Market Insight

TalkTalk offers free Lovefilm Instant membership for top tier broadband customers

July 24, 2012

Alzbeta Fellenbaum Alzbeta Fellenbaum Manager – Research and Analysis, Service Providers & Platforms

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UK ISP TalkTalk is now offering a free 12-month subscription to the Lovefilm Instant movie streaming service (normal cost of £4.99 per month) to its 'Plus' package customers. The 'Plus' package consists of home phone and ADSL or fibre broadband internet access. The promotion applies to TalkTalk's new as well as existing customers. Those TalkTalk customers who already have a Lovefilm membership can use the gift code against their existing subscription. Lovefilm Instant membership allows customers to stream over 5,000 movies and TV episodes on PCs, laptops and smart TVs or on game consoles and iPad.

TalkTalk's offer comes a week after the launch of Sky's Now TV movies-on-demand service and was immediately followed by BT's move to temporarily offer free BT Vision Essential (which includes iPlayer and PPV catalogue access alongside 50 Freeview TV and 20 radio channels and DVR capabilities) to new triple play customers.

While still the third largest ISP in the UK, TalkTalk's market share has been in decline for the past two years (from its peak at the end of 2009 when it reached 22.8 per cent of the broadband market to 19.3 per cent in the first quarter of 2012) and experienced six successive quarters of negative net additions. On the other hand, BSkyB and BT net additions dominate the UK broadband market. BSkyB's market share has been on the rise and reached 18.3 per cent in Q1 2012, with BT being the market leader with 29.5 per cent, followed by Virgin with 20.7 per cent.

With the average monthly broadband prices plateauing around £16 in the past two years (according to the latest Ofcom Communications Market Report data), it is becoming hard for ISPs to continue to compete on price only. Offering a popular service (57 per cent of adults with broadband connection at home report using internet for TV/video viewing according to Ofcom) free provides an alternative way to attract new subscribers. Moreover, bundling Lovefilm with TalkTalk's top tier service can potentially serve as a tier driver, pushing customers towards the more expensive 'Plus' package. By offering the Lovefilm subscription to existing customers, TalkTalk is also aiming to keep current top tier customers, who might otherwise consider leaving for a different ISP, thus actively counteracting churn from higher value customers. In addition, the Lovefilm promotion provides TalkTalk's customers with a video/TV alternative as TalkTalk's own IPTV service has not been offered to new customers since early 2011, and is winding down content deals (with Talk Talk TV customers losing access to 4oD content shortly). TalkTalk is expected to announce its YouView plans on 26 July 2012.

For Lovefilm, the deal would also seem to be beneficial. The disc rental and online video player is facing intense competition in the OTT arena from Netflix, which now tallies over 1m paying and free users in the UK and Ireland, and the recently launched NowTV service, which offers a package of major Hollywood films within the first subscription window (albeit for a more expensive £15.99), improving net additions through a carriage-style agreement with a major telco is a shrewd move.

But while the deal seems to have positive implications for both companies, it is not yet clear whether the Lovefilm offer will be appealing enough to TalkTalk's customers for them to overlook ongoing problems with the telco's customer service (according to Ofcom's July telecoms complaints report, TalkTalk's complaint rate is double that of BT, Virgin and Sky), which is arguably a key contributor to its poor performance compared to the other 3 major ISPs. Nonetheless, combined with the expected YouView launch, the move could go some way to repositioning the ISP in the minds of UK consumers.

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