Digital Consumer

• 10Mar

  Cable’s Differentiation Challenge

  Connected TV, Broadcasting No Comments

  “Life used to be easy,” says Duco Sickinghe, CEO of Belgian Cable operator TelenetOnce upon a time, the company had only to worry about keeping its television customers happy. Today it faces a new competitive reality; one where the triple play bundle of voice, video and data has become table stakes, and effective differentiation is paramount.

  Indeed, the entry of Telco companies into the television arena has been disruptive to the industry, putting satellite and cable companies on the defensive, while at the same time opening new points of entry into the subscriber’s household.

  In short, all bets are off.

  Increasingly complex  product offerings have catapulted many consumers into a state of perpetual confusion. While Cable as an industry has burnished its image in many Western European markets, in others it does not have the same history or credibility. And research suggests that it would be unwise for any operator to take its customer’s loyalty for granted.

  A survey fielded by Strategy Analytics in Q2’09 shows that stated satisfaction among Western European Digital Television customers is quite high, with 63% reporting to be either “somewhat” or “very satisfied” with their current service. However, when presented a competing offer, 20% cheaper, a full 45% said they would make the switch.

  Cable’s competitive positioning varies by country, though historically it has been portrayed as a “value offer,” competing largely on price. While there is much talk of evolving cable into a premium offering, Strategy Analytics’ research confirms that consumers are still relatively price-sensitive.

  The same survey showed that, irrespective of platform, Western European digital television consumers have a low perceived “value for money” from their provider, with only 21% saying it “exceeded” or “greatly exceeded” expectations.

  Even lower-rated was customer and technical support—with only 12% finding their provider to exceed expectations.

  The challenge facing operators, then, is to simultaneously and consistently demonstrate value for money and service excellence.

  Nobody said it was going to be easy.

• 02Mar

  Sky’s new HDTV offer aims to restrict customer churn, but at what cost?

  Broadcasting, HD and 3DTV 1 Comment

  As a long term Sky TV customer I’ve often been frustrated at the lack of attention the company gives to its loyal customers relative to its interest in winning new ones. While I understand the business goal – winning new customers is always much more expensive than retaining existing ones – as a customer it can leave a sour taste in the mouth.

  That taste was sweetened this morning by an unexpected call from Sky customer services offering me a new HD DVR, together with 12 months’ subscription to HD channels, all at no additional cost. No set-top box charge, no “set-up fee”, no installation charge, no further commitment. The normal fee for an existing Sky customer to upgrade to this package, as still described today on the company’s website, is £180 - £60 set-up cost plus 12 months of HD channels at £10/month. From £180 to zero – that’s what I call a discount.

  I couldn’t let the fact that I don’t yet have an HDTV, or my general rule to reject all cold calls, prevent me from accepting this offer. Sky’s latest HD DVR should represent a vast improvement over my 9-year-old Sky+ model, in speed and ease of use, interface and EPG, and storage capacity. I won’t get the benefit of the HD channels, but maybe, just maybe, those free channels will be enough of an incentive for me finally to replace my CRT TV.

  Sky’s initial financial loss on this, and presumably many other HD upgrades, results from their determination to remain competitive in the years to come. The resistance of many of their customers to subscription fees is high, as shown by our own user research. We found that, while Sky’s overall satisfaction ratings are high, more than a quarter of Sky’s customers would switch to another provider offering the same service for 10% lower monthly fees. We also found that more than a third of Sky’s customers do not rate the company as meeting expectations on value for money.

  With this new offer, although it is limited to selected existing customers, is aimed at the right spot: to make sure its subscribers are not lured away by competitors such as Freeview HD, Freesat HD, Virgin Media and BT Vision. While none of these alternative providers offer the exact same package as Sky, they are each, in their own way, becoming more competitive in certain aspects. Slowly but surely it seems as though the UK pay and multichannel TV sector is finally opening up to greater levels of competition. Whether Sky’s financials can withstand the impact of these customer retention strategies remains to be seen.

  David Mercer

  Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings

  

• 18Feb

  SeeSaw unites Web TV content from UK broadcasters

  Connected TV, Broadcasting, Broadband, Digital media No Comments

  A new Web TV Portal launched in the UK this week. It is made up by the remnants of “Project Kangaroo”, the Web TV joint venture between ITV, Channel 4 and BBC which was blocked by the UK’s competition commission a year ago. After Project Kangaroo stalled, the technology platform was scooped up by infrastructure and media services company Arqiva which is now launching its own Web TV portal named SeeSaw.

  At launch, SeeSaw is offering 3,000 hours of television content and will be the first major Web TV portal in the UK that offers content from UK broadcasters BBC World, Channel 4 and Five in one place. Content from ITV, however, is notable for its absence.  

