Pay TV is Becoming Virtual Pay TV but not Before a Market Overhaul

Is pay TV entering its final years or can traditional pay TV providers evolve to survive in a market that is now in a constant state of flux? Traditional pay TV services have been around since the early part of the 20th century, but that doesn’t guarantee that they will be around forever. Technology and consumer demand are challenging providers, forcing them to embrace new models and approaches to business. Is your business ready to evolve?

The numbers game

There has been a steady national decline in the number of traditional pay TV customers. Fast Company reported on a UBS report showing that a hefty chunk of pay TV customers (about 25 percent) will be streaming their favorite shows online by 2023 rather than engaging with a traditional cable service for content. S&P Global Market Intelligence found that 4 percent of the traditional pay TV subscribers cut the cord in 2017, a deep wound of 986,411 video subscribers; this was part of the decline that began in 2012 that has led to a slow bleed of about 7 million customers. However, this does not mean customers are spending more time reading at the local library. Consumers are instead turning to digital content for entertainment and news. There has been a significant increase in the number of providers of virtual pay TV – a MoffettNathanson Research report found that there were about 4.6 million digital pay TV providers in 2017.

Where is pay TV going?

Virtual pay TV may be the future, but that does not mean that it will be clear sailing for all providers. Joel Espelien, senior analyst with The Diffusion Group, indicated that he expects that there will be an initial customer base of about 10 to 20 million, which is not enough to sustain the many new digital pay TV providers. Espelien also noted that while there will be a pruning of providers, those who stand to win the most in the over-the-top (OTT) TV movement are broadband service providers. Incidentally, the prospect of the global pay TV market is bright (ABI research expects it to hit $295 million by 2022), but only because traditional companies are pivoting to add OTT services. Providers such as DirecTV NOW and Dish Network’s Sling are evolving to meet customer demand.

Challenges to pay TV’s evolving future

As with any business, there are more than a few snags in the rise of the virtual pay TV market. Piracy is a constant struggle for providers, and it will likely become an increasingly larger problem as more businesses incorporate digital offerings into their lineups. Providers need to incorporate a strong multipronged approach to managing content piracy, such as informing the public about piracy as theft, tapping government agencies for assistance and improving cybersecurity as the provider.

OTT services are also driving change in the pay TV market as younger consumers move away from traditional models of consumption. For example, millennials are a mobile technology tribe, preferring to watch streaming content via app rather than on a desktop or laptop browser; they prefer to view their selected content on the go, and they expect a targeted, personalized experience. OTT services can be a challenge to traditional pay TV providers, since they may not have the understanding of how to create a data-driven, individualized experience for users in the same way that companies like Amazon do.

Out with the old, in with the new

Inevitably, the pay TV market will experience a shake-up as new providers enter and leave the arena and traditional businesses innovate to deliver more digital services. Only those in the strongest positions will be able to survive to deliver a hybrid pay TV experience; the rest of the competition will be either consolidated or eliminated. Technology has had a powerful impact on how entertainment is delivered to consumers, and this is something that most traditional providers understand, with a whopping 76 percent of providers noting that innovation is key to survival and success in the new digital pay TV era. However, while technology will certainly help businesses modernize, it will also open the door to increasing challenges. Being willing to embrace change and innovate will support the continuing success of pay TV providers.