The Pay-TV Innovation Forum is a new global research programme for senior pay-TV executives, developed by NAGRA, in partnership with leading research consultancy MTM, designed to explore and catalyse innovation across the pay-TV industry, at a time of unprecedented change.
As part of the programme, we are publishing a series of interviews with leading pay-TV industry executives from around the world to explore their views, perspectives and experiences of innovation in the pay-TV industry.
In this interview, Shuja Khan, Vice President of Revenue Growth Transformation of Liberty Global, the leading international cable company, offers his advice on how pay-TV companies can innovate and remain competitive.
How would you describe the state of the pay-TV industry today?
The pay-TV industry is definitely in a disruptive stage, which makes it super exciting!
Look at the distribution of pay-TV content – back in 2010, content distribution over the internet was at a very early stage, but now it’s the norm. If you look at different metrics such as broadband penetration and average download speeds, business model innovation, the development and adoption of OTT and so on – it all indicates that there’s been a real step change in the market.
Although some of these changes appear small, they’re definitely important. Look at viewing of OTT content – it might only be a small share of total viewing, but a much bigger share of peak time. More importantly the audience is a valuable one - consumers who are short of time and who care a lot about the quality of the content they’re viewing. The big challenge, and I would say opportunity, for the pay-TV industry is to find ways to capture and retain these customers.
When you look at the long term evolution of the pay-TV industry, the last five years have been much more disruptive than the previous ten. During the first decade of the century, European pay-TV providers were focused on improving their content offerings by for example increasing channel line-ups, differentiating themselves from free-to-air channels, and investing in their distribution platforms and set-top boxes. Today, the focus is on delivering even better experiences for our customers – they are now used to almost continuous app updates compared to the 3-5 year refresh cycles we used to have. Then it’s also about bringing new content offerings to our platforms with flexible propositions and addressing the exciting new growth opportunities that are opening up with on demand, personalisation and impact of social media.
It feels like we’ve gone from a jog to a sprint triathlon!
How do you think the major international telcos have impacted the pay-TV industry?
They’ve certainly become a significant buyer of content – it’s not clear yet whether they are a seller of Pay TV or just using it as a broadband defence.
Pay TV is clearly a big priority for lots of telcos and there has been a noticeable step change in the quality of the pay-TV services offered by telcos. Many of them have strong balance sheets and money to invest, and as they’ve seen fixed and mobile telecom markets mature, they’re looking for new growth opportunities. This has been supported by improvements in their networks allowing them to offer pay-TV content to their customers. Some of them have also expanded internationally, which can help through the economics of scale.
In many cases, telcos look to bundle pay-TV content with other services, to offer more attractive deals to their customers. Bundles offer more than just discounts, they’re convenient for customers and can be very attractive propositions.
The big question is how the telcos will develop their pay-TV offerings in the future – and will customers start to see them as pay-TV companies rather than as telecoms providers who can offer a bit of tele.
Pay-TV companies are often perceived as not being especially innovative. Why do you think that is the case?
In my opinion, what makes pay-TV companies successful is their ability to transition break-through innovation into mass market adoption. The innovation may have originated in other markets, often niche markets, but what they do is make the technology reliable and easier to use and then package it in a way that is compelling. That for me is still innovation.
As someone once said to me – it’s rarely the first to the party that’s remembered – it’s usually the best dressed!
Looking forwards, what do you see as the key innovation challenges facing the pay-TV industry?
Given the pace of change, the industry needs to innovate faster than at any point in its history. There are four major innovation challenges facing pay-TV service providers.
First of all, the pay-TV delivery mechanism is very complex, it has so many components to it and bringing innovation to the whole system is not straightforward, in terms of technology and cost. I think on balance it’s better to get it out then make sure it’s perfect…and then course correct.
Secondly, organisational design is really important for innovation and lots of pay-TV companies are not designed to be innovative – they’re designed to be efficient. A lot of them are still working in silos, with little collaboration. This is one of the key reasons for some of the transformational changes that I’m involved with at Liberty Global.
Third, there are return on investment considerations. Pay-TV is a great cash generating business and has healthy margins, so innovative products and services can face a very high return on investment hurdle.
Finally, lots of pay-TV operators are worried about disrupting their existing businesses, so innovation is much more likely to come from new entrants or industry outsiders. The best way to address this - and the ROI challenge - is to strategically invest, incubate, rapidly experiment and then integrate.
What steps can pay-TV service providers take to develop and grow their businesses?
Quick ones. Pay-TV service providers can’t ignore the disruptive forces facing the industry. They need to identify potential disruptions and take steps to take advantage of them.
In general, pay-TV companies are doing a good job addressing the basics, investing to better set-top boxes, great OTT products and very advanced functionalities. Competition is stimulating innovation across the industry.
Secondly, the future is uncertain so we need to place bets. A good way to do that is through corporate venturing. As an investor, you can integrate the new innovation into your business – and could buy the business outright at some point, if it makes sense.
There are also lots of exciting new growth opportunities opening up for pay-TV providers outside of their core business. Advertising and data is one area. There is a wealth of data that pay-TV service providers can extract, analyse and monetise, leveraging return-path data from set-top boxes and OTT products. It’s a really unique asset that we have and can enable some really exciting new business models.
Thirdly, we need to follow consumer behaviour and demand. This is what makes multi-screen or OTT interesting and exciting. Although TV Everywhere services are almost ubiquitous, there are still lots of opportunities to extend content onto new screens – to deliver the next generation of aggregation services and to make the mobile viewing experience easier and more user-friendly.
There is an abundance of opportunity, it’s just a case of prioritising what’s most likely to provide the best growth.