  ITV is believed to be contemplating an exclusive deal with HULU, the American Web TV joint venture between Disney, News Corp and NBC Universal, which is yet to launch in the UK but most likely will instantly become SeeSaw’s biggest rival once it does.

  Until now, many broadcasters in the UK and elsewhere have done reasonably well from offering their own individual Web TV services but what HULU has made devastatingly clear in the US market is that – given the choice – most consumers will choose a Web TV portal over individual channels’ Web TV services.

  In the long term, there is likely only going to be room for a couple of large mainstream Web TV portals in each market. This is just the nature of the Internet and we’ve seen it over and over again with Google in search, Facebook in social networking and Amazon in ecommerce. The Web TV space is no different in this respect and at the moment it’s very much a race for land-grab and positioning in a nascent but rapidly growing new market.

  The fact that SeeSaw managed to launch before HULU in the UK market will undeniably give it a head start in attracting users but the real test will come when the American Web TV portal finally launch later this year.

  Client Reading: European Web TV: Era of Anywhere, Anytime TV Approaches

• 10Feb

  US Pay Television Angst…or was that ennui ?

  Connected TV, Broadcasting, HD and 3DTV, Digital media No Comments

  A report we just published  analyzes the findings from a nationwide survey of 856 US Digital Pay Television consumers.  In it, we look at satisfaction for key performance  metrics, analyze customer willingness to churn, and look at the role of the bundle in mitigating churn.  This is presented at both an overall and platform-level (including Cable, Satellite and TelcoTV / IPTV). A few key findings from the report:

  Digital Television Satisfaction is High Overall, but Cable is Still Vulnerable

  Seventy-one percent of respondents in the survey reported to be “somewhat” or “very” satisfied with their current service. While this may seem like positive news for the digital television industry, the story changes somewhat when viewed at the individual platform level.

  The differences among Cable, Satellite, and IPTV were impressive, with  Telco/IPTV customers reporting 95% overall satisfaction, compared to 67% for Cable. Cable underperformed in virtually every satisfaction metric.

  Low Perceived “Value for Money” among all Digital Pay TV customers

  Virtually across the board—and irrespective of platform—respondents reported low satisfaction in the metric of `Value for Money.’ There was very little measurable difference by platform among respondents, and in all cases, fewer than 22% of respondents felt the service “exceeded” or “greatly exceeded” expectations of value for money.

  This is among the most important findings of study, as it underlines the vulnerability of pay television in its current state. Indeed, in a report published in 2008, we found that over 50% of US digital pay television customers would be willing to scale back or completely drop their television service if household budgetary circumstances dictated.

  Cable Customers Most Willing to Jump Ship

  Despite a high stated satisfaction rate, digital television respondents displayed relatively high price elasticity. A somewhat surprisingly high percentage of respondents indicated a willingness to switch providers when offered a competitive deal 10% or 20% cheaper than their current spend.

  Cable customers displayed the highest propensity to churn, with 47% saying they would switch for a 10% price discount. When the price discount was raised to twenty percent, over two-thirds (68%) said they were willing to jump ship.

  Malaise?  Angst?  Ennui?

  Whatever it is,  it doesn’t feel good.

  Despite a rather high stated satisfaction level, pay television customers in our survey indicated a substantial willingness to churn, and a general feeling that they were not getting high value for money from their television service provider.  Both of these factors further underline the threat that Over-the-Top (OTT) distribution poses to traditional service providers.

  Among platforms, IPTV appears to being doing best in terms of satisfaction and anticipated growth.  Its success, however, is not a foregone conclusion.

  

• 15Jan

  IPTV Challenge: Differentiate Beyond Content

  Technology, Connected TV, Broadcasting, HD and 3DTV, Technology business, Digital media No Comments

  In a report to be published in the few days, my colleague Martin Olausson and I talk about the new challenges facing France Telecom (Orange), in light of a recent ruling by the French Competition Authority.

  According to a commission appointed by France’s Competition Council, Orange’s exclusive carriage of channels on its “Orange TV” IPTV platform “has drawbacks in the short, medium, and long-term,” rendering it “undesirable to maintain.” This decision could potentially have repercussions on the entire industry, and Orange will need to fundamentally alter its marketing strategy to stay in the game.

  A few thoughts…

  If not content, then what?

  Strategy Analytics has long held that content—particularly exclusive content—would be a key differentiator and driver of IPTV uptake. Recent developments in the hyper-competitive French market threaten to change that model. 

  Orange, which was unable to differentiate itself on the basic services level, has pursued an aggressive content strategy in recent years, spending over €200 million to acquire exclusive rights to sports and other content, packaged under its Orange Sport and Orange Cinéma Séries brands. The strategy has worked quite well for the operator, and utilizing exclusive content to market its pay TV services has led to rapid growth of its pay TV segments.

  Now all of that is in limbo, and the operator will need to find other ways to stand out.

