Set Top Box VoD in the age of Netflix, Hulu, iTunes

State of VoD today

Every night, millions of families in America turn to their pay TV Set Top Box (STB) in search of something to watch. And every night, an increasingly large portion of these pay TV customers turn away  from their STB after finding yet again that there is ‘nothing to watch’. These customers then turn to Netflix, Amazon, Google Play, iTunes and Hulu. They use a Roku, Google’s Chromecast, or an Apple TV to get the content of their choice onto the biggest screen in their home – the living room/family room TV. This scenario is being repeated with increasing frequency and has led to cord cutting, cord shaving and similar terminologies. This begs the question – why aren’t consumers using the 1000s of titles already available to them via their pay TV provider’s On Demand (VoD) library?

A typical pay TV VoD library has over 100,000 titles readily available. These include movies available for rent or purchase (i.e.: transaction or TVOD) and TV shows, which are either free (FVOD) or tied to the customer’s subscription package (SVOD). And yet, consumers seemingly ignore this vast content library.. While the reasons for this include the rise of OTT viewing apps and the changing habits of young consumers, there are some basic reasons why STB VoD usage is falling:

 

Poor content discovery: Pay TV platforms have very poor content discovery capabilities. While operators such as Time Warner and Verizon do offer personalized recommendations, these tend to highlight only the popular, buzz worthy VoD titles while leaving the ‘long tail’ of 1000s of VoD titles unexposed to the customer. The design of VoD user interfaces make it hard for consumers to find episodes of TV shows on Demand.

Poor Pay TV mobile apps: Today most pay TV operators offer a companion mobile app which permits customers to watch a few 100 channels (with fewer channels available outside the home), stream VoD titles, and in some cases download recorded shows to watch later.

There are two main areas where pay TV companion apps fall short when compared to Netflix, Hulu and others:

  • pay TV mobile apps have the same old and outdated menus and navigation as the STB. VoD is buried under a separate menu the way it is on the STB TV, instead of being front and center.
  • pay TV mobile apps have the same content discovery limitations as the TV: poor recommendations, no surfacing of short form content which may be of greater interest on the mobile device.

 

Impact of a poor STB VoD experience

Diminishing engagement with pay TV service

As a result of these limitations, when people want to consume video on mobile or tablet devices, the DON’T think of their pay TV operator’s app first and instead go to Netflix, Hulu, and iTunes/Google Play/Apple TV (for purchases). Even though the same content may be available on the STB and the companion apps.

TV Industry data shows that customers are willing to pay extra in *addition* to their cable subscription to quickly and easily access the content where they want  and when they want it.

NCTA

 

Towards end of 2016, the number of customers with Netflix surpassed the number of customers with pay TV for the first time.

netflixsurpass

 

ARPU impacts

As customer engagement/affinity for the pay TV provider’s platform reduces, the ARPUs from VoD will continue to decrease. Every Netflix subscription, Google Play/iTunes movie purchase equals lost ARPU for the pay TV operator.

 

The way forward

There are multiple avenues pay TV operators can use to improve VoD usage and ARPUs:

Improved UI: The VoD library should be easy to navigate. Don’t force the user to drill down through various folders (resulting in 6-8 clicks of the remote) before getting to a title.

Transition between Linear and VoD should be simplified. Movies listed in the guide and also available on VoD should be marked as such, TV shows with episodes available on VoD should be highlighted.

VoD to go: Make it easier for the customer to transition from home to mobile – if the customer was watching a movie at home and hits Pause, make it seamlessly available on the mobile app.

 

Video-first mobile apps: The mobile apps provided by payTV operators need to be focused on video. The mobile apps should stop mimicking the linear TV menus of Guide, VoD etc. The apps should focus on content, and not on categorizing the content  as live TV or On Demand.

 

STB VoD – the bright side

STB VoD still has a number of factors in its favor.

The convenience factor: In most homes, at least one STB is hooked up to the largest TV in the house, usually in the living room or family room. This means the entire catalog of 100,000+ VoD titles is at the fingertips of all family members.

PVOD (Premium VOD): PVOD is the concept of selling early (and more-expensive) digital access in the home to new theatrical movies. Though still a year or two away, PVOD is a good ARPU and customer retention opportunity for pay TV operators – by offering PVOD titles via the STB and companion mobile apps, pay TV operators can increase customer usage of their On Demand catalog and increase ARPU. While the exact revenue share split for PVOD is yet to be worked out, the APRU could still benefit from customers who come in for the PVOD and stay for (i.e.: rent, buy) TVOD or SVOD.

The return of the cord cutters

Though the numbers are small, a number of users have started to realize how inconvenient and cost prohibitive it is to cut the cord entirely. A recent article from Business Insider is illuminating on many fronts: It highlights the inconvenience of juggling multiple OTT service subscriptions and the cost involved. While pay TV is never going to be cheaper than a Netflix (say), it can  be cheaper than a Netflix + HBO Go + Hulu + FuboTv. Pay TV already has content aggregated in one place, which takes away the inconvenience factor.  

A recent survey from YouGov found that steady deterioration of ratings figures for TV shows is more a function of fragmentation (via VoD, OTT viewing) than decline in TV viewing overall. Pay-TV operators must recognize that traditional behaviors such as VoD rentals and purchases are still an important revenue source, and must continue to be supported

 

With improved UI on their mobile apps, a seamless transition between the STB and mobile for both content and recommendations, pay TV operators can still effectively monetize their On Demand library and make it a go-to destination for their customers.