With multi service operators (MSOs) typically spending up to a whole year of APRU to win new customers, the importance of customer acquisition and long term subscriber management will be the difference between success and failure for a whole swathe of pay-TV operators. In a highly competitive market, reducing churn and increasing revenue is more than just buying the right content. For this IBE Market Briefing, we examine the key elements of subscriber and service management and look at best practice for winning, retaining and growing loyal subscribers while increasing profitability. With a focus on analytics and the mechanics of improving key functions like support and bundle creation, this briefing aims to highlight innovation and practical steps for growth.
- Changing roles: Content owners and pay-TV operators
- What is subscriber management software and how can it help?
- Acquisition, ARPU and churn
- Subscriber management for customer acquisition, on-boarding and management
Part Two (Published in 2 weeks)
- Subscriber retention strategies
- Grow a successful pay-TV business model through analytics
- Subscription management in the real world
- Final thoughts
The explosion of video content combined with growth in high speed Internet connectivity and low cost viewing devices has led to massive growth in demand for pay-TV. In the 1980s, the market was split pretty evenly between dominant free to air terrestrial TV supported by advertising and the emerging rival of pay-TV through largely satellite and some cable networks. Although estimates vary, in 1995, there were less than 1000 TV stations across the globe with new entrants constrained by limited broadcast spectrum and regulatory hurdles.
If we jump forward two decades, the Internet revolution has changed the status quo. Today, by some estimates, there are more than 15,000 TV stations worldwide including hundreds delivered exclusively over Internet technologies. The dominance of incumbent national broadcasters has wavered as new entrants boosted by greater adoption of broadband allowing low cost streaming and VoD to bypass regulatory hurdles and break into the market.
Consumers around the world are exercising more spending power over a wider range of content, and according to ABI Research, the global pay-TV market will have 1.1 billion subscribers generating service revenues of $320.3 billion by 2019. As the number of channels and methods of TV consumption have increased, average revenue per user (ARPU) has also undergone a shift. Although global pay-TV revenues have increased, the growth is uneven and suffers from a huge disparity in national per capita GDP, average broadband speeds and cultural attitudes. Contrast US consumers who spend £610 pa for just pay-TV with Italy at £300 pa and emerging nations such as Russia, India, and China at all less than £30 and you see the issue.
In broader terms, in large parts of Asia and South America, more new consumers are signing up for pay-TV as wealth increases and competition drives down costs. While in more developed markets such as North America and Europe, traditional satellite and cable pay-TV subscribers’ growth is stagnant as consumers turn to disruptive VoD services. In general, this means that developing markets offer the best opportunity for growth while established markets are fighting against cord cutting and churn.
In a market awash with competition, subscribers are demonstrating more activism in responding to what is perceived as poor service, high cost or lack of content. With operators in the 1990s talking about churn levels of 5%, in some markets, a figure closer to 20% is not unheard of. In the Internet age of instant accessibility, pay-TV operators are faced with some hard choices around how to deliver profitable TV services.
Changing roles: Content owners and pay-TV operators
Since 2008, when pay-TV subscription revenue overtook advertising, the disparity has continued to increase. With TV advertising revenues dramatically reduced in part by the rise of Internet and social media advertising spend, within a decade, 65% of TV industry revenues may well come directly from subscribers.
In many cases, traditional TV broadcasters are competing with new entrants with huge volumes of content, a direct relationship to the viewer and an alternative funding model that allows them to encroach into the market. Across Europe and particularly in the US, countless brands are starting to look at similar direct-to-subscriber services, especially for niche areas such as extreme sports, cooking, video gaming and hosts of other interests. This groundswell is predicated on a relatively low cost of entry compared to traditional DTT broadcast, cable or satellite agreements. Yet, potential subscribers have finite budgets for paid subscriptions, forcing many of these direct models to look to advertising and affiliate agreements to generate sufficient revenue.