  Pricing matters…but differs by region

  One of the takeaways of a report we published back in September was that platforms don’t matter to customers—features do.   Well, features and price.

  Further customer survey work we have just completed confirms that price as a churn motivator depends largely on the individual market. Our research shows French consumers to be the least motivated by price, and those in the UK most influenced.

  

  Much of this has to do with consumer perception. In France, all the major triple play service providers offer very similar packages at essentially the same price. Our interpretation is that the typical French consumer might not feel it worth the time to make a switch—even for a 20% discount. The perceived disparity is much greater in markets such as the UK, where pricing and bundling disparities are much more pronounced.

  Challenge is in finding ‘non-content differentiators’

  The recent ruling by France’s Competition Council suggests that the “traditional” differentiation through content may not be viable for much longer. As such, operators will be forced to find other ways to differentiate and “own” the customer. The easiest way to do this, in our opinion, is to control the gateway into the home and offer a better QoE, and more value for money (i.e. better bundles) for the consumers than the competition.

• 05Jan

  Apple’s TV Plans Threaten Cable’s Calculus

  Vendors, Technology, Connected TV, Broadcasting, Broadband, HD and 3DTV, Digital media No Comments

  When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like?

  You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account. 

  I didn’t.

  So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

  This time, it’s not coming from the FCC

  Recent movements suggest that change may be afoot. 

  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads.

  If the Apple service is successful at elegantly bridging  the ‘’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels–rather than individually–could finally be on the chopping block.  And that’s good news.

  What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared.

  A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue.

  Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

  Who moved my talking points?

  Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

  The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming.

  As usual, the problem does not lie in the technology, but rather in the business model

  The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting.

  Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising. 

  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

  It’s not about choice…it’s about the illusion of choice

  Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations.

  Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of..

  Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide. 

  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

  How about “Build a Bundle?”

  What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change.

  My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase–or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat.

  Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

• 12Nov

  A 3D World Cup? Don’t Bet Your House On It…

  Broadcasting, HD and 3DTV No Comments

  I was preparing a comment on plans for 3D at next year’s World Cup finals in South Africa. Then this article was published by respected broadcast journalist Adrian Pennington in TVB Europe.

  The article’s headline “World Cup 2010 to be broadcast in 3D” certainly gets the attention. The report indicates that up to half of the games could be broadcast in 3D. Given that today there are hardly any commercial 3D broadcast services anywhere in the world, barely six months before South Africa kick off in the first game, it would seem to require gargantuan efforts on the part of broadcasters, consumer device manufacturers, and broadcast equipment vendors if 3D broadcasts really were going to be available. Unfortunately for TVB Europe’s headline writers, the truth behind the story is perhaps not as exciting as it makes out.

  Sony is, correctly, cited as a key player in the 3D World Cup story, as a major sponsor and supplier of cameras and other equipment at the event. But my own discussions with senior Sony managers who are familiar with the FIFA discussions left me with the clear impression that, while negotiations are certainly taking place around 3D, there is nothing certain at this stage about production or distribution of games in that format.

  The obstacles are considerable and numerous. Apart from the fact that at the production and distribution levels 3D is still largely unexplored territory, even where sports events have been recorded in 3D this has largely been experimental. The creative community is very clear: they are at the beginning of the learning curve as far as 3D production in general, and sports in particular, is concerned. As Sky and other producers have demonstrated with their early productions, issues such as camera positioning and application are far from trivial if high quality 3D footage is to be achieved.

  But the biggest challenge of all regarding the FIFA World Cup is that 3D content rights have not yet been established. They were never included in the original broadcast deals because 3D broadcasting wasn’t even on the horizon at the time. So unless those agreements can be developed in the limited time available, and sold at a price that reflects the considerable additional costs of 3D production and transmission, it would be premature to assume that very much 3D broadcasting will emanate from South Africa’s football stadiums next summer.

  My own bet is that we will see a small number of the 64 games produced in 3D and a selection of those actually transmitted live. That is likely to include a few selected venues in the host country, where followers without tickets to the actual games will be gathering in their thousands, and possibly via broadcast networks to public venues in other countries such as cinemas.

  3D TV has great potential, and I have already highlighted the wow factor which comes from seeing great 3D sports productions. But I’ll be surprised if more than a tiny minority of football fans get to see next year’s World Cup in this format. The London Olympics in 2012 look like a better bet, but that’s another story.

  Client Reading: Digital Media Devices Global Market Report

  

• 11Nov

  Industry Leaders Explore New Advertising Opportunities at Free Online Conference

  Connected TV, Broadcasting, Digital media 1 Comment

  Global advertising revenues are forecast to decline by 8.5% this year, according to Strategy Analytics’ latest Global Advertising Forecast. In such a tough environment the need to find new communications platforms and ad-based business models is more urgent than ever.

