CTAM EuroSummit highlights importance of trial-and-error innovation for pay TV’s stalwarts

As Europe’s cable and broadcast elite once again descended on another of the continent’s picturesque cities – this year the beautiful Vienna – last week for the annual EuroSummit gathering of the Cable and Telecommunications Association for Marketing (CTAM), two common themes ran through much of the wide-ranging discussion: 1. Planning for the future of pay TV is as challenging as ever in a fast-changing and increasingly competitive landscape; and 2. This uncertainty has not stopped the industry’s long-standing dominant players from executing new business strategies that anticipate such change, even if no one is quite sure how – or, in some cases, even if – these strategies will pay off.

Second-screen business models still in their infancy

Two key, interlinked areas of development that epitomize this latter point are social TV and the second screen. Operators and broadcasters alike acknowledged the need to have a social-media presence and to tie this to the TV experience via companion devices. But they also admitted that the nature of the opportunities they hope will emerge from this strategy is unclear.

Direct monetization via advertising on the second screen remains unviable while the barriers of app fragmentation and a lack of scale exist. And the correlation between social-networking activity and ratings and traditional ad revenues – which conventional wisdom has suggested is a generally positive one – was shown to be more complicated, as it was highlighted that, although this year’s MTV Video Music Awards elicited the second-highest number of social-media comments of any TV broadcast ever (12.8 million), ratings halved compared with 2011. The more indirect contribution social-TV and second-second services are thought to make to customer retention and brand loyalty is another motivation for investing in these areas, but effectively measuring this contribution is a challenge that makes evaluating their importance difficult.

What was clear from last week’s conference – and from an (unrelated) second-screen-themed panel session hosted by the Royal Television Society in London before the EuroSummit – was that no one is convinced they have got the second screen right yet, with representatives from Liberty Global, Europe’s largest cable operator, and BSkyB, the region’s largest DTH operator, admitting as much at the respective events. The most important thing at this nascent stage, as LGI – borrowing a quote from American folk singer Jackson Brown – highlighted, is to be “on the dance floor,” ready for the opportunities that should eventually emerge.

‘Next generation’ hardware: UPC shows how it’s done

Over-the-top video was, of course, a prevalent topic at the EuroSummit, with the debate centered on how to embrace it and how to fight the new contenders using it to muscle in on traditional pay-TV operators’ territory. One strategy for addressing both is to launch new high-end products that attempt to cater to all conceivable customer desires. UPC’s long-awaited Horizon box – showcased in detail at the event – is the latest piece of hardware to fill this role, and the operator has done a nearly flawless job of creating some real must-have TV gadgetry.

If the rate of technological change makes equipment upgrades for pay TV a difficult process to execute – as was suggested by “futurologist” Ben Hammersley, in his explanation of the impact of Moore’s Law in the opening keynote speech – then at least UPC can be satisfied that it has, after a lengthy development process, done all it can to ensure that its hardware is at the cutting edge of its time, built for anticipated evolutions in consumer behavior and slick enough not to be quickly outdated. The same cannot, unfortunately, be said for another piece of premium cable equipment to launch in the past two years, Virgin Media’s Tivo, which, when it arrived in December 2010, did not then – and certainly does not now – boast the ultramodern look, feel and capability Horizon does.

Standalone OTT: a tricky business

Another emerging strategy for pay-TV operators seeking to both embrace and fend off competition from OTT video is to launch standalone Internet-TV offerings that untether selected content from the operator’s core service, thereby making it available without the need for a cable or satellite subscription. The few players that have made this tricky move have done so with an air of caution, with Sky (through NOW TV) and MTG (through Viaplay), for example, both keeping their OTT price points broadly similar to those charged for access to the same content via the core platform, so as not to cannibalize these more valuable traditional subscriptions.

The latest operator to venture into this potential minefield, Denmark’s YouSee, is, by contrast, adopting a more gung-ho approach to its pure-OTT strategy. Explaining its bid to both expand its offering beyond its cable network and compete directly with new online-video players attempting to gain a foothold in the market, the cable operator revealed that its new YouBio service (due to launch in November) will offer access to TV-and-movie content for the equivalent of about €10 (US$13) a month – half what access to the same content costs via cable. Quizzed on the potential for cannibalization, YouSee said that it was prepared to take an ARPU hit on some top-tier subscribers switching part of their cable package to the cheaper OTT offering in order to go after new customers and that it would respond accordingly if the economics did not stack up as hoped.

This bold, experimental approach to standalone OTT is no doubt a gamble, but one that YouSee can feel safer taking than most, having already rolled out a “TV Everywhere” service to its existing customers to secure their loyalty, and operating as it does in a market where all but 6% of TV households already receive some form of pay TV.

Netflix et al. facing their own challenges

While the challenges facing the cable industry were referenced throughout the EuroSummit – as is the norm – the spotlight was also clearly turned back on the OTT players aspiring to increase their slice of the pay-TV pie. Netflix was the focal point for much of the assessment of the OTT business model, with speakers including keynote guest Bill Roedy, the former chairman and chief executive of MTV International, highlighting the impact increasing costs – some necessary (inflated content-renewal deals and CDN investment) and some less necessary (massive spending on original programming) – would have on the price at which Netflix could continue to sell its services.

With the industry’s new contenders of significant scale facing such challenges, and Europe’s cable operators continuing to adapt to technological and competitive shifts – even if the fruits of these evolutionary strategic moves are not always immediately tangible – pay TV’s traditional kingpins remain well-placed to maintain their long-held market position.