The demand for content consumption has drastically changed over the last five years. This change accelerated during the pandemic, as digital adoption and viewership for all content types dramatically increased multifold. This has been further supplemented by the influx of a larger number of connected devices and smartphones, alongside the invasion of affordable last-mile data. This adoption led to enhanced content production such as long form, short form and web series including user generated content (UGC).

Some recent data points towards this trend:

• Media usage, including digital and traditional media channels, grew up to 2.7% in 2022, averaging to 55.8 hours every week.
• 2020 saw the fastest increase in media consumption in 15 years, with a pandemic-fueled surge of 3.3%.
• Media consumption is predicted to reach an average of ~8 hours daily usage by 2025.
• PayTV – Cable, satellite and Internet TV entered a downturn in early 2023.
• PayTV is expected to grow to $ 209.01 Bn by 2030, with 75.5 Mn subscribers in 2023, down by 7% over the previous year and gradually declining year-over-year.

All these changes led to a paradigm shift i.e. from traditional to digital which has escalated revenues through advertising and subscription business models for content distribution platforms i.e. digital OTT, traditional cable, telcos and satellite DTH. In North America, predominantly in the US, an average household has between four to six different subscription services, across multiple digital OTT content distribution platforms. Despite this increase in subscriptions, the average US household still continues to use traditional content distribution platforms through cable or satellite/DTH.

With the increased demand for content, consumers are also open to exploring different genres as well as regional and international content. Content creators similarly are now competing for attention from consumers across age groups, further increasing the need to create high quality content that stands out in the many content sources.

Content viewership patterns have changed as a result of cord-cutting:

• News and sports genres have been driving factors for traditional cable TV viewership.
• Sports viewership on cable TV increased by 22% in January 2023.
• Leichtman reported that Comcast lost 543K subscribers in the second quarter of 2023. Likewise, DirecTV lost 400K, Charter 200K, Altice 69K and Dish TV 197K subscribers.
• Cord-cutting has resulted in consolidations in the PayTV segment. For example, Peacock gained 22Mn new subscribers by Q1 2023 and YouTube TV gained 200K.

As the impact of the pandemic subsided, so did the need to subscribe to multiple content platforms. It is currently estimated that the average household's number of subscriptions have dropped to 2-3 content platforms, but content consumption continues to remain high. This can be explained by the fact that while cord-cutting has accelerated from cable/satellite platforms to pure OTT services, the advent of FAST channels and UGC (short-form content) has filled the content gap for consumers.

While UGC platforms, including social media platforms (e.g. Facebook, Instagram), have low content creation cost and no subscription fees, they have created challenges for serious content players and even more so for content distributors such as cable and satellite providers, as well as pure OTT players. Moreover, cable and satellite operators or distributors are under tremendous pressure to manage churn, requiring them to invest in newer technologies, which has increased the cost for operations and support services.

The data points below showcase the pressures on subscriber retention and growth. These challenges have created tremendous cost pressures on content distributors. Not only are they expected to deliver on-demand content, streaming channels, traditional channels, live content and regular content refresh for movies, shows and VoD content, but they need to do so with the highest quality of services.

US Streaming TV Market

With the declining subscriber acquisition rate, these players need to battle across multiple fronts, while continuing to provide a high quality experience with new content and coverage. To stop subscriber attrition, it has become necessary to invest in the continuous mapping of consumer behavior and viewership patterns. Content providers also face challenges with consistently managing and maintaining legacy infrastructure and consumer demands. Despite these numerous challenges, the amount of money available (ARPU) to address them is limited and not growing at the same rate to match the increase in content and consumer management costs.

Illustrated below is a typical CSP/ PayTV operator’s technology and infrastructure setup. We have seen over the years that this grows with the increase in consumer demand for content. The costs to manage and operate this infrastructure continues to be high for all operators.

The cost of content creation / acquisition will remain high and out of the control of operators.

Along with continuous investments in technology, technology costs will remain under pressure as more focus is required in areas such as consumer analytics, viewership patterns, advertising tech, quality of service, the content digital supply chain monitoring and operations and consumer experience.

Our assumption is that new technologies such as generative AI will play a big role in analytics to aid faster and quicker decision making. Operators/ distributers will look to leverage this technology to validate and build use cases to reduce their cost of operations, infrastructure (unused), the acquisition of content and to analyze actual viewership based on advertisement CPMs etc.

Content platforms need to refine their strategy as they enter 2024 as geopolitic, economic and cost of living/inflation indicators aren’t showing any signs of cooling. The scenario for CSPs and OTT players will be no different if they don’t explore newer models of engagement and ways of working and their margins/ EBITDA will continue to be under pressure.