An example of this trend is World Wrestling Entertainment (WWE). This sports entertainment brand reaches more than 14 million viewers each week and in early 2014 launched its first-ever streaming network including original programming, reality shows, documentaries, classic matches and more than 1500 hours of video on demand at launch. The service bypasses traditional syndication agreements and charges a monthly subscription to customers via apps on Kindle, Android, iOS, Roku, Sony PlayStation, Microsoft Xbox and Smart TVs.
Alongside direct-to-subscriber offerings and MSOs like BT and Orange, traditional TV networks are being threatened by Internet brands that have access to digital content that impacts on TV viewing time. The rise of social networking giants like Facebook, social video portals like Dailymotion in France, and aggregation sites like myVideo, which serves most German speaking regions, are all pulling eyeballs away from established TV operators.
However, it is the OTT services such as Netflix, Hulu and Crackle which deliver streaming and on-demand services over the Internet that are growing fastest. Although US Netflix subscribers enjoy peering agreements to improve quality of service, in Europe most OTT services are delivered on a best effort basis. Analyst Mason estimates that OTT video to the primary TV set will account for just 5.6 million subscriptions in Western Europe by 2018. However, OTT will have a much larger uptake on secondary TV sets within the home, where individual subscriptions supplement traditional satellite, cable or IPTV services.
The axiom that ‘content is king’ holds true but content is no longer as proprietary as it once was. Although high value content such as sports and flagship show formats are key draws, such content owners are increasingly forgoing exclusive licensing agreements to garner a wider global audience. In a future where content is universally available from multiple subscribers in each country, the pay-TV industry needs to become smarter in other core areas that can help drive profitability.
What is subscriber management software and how can it help?
Every pay-TV service, irrespective of whether it delivers content via cable, satellite, DTT, IP or even a combination of each, still needs consumer content, service delivery, billing and payment collection. And although these four steps are in fact broken up into dozens of more intermediary processes, at the heart of this web is a subscriber management system that is absolutely critical for service delivery.
In the early days, pay-TV operators tended to build their own systems. As they often owned end-to-end infrastructure, and few alternatives existed, the choice made sense. As a result, operators would invest considerable capital expenditure (CAPEX) to create bespoke software applications or bolt together existing infrastructure creating inefficient, overloaded and non-communicative systems. These platforms would require continual updates in line with new technology advancements, product changes and subscriber growth. But as subscriber management systems grew ever more complex and required extensive and ongoing maintenance, pay-TV operators soon started to feel the pain of acting as software developers.
The early 1990s saw the widespread adoption of IP-based service delivery, and as a result operators started to turn to specialist subscriber management providers in much in the same way that large enterprises stopped building their own transaction management systems and switched to using Oracle, Amdocs and Microsoft. The rationale behind this was simple; let us rely on experts to develop and maintain these systems while we focus on our core business activities.
On top of just a software platform, the modern subscriber management provider will also offer people and process expertise, providing interoperability and support, as well as extended services across more devices. Together, these factors offer a foundation for operators who are keen to innovate and break into new markets.
The vendors in this space are varied, which provides operators with a lot of choice over technology, regional footprint and deployment options, with alternatives ranging from highly bespoke and on-premise, through customisable software and solutions which utilise the cloud.
Acquisition, ARPU and churn
There are many great examples of pay-TV operators that have deployed advanced subscription management technologies and processes that have resulted in strong growth, lower churn or the ability to break into new markets. There are many different performance indicators that help gauge success but three stand out as key.
- Increase acquisition and effectively add more net new subscribers onto any services
Subscriber management techniques can help drive prospect acquisition campaigns including analysis-based recommendation for targeted advertising. Another effective acquisition strategy are tactical campaigns such as ‘recommend a friend’ or sign-up incentive schemes which can be driven across multiple contact points via subscriber management tools.
- Increase ARPU and actively upsell more products and services to existing customers
Subscriber management can help to provide context and analysis to help build ARPU-increasing activities. For example, targeted loyalty campaigns and upsell/cross-sell opportunities which are particularly useful for MSO. Another effective tactic is special promotional sales targeted based on deeper understanding of aggregate subscriber base and individual preferences.
