At IBC last month, MTM presented the global findings from the fourth edition of the Pay-TV Innovation Forum. Launched by MTM and NAGRA in 2016, the global research programme explores the biggest challenges facing pay-TV operators and content owners in all regions, based on surveys, interviews and seminars. Here are a few of our favourite insights from this year’s study:

Globally, OTT subscriber growth is now driven by local players as well as the usual suspects

Between 2010 and 2018, the global pay-TV industry grew from $150 billion to $205 billion, at 4% CAGR. The rate of growth however is starting to slow, especially in North America: US pay-TV service providers lost 3.2m traditional pay-TV subscribers over the course of 2018.

Standalone OTT services have seen their subscriber numbers continue to rise. Netflix alone grew its paying subscriber base from 124 million to 152 million between June 2018-2019; in the US, Netflix has more subscribers than the top three traditional pay-TV services combined.

Global OTT growth however, is not limited to US-based FAANGS: in India, Hotstar has 300 million monthly active users – 35 million more than YouTube – and set a global streaming record with over 25 million concurrent viewers during the 2019 Cricket World Cup semi-final between India and New Zealand.

OTT is now an opportunity, not a threat, for pay-TV providers

The Pay-TV industry increasingly sees OTT as an opportunity rather than a threat: 70% of pay-TV executives believe OTT will have a positive impact on their businesses. In Europe, traditional pay-TV operators have increased subscribers numbers for their own OTT services, with Viaplay, Sky Ticket/Now TV and CanalPlay reaching 1.7 million, 2.6 million and 1.3 million subscribers by the end of 2018.

A spate of new OTT services this year has added to an increasingly fragmented market. In the context of ever-greater competition for eyeballs, surveyed pay-TV executives identified strong brand recognition as the most important feature for OTT success.

Disney+ is a notable new service announced in 2018, which 86% of executives expect to be successful. At $6.99 month, most believe the service will be additive rather than a substitute to traditional pay-TV packages, providing opportunities for pay-TV providers to include it within bundled offers.

Despite the growth of standalone OTT services, “super-aggregation” will be a defining market trend

77% of executives believe that super-aggregator pay-TV platforms will emerge over the next five years. While standalone OTT services may have achieved extraordinary subscriber growth, most have not yet found a profitable business model and the economics of aggregation may still prove more efficient. Moreover, pay-TV and telco providers’ billing arrangements with pre-existing customer bases are a significant distribution advantage, especially in markets with low credit-card penetration across MENA, Latin America and Asia Pacific.

“Overall there is little general support for the idea that standalone DTC is a better business model per se for monetising and funding content…When things settle down, expect to see the bundle as strong as ever, indeed bigger than ever. Some of the bundle components will also be separately available, but outside of Netflix, these components will have modest take-up and will not be profitable on a standalone basis.”

– Mike Darcey, former COO at Sky and MTM special advisor

However, providing greater flexibility in relation to pricing and packaging may also lead to increased customer churn, requiring new approaches to detecting and responding to the needs of the customers. Finding an acceptable balance between profitability and flexible ‘skinny bundles’ will also be a major challenge.

Sport is a key battleground in the future of pay TV

Sport was famously described by Rupert Murdoch as a “battering ram” for the pay-TV industry. That still applies, although the battleground is shifting with the rise of live OTT sports consumption, and with increased competition for rights from new digital players.

In the last year, pay-TV providers have lost second tier rights to OTT players, with Sky ceding ATP Tennis to Amazon and La Liga to specialist sports aggregator Eleven Sports. Sports clubs are also going direct-to-consumer: half of the global top ten football clubs by revenue currently offer a paid OTT service.

Price hikes in tier 1 sports crucial to pay-TV content packages have stretched providers too: the value of English Premier League rights has risen 216% since 2008, from £570 million per year to £1.8 billion in 2018. As costs balloon, some are calling for pay-TV providers to re-evalute business models dependent on top tier sports rights, with some industry members anticipating the “bubble bursting”.

Piracy is getting worse, according to two-thirds of TV executives surveyed

This year, HBO’s Game of Thrones was pirated 55 million times in the first 24 hours after launch. 66% of global executives surveyed for the Pay-TV Innovation Forum feel that piracy is getting worse, yet only 51% think that their company’s approach to fighting piracy is somewhat effective.

Whilst Asia Pacific and Latin America are the markets worst affected, in the US, an estimated $9 billion was lost to piracy and account sharing in 2018. Executives believe that combating piracy will require improving the user experience of paid-for services, collaborating as an industry to legally challenge pirates and developing new technical solutions such as watermarking to flag and prevent illegal content sharing.

Data and analytics are key, but most companies are still failing to extract value from big data

Done well, data and analytics can offer benefits across all areas of pay-TV businesses, with use cases in ad monetisation, customer retention, personalisation, content development and management.

79% believe they will need to invest heavily in data capabilities to evolve their businesses and services to meet new customer expectations and market conditions.  However, only 27% of pay-TV executives currently rate their companies’ ability to extract value from big data and AI/ML as good, whilst 36% feel their capabilities to be bad or very bad.