The Pay-TV Innovation Forum is a new global research programme for senior pay-TV executives, developed by NAGRA, in partnership with leading research consultancy MTM, designed to explore and catalyse innovation across the pay-TV industry, at a time of unprecedented change.
As part of the programme, we are publishing a series of interviews with leading pay-TV industry executives from around the world to explore their views, perspectives and experiences of innovation in the pay-TV industry.
In this interview, Charles Cataldo of DIRECTV / AT&T shares his views on how the pay-TV industry is evolving and its innovation priorities.
How would you describe the state of the US pay-TV industry today?
The pay-TV market is evolving in terms of who the audience is and the ways they consume video content.
If you look back a number of years, 95% of video viewing was linear TV and 5% was on-demand on various devices. Nowadays, a significant proportion of viewing has moved away from linear TV and both pay-TV service providers and broadcasters are adapting their offerings to these new audiences.
Ten years ago, a typical pay-TV subscriber was a family household. Today, the picture is very different - there might be five members of that household, each of them looking for different content. The one subscription fits all' model does not work anymore. Pay-TV service providers now have to focus on building an ecosystem of products and services that appeals to each member of the household.
In addition, the younger generation has grown up watching YouTube. Their perceptions of and expectations for content are very different from those of a traditional pay-TV decision maker. For a long time, I have believed that would present a great opportunity for video services that sit North of YouTube and South of traditional pay-TV. That is exactly the type of standalone OTT subscription services that Major League Baseball (MLB.TV) and HBO (HBO Go) have developed.
How do you see the role of pay-TV service providers changing in the market?
Even with changing market conditions, pay-TV service providers will maintain their role of content aggregators and distributors, and programmers will continue to use their networks to reach consumers. I do not expect that programmers will start building their own content delivery networks. Their key focus will be on getting their brand on as many platforms as possible to reach the maximum number of consumers.
What are the innovation priorities for pay-TV companies in the USA?
On the platform side, there are two types of companies that are innovating in pay-TV, or subscription video content in broader sense: pay-TV and OTT service providers. Both groups have their own strengths and face different challenges. Pay-TV service providers that have physical networks and are experienced in developing great content need to be able to innovate in terms of search engines and content placement on the user interface. On the other hand, OTT service providers, such as Netflix, that have flexible technology platforms and are sensitive to their customer preferences need to be able to establish relationships with major programmers in order to build great content propositions.
At the end of the day, the factors that will determine the success of a pay-TV product will be content quality, followed by user experience and ease of navigation, followed by quality of delivery.
How do pay-TV companies approach innovation?
Pay-TV companies have been closely monitoring the market and have known where innovation would come from and where competition would be in the future. They have developed and tested various innovative products and services. So technologically they have been very innovative, but the roll out of these innovative products and services has often been held off due to potential disruption and cannibalisation of existing revenues. For example, HBO held off launching its standalone OTT service for many years, despite having the technological capabilities in place. They had to wait till they had a robust business case.
Looking ahead, what will be the most exciting areas of opportunity for pay-TV service providers?
Being an optimist, I see a lot of exciting opportunities across the pay-TV industry. In terms of content, there is significant unrealised value in standalone OTT content, particularly sports, and mobile content, including mobile-first content and mobile gaming. In terms of business models, there are exciting opportunities to move beyond subscriptions. For example, pay-TV service providers can utilise freemium models, where users can chose to pay the full price for the service without advertising, or get the service for free or at a reduced price with advertising. In addition, pay-TV service providers can be creative in terms of how they promote their services, instead of buying advertising they could spend those ad dollars on offering pilot episodes to the public for free.
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The Pay-TV Innovation Forum is a new global research programme for senior pay-TV executives, developed by NAGRA, in partnership with leading research consultancy MTM, designed to explore and catalyse innovation across the pay-TV industry, at a time of unprecedented change.
