Own the living room and win the future

Kevin Cochrane
Huawei Technologies

With revenue from voice and data falling, telecoms operators must expand the range of services they offer subscribers.  One big offering will be video content. According to joint research by Huawei and Ovum, IP-based TV services are already supplementing traditional pay-TV services, with telcos accounting for about 20% of global IPTV subscriptions. In particular, smartphones and tablets are also driving both demand for, and consumption of, video content over mobile networks.

Today, most video content consists of home entertainment such as sporting events, movies, and TV programs. But operators should also take advantage of opportunities in 4K UHD television, whose penetration is set to rise from just 2.5% last year to an estimated 30% in 2020. Carriers that secure a foothold in home-based video content will “own the living room,” putting them in prime position to offer smart home, e-health, security, and other services in the near future.

These developments make the transition to video a business imperative for most large carriers. Yet telcos should look before they leap. Content acquisition is a mine field, and carriers that fail to tread cautiously risk making costly mistakes.

One of the most common pitfalls is overpaying for content. Telcos want to provide a best-in-class video service. To do it, they need exclusive premium content, which comes at a price. If the video library is out of date, subscribers won’t pay for the service. Yet carriers that pay too much cannot charge subscribers enough to cover the high operating expenses with which overpaying has saddled them. The share of opex for an operator providing pay TV services can be as high as 70%.

Many carriers also fail to optimize their advertising and marketing strategies. They give short shrift to social media, the primary channel for reaching young people, and fail to use using analytics to shape their marketing, leaving them unable to create targeted, compelling ads and offers.

Finally, the continual need to refresh video content affects operations in a way that carriers sometimes don’t anticipate. For example, a telco launching pay TV is going head-to-head with providers such as Netflix, which have an abundant supply of movies. To compete, the carrier must acquire substantial library of its own, probably with about 4,000 movie titles.

But the audience watching those movies can be broken down into many different demographic groups. Of the 4,000 films in the library, only about 500 will appeal to any one group. Soon, the customers in each group will have watched the movies that interest them. At that point, carriers need fresh content, or subscribers will defect. Even after they acquire the content, they have to encode it, market it, and sell it – activities that all have operational costs.

Given the complexity of content acquisition and management, what can operators do to ensure their success in this new and challenging field?

Get a content specialist to work in-house. Carriers need someone on site who can mentor their video content teams. If they rely exclusively on external third-parties, they will never acquire the institutional knowledge needed to build a sustainable video business.  The many issues surrounding video content encompass the entire value chain, including acquisition, management, distribution, pricing, monetization, analytics, and building relationships with providers. It therefore makes sense for telcos to get a reliable partner to help them navigate the landscape.

Research your target customers. Telcos must understand each demographic segment of their customer base: what are they watching? When do they watch it? What do they want to see more of? What much would they pay for it? Armed with this information, carriers can develop advertising, marketing, and promotional strategies to reach their most profitable target customers.

Maximize your revenue streams. Carriers should make sure to get the most out of video content’s three main revenue streams:

 

  • Advertising. Typically, a channel sells 30- to 60-second ad spots. How much a carrier charges depends on the size and quantity of its audience, the effectiveness of its sales team, and other factors. Corporate sponsorship is also included in this category.
  • Pay-per view subscriptions. These are usually for one-time events, such as prize fights or football games. Events are offered at a fixed price, with the carrier and the content provider sharing the subscription revenue. Given sufficient demand, advertising can be sold at premium rates.
  • Transactions: This refers to Transactional Video on Demand (TVOD), wherein subscribers pay for movies and TV content on a per-title or per-episode basis. 

 

Maximize the number of customer options. The more payment and pricing options carriers give subscribers, the more likely subscribers are to spend money. Some carriers don’t offer VOD, or don’t offer as much as they could. Operators should provide different pricing options for movies and TV programs, charging on a per-title basis or developing daily, weekly, monthly, or annual pricing schemes that let customers download content (either for a limited period, or to own) on terms that work for them.

Make good use of data analytics. Carriers should also use data use to drive further content acquisition, and to shape advertising and marketing strategies to win new customers and keep existing ones. Unfortunately, carriers’ customer data often sits in different silos, preventing them from analyzing it effectively. Only with data on customer demographics, particularly with respect to mobile behavior, can carriers make customers the proverbial offers they can’t refuse.

Having profoundly influenced how businesses communicate and how consumers are entertained, video is poised to create an entirely new service offering for the telcos that understand how to execute and monetize video-based strategies. Carriers that follow the right guidelines will “own the living room,” putting them in an excellent position to offer a wider range of video-based services and maximize the advantages of an existing billing relationship. Operators that avoid the pitfalls of acquiring and promoting content can move nimbly to establish a role for themselves in tomorrow’s video ecosystem.

Kevin Cochrane is a Principal Consultant at Huawei Technologies in the UK

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