Market Insight

Content re-aggregation promises a new battlefront in 2020

January 21, 2020  | Subscribers Only

Tom Morrod Tom Morrod Research Director | Consumer, Displays, Media, Security & Telecoms

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The traditional broadcast-channel-plus-VoD pay TV business model is being undermined. Around the globe, the establishment of OTT and D2C content services has precipitated a conundrum: Consumers now possess the luxury of purchasing multiple, a-la-carte video services, but by the same token, categorically require a multitude of those same services in order to assemble a complete content offering.

The market is primed for re-aggregation of these online "channels."

D2C strategies are in effect turning OTT services and platforms into channels outright. Apple TV+, Disney+, and the upcoming HBO Max and Peacock services all focus their offerings on content created by the service provider – and rights owner – directly. The thinking is that direct consumer subscriptions are more attractive than pay TV VOD deals, or carriage fees. However, by focusing on own-branded content, these offerings are more analogous to traditional channels than they are to content aggregation platforms. An individual service offering is unlikely to feature content from competing creators, rights holders, or brands.

At the same time, the established OTT aggregation platforms are gravitating toward D2C-like positions. Amazon, Netflix, and YouTube have all invested heavily in original content, and have increased their programming spend to levels that rival the sums that NBCUniversal, HBO/Turner, Disney, or Fox allocate to content. Their strategy is to avert the risk that creators cease to license their content to third parties, much as Disney has done vis-à-vis Netflix. As companies position around own-branded content, creators or aggregators will have difficulty collaborating, or offering combined content services.

The resulting fragmentation of services in the D2C world will rapidly prompt consumers to subscribe to multiple services, in order to replicate - however partially - the breadth of programming that free-to-air platforms and pay TV subscriptions have traditionally furnished. Viewers – particularly those belonging to younger demographics - are investing in numerous OTT and D2C content sources. While pay TV remains a huge market, we also see younger demographics skewing away from pay TV and towards OTT. As rights migrate online - toward D2C offerings and away from existing pay TV aggregation services - the value and attractiveness of pay TV bundles will be squeezed.

For consumers the overall costs associated with switching between online services, searching for, and monitoring content availability all increase. This sets up an opportunity for cross-service discovery and billing solutions. The market is open for technology vendors either offering consumer aggregation platforms typically sold on search and discovery such as Roku or Tivo, or pay TV aggregation platforms typically based around billing such as Amdocs. And if consumers are looking to reduce billing relationships, then one they are unlikely to be able to cut is with their data access provider.

This form of "subscription stacking" by consumers will engender two different effects: Demand for a new class of video technology will increase to manage the range of formats and capabilities of D2C platforms; and telcos will have to experiment with different business models to successfully navigate a cycle of content re-aggregation.

Telcos have an opportunity in this transition, both to generate new revenues and to position a new value-adding service as a counterpoint to the threat of becoming a "dumb pipe." Re-aggregating content can be used in churn reduction and to support broader package prices via subsidised bundling, but could also be directly monetized via carrying fees, likely to be a percentage of monthly subscription cost for each OTT service within the package. It’s likely that larger operators will have more options to develop their own technology and broker direct deals with individual OTT platforms, allowing them more flexibility toward subsidized business models. Smaller operators will likely need a technology provider that manages the technical integration and has standard terms of business for carrying OTT platforms. Within this mix, the wild card is how Android TV positions, already a well-established OS for set-top boxes and pre-integrated with a range of OTT apps, although not at the deeper level of unified search and billing. Whether Google makes a further play into this market, and how it navigates competitor content offerings, will determine much of the shape of this opportunity for other technology providers.

Leveraging the market position as a local and trusted provider of customer billing, privacy, and data access gives telcos a unique play against global technology platforms in the cycle of service re-aggregation.

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