In a recent webinar entitled ‘Revenue Management: Essential for monetising current and future services,’ TM Forum observes that content deals between CSPs and OTT video providers were originally developed primarily to protect the core communications business rather than seen as a new and lucrative revenue stream. Video content was sold as part of the basic data subscription or a low cost bundle or add-on.
As a result, customers today do not expect to pay much for video content.
And this is creating a dilemma for operators. As competition for content intensifies, the price of content goes up and operator margins get squeezed. Price inflation is especially true of premium content, such as live sporting events. A recent article in Advanced Television entitled ‘Spanish telcos raise convergent tariffs’ points out that ‘the combination of low cost promotions and the high bill they’re paying for football TV rights is driving them down a dead end in terms of profitability’. It is becoming necessary for operators to generate more revenue from content.
The obvious way is to increase basic subscription prices or charge more for add-on bundles. Content can also be charged for on a per transaction basis, such as pay-per-view models. However, price increases are never easy. Increases in basic charges will increase churn, higher add-on charges will lower adoption and pay-per-view will limit viewership.
To avoid or minimise price increases, some operators are exploring innovative advertising models. As a video content provider, the operator has the opportunity to integrate existing customer data sets with location and content consumption data. Analysis of this rich data affords the opportunity to deliver targeted, programmatic advertising to their customer base. Advertisers will pay handsomely to reach such a well-defined, engaged and receptive audience. The Boston Consulting Group estimate that, by 2020, annual revenues from online and linear advertising will exceed $240 billion – a healthy pool from which operators are well-placed to take a share.
If sold well to the customer, the win-win nature of advertising-subsidised content funding could increase the acceptability of data monetisation by operators in much the same way that search engines and internet players have done. Advertising may allow operators to gain the trust of their customers.
Another route to protect content margin is to exploit the so-called “skinny bundle”. Tailored content bundles can be positioned as a lower cost alternative to bloated subscription packages. Customers can build their own tailored bundles from genres to channels to individual programs. By definition, a skinny bundle matches revenues more closely to content costs. And on top of the financial benefit, a skinny bundle can be positioned as personalised customer experience (think segment of one in this context).
In an era where voice and messaging services have been well and truly commoditised, and data is well advanced down that road, operators need to take stock of the assets that they have already acquired through content partnerships and find creative ways of packaging these to subscribers in way that not only drives revenues, but delights their customers and keeps them coming back for more.