perception, an acknowledgment by industry executives that the rules of the game have changed and that's really across the board. It's not just in North America, where obviously a lot of things have been happening, but also in other regions, in other parts of the world, even where OTT offerings are not as deadlocked as in other countries."
New OTT services, device and service ecosystems from digital giants, along with big investments in content and technology via new business models
Consumer demand for multiscreen viewing, increased bundle flexibility and personalized experiences, as well as fragmented subscription patterns across different consumer segments
Global increase in pay-TV piracy, especially in Asia-Pacific and Latin America, creating an estimated $7 billion in unrealized pay-TV revenue for service providers and increased spending by operators on security measures.
Counter-offensives for success Innovation is service providers' one-word response to all these competitive threats, according to NAGRA's research.
"There are 74% of industry executives that see innovation as one of their top priorities and 69% that think innovation has become more important over the past 12 months," Trudelle said. "It makes sense, if we look at the first figures, that say the game is changing and we have to innovate and innovate faster."
But what does that mean and how can service providers foster an innovation-oriented organization?
Many now see growing buy-in from top executives for digital transformation and innovation. This year, only 34% said lack of management commitment, such as funding or limited time for key personnel, was a challenge; in 2016, 47% of service provider executives cited this as a problem for their innovation initiatives, Trudelle said.
Adding new business processes to encourage innovation is important to 32% of respondents, while increased use of big data and analytics is crucial to 30% of those surveyed, he added.
"These insights paint a picture that the market has changed, it's being acknowledged and a new innovation strategy is being put in place by a number of providers," said Trudelle. "Can we say it is the majority? Probably not yet, looking at the numbers, but definitely a move forward in the direction -- compared to 2016, it's a major step forward."
Illegal use of content also has grown, even in countries with poor broadband infrastructure, according to the study. Some issues concern ignorance about international copyright laws; others require partnerships between content creators and service providers to monitor the Internet worldwide and work together legally and technologically to stop servers disseminating pirated content, Trudelle said.
The cost is high.
"We found out 50% of executives think content piracy will lead to greater pressure on the OTT industry over the next five years; that's up from 41% in 2016. That's another factor, a form of competition," he noted. "One executive actually said, 'How do you compete with free?' to illustrate the challenge that piracy is bringing to the market."
A Pirate's Loot
Today's pirates seek quality content, eliminating creators and service providers, to steal 100% of the profit and forming another competitor for pay-TV operators, said Nagra's Simon Trudelle.
Roughly $28 billion worth of content was consumed in 2017, Trudelle said. In some cases, consumers paid for illicit boxes, believing they were legally acquiring content and these customers' subscriptions -- worth about $7 billion -- could be converted into legitimate subscribers with consumer education, said Trudelle.
The big picture
Innovation cannot happen without taking a holistic view of an entire organization, its ultimate goals and the path it must travel to arrive there. That path entails investment in next-generation network access technologies, infrastructure, integrating silos and deploying open systems, among other approaches.
Without software-defined networks, virtualization and cloud, pay-TV providers cannot hope to end piracy, deliver on customers' demands for multiscreen options, flexible bundles or other services that require agility, flexibility and personalization.
It's now prime time for pay-TV providers to change the channel on the old ways of doing things and tune in to a new era of must-see TV.
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