7 minute read 4 Apr 2018
Telecommunication engineer repairing antenna

Why telcos are moving deeper into content

By

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Contributors
7 minute read 4 Apr 2018

Telcos are innovating their services by overhauling TV and video packages. Learn what’s driving the trend in this article from Inside Telecoms Issue 19.

Telcos have long held ambitions to translate their heritage in connectivity into a winning position in a rapidly evolving content market. The ability to drive higher levels of loyalty through differentiated TV and video services is well-understood, and operators are now key players in pay-TV markets worldwide. Our most recent survey of telco industry executives shows that TV and video propositions are the most important new service domain for driving incremental revenue growth.

This high level of confidence underlines how central TV propositions have been to building closer relationships with consumers and driving up higher levels of average revenue per user (ARPU). Yet this success breeds challenges of its own, from acquiring the premium content that supports higher-value services to overhauling packages to make the most of changing customer preferences.

User needs are increasingly shaped by over-the-top (OTT) providers that provide an intuitive and convenient experience, while viewing habits themselves are evolving in different directions as new forms of content consumption take hold. In this light, operators are under increasing pressure to adapt if they are to maintain their existing foothold.

TV and video services

47%

of survey respondents identified TV and video services as one of the three best opportunities for telcos to have incremental digital growth.

New packages, new platforms

One key innovation in recent quarters has seen pay-TV providers overhaul their subscription models to provide more flexible packages. In the UK, Sky offers a contract-free bundle that allows users to choose different TV packages and combine them with broadband and phone packages on a rolling basis. In the Netherlands, satellite pay-TV newcomer Joyne is offering a low-cost mix of channels on a rolling monthly basis as part of a service aimed at those with second and holiday homes.

Carriers have also launched new streaming TV packages to cater for consumers’ online watching preferences. AT&T’s DirecTV Now service, launched in November 2016, provides access to cable channels without requiring a long-term commitment. Similar initiatives are apparent in the form of Dish Network’s Sling TV and Sony’s PlayStation Vue service.

Mobile-centric streaming services have also appeared, with the needs of younger users in mind. T-Mobile US’ Binge On, launched two years ago, began the trend toward zero-rated video services delivered over cellular. In July, Three launched the UK’s first zero-rated content package, offering a mix of TV channels as well as OTT video and music.

Integrated carriers are also using their mobile platforms to broaden addressable markets: AT&T’s DirecTV Now service has been made available to AT&T mobile users who have certain packages, while UK-based BT has been providing subsidized BT Sport content on some of its mobile tariffs.

Telco-OTT partnerships on the rise

Meanwhile, alliances between network providers and paid online video services have increased dramatically in the last two years. On the network side, fixed and cable broadband providers are leveraging OTT services, often integrated with the set-top box or as part of a bundle offering, while mobile operators are also driving growth through partnerships. Asian telcos have been prominent in many deals struck over the last year, striking deals with a new breed of regional OTT providers such as iflix and Eros Now.

All told, this means that operator TV and video propositions are evolving in interrelated directions, with leading telcos widening their content propositions and distribution platforms, and adjusting pricing and packaging models in tandem. This has helped service providers achieve a number of aims, from increasing customer spend to boosting customer loyalty.

Operator TV and video propositions are evolving in interrelated directions, with leading telcos widening their content propositions and distribution platforms, and adjusting pricing and packaging models in tandem.

A broadening content investment agenda

The sheer range of packages, price points and distribution platforms — and the interplay between them — underlines how competitive the market has now become. This is reflected in escalating content investment costs. During the last 25 years, for example, the cost of broadcast rights for English Premier League soccer has risen thirtyfold as companies leverage live sports to win new subscribers and increase levels of loyalty.1

Competition between telcos and broadcasters for exclusive content rights has been rising in developed markets for many years and is increasingly apparent in emerging regions. In recent bidding for India cricket media rights, mobile operators emerged as front-runners. Meanwhile, exclusive sports content is moving firmly into focus for OTT video providers, too — in August, Amazon secured UK rights to show ATP World Tour tennis.

Beyond escalating competition for and spending on media rights, operators are also taking new steps into original content production itself. In July, Netherlandsbased Altice acquired Portuguese Media Capital, which owns Portugal’s largest content producer, Plural.2

In September, Deutsche Telekom announced the launch of in-house series Germanized, created in conjunction with partners Bavaria and Telfrance. Earlier this year, Endemol Netherlands supported a 10-part series for Dutch telco KPN.

Navigating a more complex ecosystem

For operators, moving forward on multiple fronts demands a flexible strategy that can cater for a range of content investment positions, ecosystem relationships and customer propositions. Recent forays by telcos into original content asks questions of both existing content aggregation and resale endeavors, for example.

Looking ahead, partnerships require ongoing calibration. Marketing-centric alliances with OTT video providers are a good starting point for many, but greater value creation in the long term could lie in closer technical cooperation. Nevertheless, closer service integration could present risks — a poorly designed interface could actually undermine the customer experience instead of enhancing it.

In terms of technology as a whole, there is plenty to consider, both in terms of front-end and back-end improvements to support the customer experience and more efficient processes that can offset rising content acquisition and production costs.

Cloud DVRs will become more important as a differentiator in the internet TV space, while operating platforms will continue to benefit from injection with analytics and artificial intelligence capabilities. Closer cooperation with platform providers will also be key as pay-TV providers seek more modular technology stacks. Ensuring that technology gains feed into winning service propositions should be top of mind for operators as they refine their TV and video packages.

    1. “The Exploding Cost of Streaming Live Sports,” Bloomberg, 11 November 2017.
    2. “Altice Enters into an Agreement to Acquire Leading Portuguese Media Group Media Capital,” Altice press release, 14 July 2017.

Summary

Operators continue to expand their service propositions across different domains. TV and video services remain firmly at the forefront of telco growth strategies. To read more from “Inside Telecoms - Issue 19,” download the PDF. 

About this article

By

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Contributors