  In theory the arrival of so many new IPTV services, in both managed and over-the-top environments, should give cause for optimism. If IP technologies have any advantage over traditional alternatives it is that they enable closer, more measurable relationships between those with the message (advertisers) and those receiving it (viewers). So far, however, with a few exceptions, we have seen little commercial evidence of these capabilities in the real world.

  These are some of the issues we will be exploring at the forthcoming “Future TV Advertising Forum” in London on December 11th. I will be chairing a session on Advertising in the Age of Convergence, with speakers from Coca-Cola, Thinkbox, RomTelecom and the Co-Operative Group. Other keynote speakers at the event include Turner Broadcasting, Sky, Channel 4, ITV, Discovery, Telenet and Ford.

  It promises to be a compelling and thought-provoking event. Early bird conference passes are available until the 25th November or register to watch the event live online FREE of charge at www.futuretvads.com.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

  

• 12Oct

  Live Internet Football Game Grossed More Than £2m

  Connected TV, Broadcasting, Broadband, Digital media 1 Comment

  Perform and Kentaro have confirmed that “close to” half a million viewers watched the live internet stream of Ukraine v. England on Saturday (see my previous post). While this number includes British troops and cinema audiences, these numbers are not likely to reduce the internet audience significantly. At a conservative average revenue per subscriber of £5 (given that some proportion - those who paid in the last day or so - will have paid significantly more) this means that income from the match will have exceeded £2m.

  Ironically £2m is also the sum Kentaro (the rights holder) was reported to have been demanding for rights to broadcast the game live on regular TV. So if these estimates and reports are accurate, Kentaro may be pleased that it has generated more income than it originally hoped.

  Of course, it is not quite as straightforward, since Kentaro will have shared income with its distribution and marketing partners such as the national newspapers, and will have had to bear the significant costs of internet delivery with its partner, Perform. Whether the game actually made a profit for either partner is likely to remain a well-kept secret.

  Kentaro’s willingness to negotiate a last-minute deal with the BBC for highlights suggests that it was not prepared, contrary to its previous statements, to rely solely on the internet for its revenues. This suggests that it was struggling to balance the books on this event through online-only distribution. It also risks alienating future online sports subscribers who may in the future be reluctant to pay on the assumption of online exclusivity, only to find highlights will be available free-to-air after all.

  But as I indicated previously, it seems clear that delivery of live internet sports to a mass audience is now at least technically viable, and Perform should be congratulated for the technical success. Whatever the financial results of this particular event, hundreds of thousands of sports lovers have now seen with their own eyes that live internet sports broadcasting can be delivered effectively, and that has a significant marketing value. The quality is clearly not close to the best television can offer, but it will only improve over time.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

  

• 10Oct

  Victory For Ukraine … But Did Internet Pay TV Also Succeed?

  Connected TV, Broadcasting, Broadband, Digital media 1 Comment

  One of the biggest ever live Internet sports events passed off (for this viewer at least) without major technial hitches this evening as the World Cup qualifier between Ukraine and England was streamed live to hundreds of thousands of viewers in the UK. Each paid upwards of £4.99 to watch the game, which was not available through any other broadcast platform. For the record, Ukraine beat England 1-0 to keep alive their hopes of joining England at the World Cup Finals next year in South Africa.

  My own live internet TV experience was based on a ~3Mbps BT connnection, a WiFi link to the BT Homehub, using a HPElitebook 6930p laptop with an Intel Core2 Duo 2.4GHz processor and 2GB of RAM. After resolving an initial freezing problem by disabling hardware acceleration in the Flash player I was able to watch the entire broadcast in the high quality mode with no freezing or picture breaks.

  I would describe video quality as close to a poor quality standard definition live football broadcast on Sky, something which major UK broadcaster ITV is well known for. One way I gauge quality is to judge how easy it is to see the numbers on the back of the players’ shirts from a distant, half-pitch shot. In live Sky SD broadcasts this is relatively easy; in live broadcast ITV games it is almost impossible, and Perform’s internet broadcast was close to this level. But the overall experience was acceptable on a 15” PC screen. I imagine it would be less so for those who connected to a large screen TV.

  We will know more about the commercial success of the venture once Perform and Kantaro announce subscriber numbers, which they have promised to do. They have confirmed technically that live internet sports can be delivered to mass market audiences. But with each viewer paying a minimum of £4.99, the experience had to come as close to pay TV quality as possible. Even though our experience was good, we will watch with interest for any other reports of dissatisfaction from paying customers.

  While internet broadcast technology is becoming more reliable, it is still by no means clear that pay-per-view sports is a viable business model, on any platform. NTL famously failed to make a business from pay-per-view football in the UK, although many believe they vastly overpaid for rights in the first place. The internet may be proven technically as a delivery platform, but the questions around willingness to pay, appropriate price points, and the profitability of this platform remain very much unanswered.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

  

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