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With new free and paid video services coming to market what seems like every week, consumers today have more choices for entertainment and data services than ever—including the choice to leave managed video services providers altogether. Due to the oligopolistic market structure for managed video, data, and voice services, the multichannel industry has traditionally revolved around acquisition, not retention and loyalty.
Today, however, increased competition in the video space means that it is time for distributors to rethink that strategy. At Horowitz, we believe that the only way to stay competitive in this video arms race is for distributors to shift to a consumer-centric way of thinking.
Take a new look at your customers
The critical first step to a new, consumer-centric strategic vision for multichannel video programming distributors (MVPDs) is to take a new view of their customers. Subscribers are more than a collection of revenue generating units; they are households that MVPDs can delight and empower with their products.
To develop, position, and market those products means truly understanding the needs of different viewers. While some viewers are lean-back viewers who want content fed to them, others want full control over their video entertainment experience. Horowitz’s proprietary segmentation, which takes into account whether viewers watch TV using traditional platforms (OTA and MVPDs), streaming services, or a combination, begins unpacking some of these nuances. In our segmentation, we identified three segments: 5 O’clock Diners, Content Paleos, and Content Omnivores.
5 O’clock Diners
5 O’clock Diners comprise 32% of the market. This segment watches traditional platforms —live, VOD, and DVR. They are the traditional TV counterpart to Content Paleos focusing on news, broadcast, and some sports. They skew older and are less likely to have children at home. They are also the most likely to subscribe to a traditional multichannel service. 5 O’Clock Diners are good customers who are at low risk of leaving traditional multichannel providers, though they are not necessarily high-revenue customers.
Content Paleos
Comprising 7% of the TV viewer universe, Content Paleos comprise the smallest segment of viewers. They are less likely to have children at home, have narrower content interests, and spend less time watching television content on any screen. Unsurprisingly, Content Paleos are are much less likely to be multichannel subscribers. They are largely cord-cutters and cord-nevers whose viewing needs are easily satisfied through self-managed services.
Content Omnivores
Content Omnivores, named because they watch the most TV, have the most varied needs and comprise 61% of TV viewers. They watch across a plethora of platforms, from traditional to streamed, both in and out of the home. This segment has the highest household income of all segments, and is more likely to have children in the home. In order to keep up with their demand for content, they need both managed services and self-managed OTT services. This segment is the core concern of traditional MVPDs as they transition to a consumer-centric business model.
With larger, multi-person households, Content Omnivores likely pay the most for TV services. Despite their apparent need for the managed services that they get from their current MVPD, Content Omnivores are the most vulnerable segment. They need, in our new mantra, to be retained, entertained, and engaged.
Omnivores are the primary market of all players. While traditional MVPDs may be asking whether virtual providers could possibly be as robust, compelling, and convenient as a traditional MVPD, many younger Content Omnivores reverse this question: Can a traditional MVPD be as robust, compelling, and convenient as a virtual provider? As millennial and Gen Z consumers who are accustomed to streaming become the next generation of decision makers, traditional MVPDs have to ask how traditional MVPDs will continue being relevant to future households.
Leverage technology investments
There is an immediate opportunity to leverage MVPDs’ investments and innovations in technology to help retain these valuable customers. In State of Pay TV, OTT & SVOD 2017, we learned that many next-gen features, such as cross-platform search and discovery and voice control deliver a great deal of perceived value to multichannel subscribers, especially young viewers.
Among 18-34 year-old MVPD subscribers who also stream, 79% reported that they would find it very valuable to be able to access all their TV services from one place on their TV. Half (49%) of 18-34 year-old MVPD subscribers said that they would value a voice control remote, a feature that is becoming more mainstream as Comcast, Roku, Apple, and more offer them with their latest boxes and devices.
Give customers more information and more autonomy
In addition to new technology advances, we have heard consumers express a desire for more customer-centric experiences from their TV providers, including:
* More flexible payment options, such as being able to change billing dates or putting the account on temporary hold;
* Empowering customer service representatives with greater negotiation flexibility to retain a customer;
* More and better communication about when promotional pricing will end;
* Engagement with the customer throughout the purchase and retention journey that relates to and reflects customer needs as opposed to the business needs of the company;
* Loyalty programs with material rewards for longevity, rather than the punishment of rising prices.