- Reduce churn by keeping customers longer
Subscriber management has a strong role to play in reducing the inevitable churn by helping to identify and target individual groups of customers, for example at initial contract term due, pending cancellation and even to aid retention teams needed to outreach to cancelled subscriptions. Proactive measures that include analysis of usage and even bundle tailoring to help generate loyalty are strategies that can also reduce churn.
Subscriber management for customer acquisition, on-boarding and management
The technical operational processes that underpin every pay-TV operator must deliver reliable, scalable and cost effective service delivery. Looking into the wider market, few organisations have fully outsourced every aspect of the business to specialist third parties, mostly due to a desire to retain control and an ability to build competitive advantages over rivals. In the traditional broadcast space, critical aspects such as playout, and onsite field support such as installation of set top boxes or satellite dishes, have routinely been outsourced to specialists, but core operational activities such as the building and provisioning of subscriber packages have tended to remain in-house. Although the introduction of a subscriber management system can have a significant number of benefits, there a number of key considerations that should be addressed before selection, deployment and switch over to any critical platform.
One of the most essential considerations is defining and understanding the capacity of any system and how it will scale to meet the different lifecycle stages of pay-TV services. This notion of scalability is also affected by the types of content products a service will be offering. For example, a newly launched service that has commenced with a major marketing campaign or with special promotions needs to ensure that both the subscriber setup, payment processing, including potential call centre agents, are able to deal with a surge of registration requests and cope with demand. If the launch is successful, can the systems quickly scale up to meet more than expected demand? In addition, it may be a requirement to scale-down to reduce cost if subscriber signups are at a lower volume.
Alternatively, a pay-TV service that offers pay-per-view (PPV) around a particular event such as a live concert or sporting event, needs to have the flexibility to ramp up capacity and also a high degree of resilience and redundancy to ensure that purchases are processed in a timely fashion and subscribers are authorised as quickly as possible.
For pay-TV operators that are keen to benefit from outsourcing many of the subscriber management technical operations to a specialist third party, control and visibility are absolutely essential. Like any IT agreement, the technical operations team should be actively involved in the definition and monitoring of Service Level Agreements (SLA). A good subscriber management service provider should allow a degree of flexibility around the what, where, when and how of any SLA, and agreed uptimes of 99.5% should be considered the absolute minimum.
Any SLA should extend past just service delivery and include areas such as security and data retention policies. Although subject to regional variances around security best practice regulations, any pay-TV service needs to ensure that its subscriber management processes is compliant with the Payment Card Industry Data Security Standard (PCI DSS), a globally-agreed framework setup by the world’s largest credit card companies to help reduce fraud and data security breaches. This means that the subscriber management software and service provider meet the key tenants of the standard and is regularly audited by an independent Qualified Security Assessor (QSA).
One of the most important technical considerations of any subscriber management implementation should be the ability to interface the subscriber platform with other critical systems. With the rapid pace of change across the TV industry, it is almost inevitable that any pay-TV go-to-market model will need to evolve to meet new subscriber demands, technical considerations or market trends. Operational managers need to ask and get answers to the questions of interoperability and extensibility of the subscriber platform. This extends to the use of open application programming interfaces (APIs), standardised development tools such as Java, and scalable databases that underpin the platform, such as an Oracle or Microsoft platform. Although every potential pay-TV use case will have unique quirks, every subscriber management software or service provider should be able to confidently answer:
- We want to remain flexible – can we deploy your solution either on-premise or in a private and scalable cloud?
- Are you PCI Certified; when was your last QSA assessment and when is your next?
- What are the underlying technologies, such as database, programing languages and supported APIs, to ensure that we are not locked into a non-extensible platform?
- Do you have a real-time dashboard tool to provide visibility to our in-house technical operations team to validate that the software is performing as expected?
- How do you deal with a failure of a subscriber management application server, and what is your disaster recovery strategy?
In part two, IBE Market Briefing will look in detail at these factors and how subscriber management software and processes can deliver tangible results to more net-new subscribers, increase ARPU and reduce churn.