ott state of play1804_ott 19/04/2016 12:04 Page 2
IHS: Integrating Netflix benefits
pay-TV returns
ntegrating Netflix into
traditional pay-TV has
had a net positive
impact on operator KPIs,
according to a survey of
service providers
conducted by IHS. The
SVoD offering has generally
been found to benefit
operators’ business, while
co-existing well with moretraditional parts of the
bundle.
In a Client Report - Netflix
on pay TV: A marriage of
convenience - exclusively
revealed to Advanced
Television, Ted Hall, research
director, notes, however, there
is concern that consumption of
some pay-TV services—among
them, premium movie packages,
TVoD and operator’s ownbranded SVoD offerings (if they
have them) —could be impacted
by growing usage of Netflix or
other third-party SVoD services,
which in turn would negatively
impact operator ARPU and
revenues.
“In contrast to the model for
selling channels and VoD to
their customers, operators make
very little direct revenue from
carriage of
Netflix: They
typically receive a
share of the
ongoing
subscription fees
only for
customers that
sign up via the
operator’s set-top
box - most Netflix users either
already have an account or sign
up via a more user-friendly
device, such as a PC/laptop or
tablet,” advises Hall.
Netflix also plays only a
limited role as an upsell driver
for indirect revenue
generation—10 of the 25
operators that have active
partnerships in place (mainly
I
those working with TiVo)
provide access to the service
only via their most advanced
set-top boxes, featured in
higher-tier bundles or carrying
operators have followed suit -as
of February 2016, a total of 26
deals (25 still active), by IHS’s
count, had been struck. Many
more are likely to follow, with
additional monthly service fees.
According to Hall, there is a
growing acceptance that
pressure on some core elements
of the pay-TV offering is an
unavoidable
consequence
of the rise of
pure OTT
services. The
rationale for
providing
access to
Netflix / thirdparty OTT is
therefore mainly based on
keeping customers on-platform,
increasing customer satisfaction
and reducing churn. It will also
provide a source of 4K UHDTV
content.
Hall notes that since Virgin
Media became the first pay-TV
provider to strike a partnership
with Netflix back in October
2013, a growing number of
Netflix executing its global
expansion plan in one fell
swoop by rolling out to 130 new
territories in January 2016.
With many operator-Netflix
deals having now been place for
some time, IHS sought updates
from operators and vendors
involved in the partnerships and
gathered data to assess the
validity of the pay-TV rationale
for embracing Netflix as part of
the modern bundle. The results
generally supported the view
that third-party SVoD positively
impacts KPIs and complements
traditional channels and VoD
offerings. However, caution
remains over how this dynamic
could change as Netflix becomes
more popular, with some
operators wary that it has the
potential to negatively impact
core pay-TV services and, in
turn, ARPU and revenues.
Based on insight from
Operators make
very little direct
revenue from
carriage of
Netflix
20 TV Everywhere
executives involved in operatorNetflix partnerships, and IHS’s
analysis of operator-reported
KPIs and its own in-house data
and insight, there is evidence to
suggest that these agreements
are fulfilling pay-TV providers’
strategic goals - or at least not
hurting their performance.
According to Hall, Netflix
has the potential to exert some
downward pressure on pay-TV
ARPU and revenues, but he
suggests that the streaming
service is just one of several
factors doing so, alongside
competition from rival
traditional pay-TV providers
and increasing levels of
bundling and discounting.
Hall advises that in order to
counteract these factors,
operators will need to continue
investing in new features and
services that can justify either
incremental price increases services such as basic TV
Everywhere, for instance -or
additional fees for more direct
monetisation.
IHS broadly expects
operators to continue to
successfully boost ARPU over
time, with upward trends
forecast in the US and the big
five European markets.
“Though maintaining ARPU
growth is of course important,
keeping customers will be one
of the main priorities. Providing
access to Netflix and other
third-party SVoD services
should help serve this goal. It
could also help, to some degree,
to attract new subscribers traditional pay-TV is likely to
remain the home of premium
sport, and consumers wanting
the best experience of this will
be need to sign up to cable,
satellite or IPTV services to get
it. Access to SVoD services
alongside this premium content
will be an important selling
point,” concludes Hall.