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Underscore the value of managed video services
Today, the relatively low cost of SVOD and vMVPD services has had a dramatic impact on perceived value for the robust, managed services that traditional multichannel providers deliver. In State of Pay TV, OTT & SVOD 2018, we asked respondents who subscribe to each service how “worth it” they feel the service is for the money spent. Satellite, telco, and cable rank substantially lower than the newer, self-managed services offered by Netflix, Hulu, Amazon Prime, Sling, and others. (DIRECTV NOW ranks lowest, which we attribute to some confusion in the marketplace between this service and “regular” DIRECTV.)
From a consumer perspective, this is understandable given that these services deliver seemingly endless content options and the flexibility to view whenever and wherever, at a lower price, with no equipment fees, and the ability to cancel and re-subscribe at whim.
A key question is whether there is a threshold for how much consumers who have cord-cut are willing to pay for a suite of self-managed entertainment services plus stand-alone internet before they “realize” that managed services from a traditional provider is actually a better alternative.
We should not bank on the assumption that cord-cutters will automatically return to multichannel once self-managed OTT costs reach a certain threshold. Beyond cost, the viewing and technology experience offered by OTT SVODs is highly valued. Traditional providers’ services need to be comparable to convince certain cord-cutters to return. Moreover, modeling of price thresholds must consider the likelihood that cord-cutters will want to keep some, if not all, of their OTT SVOD services even if they decide to get multichannel service.
In Marketing and Positioning, Highlight the Customer Experience and Value
Pitting OTT SVOD against multichannel is reverting to the siloed, “either/or” model that is incongruous with how consumers use their services. All of this underscores the imperative to promote streaming capabilities front and center in messaging and promotion of the TV service and to strive to remove barriers that prevent customers from enjoying their full TV experience in and out of the home.
It also underscores an imperative to message and promote other benefits of fully managed services:
*The tech innovations offered in the latest set-top boxes, especially as a “total home hub”;
*Various avenues to customer service and tech support;
*Free public Wi-Fi in major markets;
*Live streaming of all channels, including local;
*The convenience of being able to turn on the TV and find something to watch;
*Reliability;
*Accountability if something goes wrong.
In other words, highlighting the customer experience and value that traditional MVPDs offer must be used to position managed multichannel, multiplatform services as a premium, top-of-the-line experience, well worth the additional expense.
We understand that positioning top-of-the-line, managed service offerings will not resonate with all consumers. There will still be consumers not willing to pay for it. We also understand the conundrum that traditional distributors face when considering skinny bundles, standalone Internet, and other offerings.
From a marketing, promotion, and retention point of view, MVPDs should invest in customer satisfaction and perceived value of “premium” tiers. This will enable product development, marketing, and positioning of lower end/lower cost services to keep those with other needs in the fold.
Our hypothesis is that the benefit of retaining customers—even if it has an impact on revenue—outweighs the risks of losing them altogether.
The multichannel industry focuses on churn, which is in large part driven by customers looking to get the best deal and who switch providers when promotional rates expire. The majority of customers, however, are in a state of inertia, happy to continue subscribing to their existing service as long as cost-value ratio stays relatively stable.
Helping consumers get an honest assessment of their real needs and providing viable and attractive solutions will go a long way toward showing current and potential customers that their provider not only understands their needs, but cares about them. In short, it is time for distributors to ask not only what consumers can do for them, but also what distributors can—and must—do for consumers.
To learn more about the reports cited in this piece or about how Horowitz can help you shift to a consumer-centric model, contact us at [email protected] or 914-834-5999.
ADRIANA WATERSTON
Senior Vice President, Insights & Strategy
Horowitz Research
Adriana is a seasoned quantitative and qualitative market researcher with expertise on consumer attitudes towards media. She oversees Horowitz Research’s millennial, multicultural and Latino endeavors. Adriana is often quoted in the press and is a frequent speaker at industry conferences.
Adriana has been named one of the industry’s “Most Influential Minorities in Cable” (Cablefax Magazine), won the Agency Executive Award at B&C/Multichannel News’ Diversity Discussion, and has received a CTAM TAMI award for her work in multicultural marketing. She is the co-author of The Practical Guide to Multicultural Marketing, which won the Bronze Global Ebook Awards in the Multicultural Non-Fiction category in 2013.
