The past few weeks of headlines have not been kind to the traditional pay-TV sector in the US. Q3 results have been coming in and show repeatedly that the pay-TV sector is haemorrhaging customers, with reports just in the last week or so demonstrating this:
While there is, of course, the usual gaggle of voices urging caution about declaring that traditional TV is dead, it must be said that the writing is on the wall for the pay-TV sector in the US. It cannot continue to operate as it has been for a number of reasons.
Before diving into the obvious market disruption that has been caused by online video, let’s turn our eyes closer to home, and look at the European market. Pay-TV services across Europe have seen nowhere near the same kind of exodus of subscribers that the US has experienced, and in fact are expected to add subscribers over the next few years (though revenues are still predicted to fall). Why is that? We reckon it can be attributed to a couple of issues. One is price – European pay-TV at almost every level and package type, is much cheaper than comparable US services. Another is that European services also generally appear to have a much more progressive approach to offering content online and through connected devices, with these services included in pricing, not added as bolt ons or separates, as historically they have been in the US. In short, European consumers have long felt that they get more value for their money than their US counterparts.
The second likely reason why pay-TV is atrophying at the rate it is in the US is because of the huge increase in the past few years in market penetration on the part of the big OTT services – particularly Amazon, Netflix and Hulu – which has been in turn backed up by a deluge in the number of smaller, genre and channel specific services as well. It took time, but the content spend of Netflix and Amazon alone (estimated $18-$20billion for 2018) is now far in excess of many traditional pay-TV providers, and the headlines that the services consistently generate are calling people’s eyes far away from the prescriptive, limited packages (that can cost in excess of $150 per month), in favour of a smorgasbord of content for $9.99 per month with big players, and even less (but with greater depth around a particular genre or content type) for other services.
Finally, there has been a longstanding perception in the US that customers are effectively getting screwed by their pay-TV providers. Rightly or wrongly, the prevailing thought for years now has been that they are paying too much for services that don’t deliver on their promises, engage in price gouging at every opportunity and have incredibly poor customer service. It’s so bad that many of the pay-TV giants are regularly rated amongst America’s most disliked companies. Compare that to the fresh faced vigour that Netflix or Amazon bring to the market, both of which rarely face criticism for their services (Amazon does for other practices, but its online video business is never caught up in that), and it’s hard not to see why people might decide to take their business elsewhere.
As mentioned above, while many analysts might be cautioning about declaring traditional TV to be dead, the end is coming. Traditional TV in the US, which has been dominated by the pay-TV sector for the last couple of decades has to change or face extinction. European market successes in the face of the rise of streaming show that it is possible to continue to grow in this brave new world, but it requires a fundamental step change in how business is done on the part of a pay-TV provider. Will the US pay-TV giants care enough to try to change? Only time will tell.Contact Airbeem