Some aspects that need to be sharpened in order to ride the 2024 wave and come out as winners include:

• Focus on smarter content acquisition and content creation
• Use generative AI and deep learning capabilities to better understand content consumption and audience behavior
• Improve time-to-market and speed the launch of new products and services while exploring partnerships to launch FAST channels that don’t require high upfront capital investments
• Technology spending parity should be balanced in line with revenues; technology spend as a function of ARPU and subscribers
• Launch value-added services (VAS) for consumers, such as incorporating medical and emergency services on a remote for a 65+ age household (a traditional cable TV subscriber demographic)

A strong content strategy (including both content creation and acquisitions) will continue to be critical to attract and keep consumers. In the coming months and years, gen AI will help strategy officers and business leaders to focus on creating valuable content while minimizing the cost of production and operations.

Technology, on the other hand, is an area where these streaming players can forge a strong, outcome oriented, strategic partnership.

Content providers can tap into the potential of partnerships with technology integrators who have the deep expertise in providing end-to-end services. Technology integrators put their ‘skin in the game’ to support their partner’s key OKRs such as improving margins/EBITDA and improving the consumer experience and NPS. Technology partners that have expertise in building products and platforms as well as delivering top notch IT services in the video space (ISVs/OEMs, Media cos, CSPs and OTT players) will have an added advantage as they will bring competency in understanding all facets of the ecosystem.

Various partnership models have evolved and have been leveraged by the industry over the years to bring technology costs down including outsourcing, utilizing managed services, nearshore, offshore and the rebadging of employees, captives etc. Each model has had its benefits at the given time helping CSPs to grow as well as provide quality services at a lower cost

With cost of content acquisition growing higher and retention being challenged by other UGC, OTT players, it is important to derive cost of technology as a factor of revenues. Can technology cost (especially in video supply chain) get linked to Sub’s/ARPU, while basic IT cost (commoditized and standardized) gets capped at a certain level?

This approach can help CSPs to not only achieve higher profitability, but to also incubate a technology partner that is ingrained into its service offerings. This model will motivate the technology integrator to provide their services at the committed SLAs in order to get their share of revenue.

Below is a typical heat map for CSPs/PayTV operators with functions and processes highlighted that can be part of the strategic partnership with an IT services partner.

To dive deeper and understand the nature of strategic partnership between CSPs and technology integrators, let us look at some examples of technology areas that are critical video processes as well as the underlying foundations these platforms leverage to provide an enhanced customer experience.

The industry value chain, heat map and use cases show a direct impact of an IT Services provider on revenue generation, as well as an improved customer experience which will lead to retention. Having these services and functions delivered as a percentage of ARPU/month will provide CSPs the ability to not only get the highest quality of service but also a buy-in (skin in the game) from the technology partner to work towards success.

This model will help these players better define their budgets and focus on core areas such as content strategy, marketing as well as cap spending on standard IT services, all while giving them the ability to launch new services in a more defined manner

This approach to carving out a fraction of ARPU dovetails with the previous benefits of tech partnerships, cost optimization, innovation and transformation, will become a cornerstone to a successful partnership for both the CSP and the tech partner. As subscribers grow or shrink, pricing will adjust and concerns for managing CAPEX will be a win-win approach for everyone in the ecosystem.

Sources:

Neilsen, nScreenMedia, Satista, Gitnux, PQ Media, Cordcutting.com

Please reach out to the authors of this whitepaper for more information on how to pivot to a utility-based operating technology model.

Vivek Prabhu
Growth Leader,
Telecom, Media and Entertainment, HCLTech

Vivek Prabhu is a seasoned business leader with a comprehensive portfolio of over 28 years across diverse roles. Known for his ability to multitask, he has been instrumental in shaping strategic partnerships and driving digital transformation. His outstanding team management skills led him to mentor high-performance teams while securing strategic alliances and facilitating complex transactions at HCLTech. Currently, he harmonizes strategy with outcomes, engaging with senior executives to facilitate strategically aligned deals.

Unmesh Khadilkar
Principal Architect
Telecom, Media and Entertainment, HCLTech

Unmesh Khadilkar heads the Media and entertainment practice at HCLTech Americas. His accomplishments encompass the successful design, architecture and global launch of numerous OTT products, content distribution platforms and broadcast transmission systems. Presently, he is dedicated to crafting domain-specific solutions that offer cost-effective business outcomes for HCLTech’s global clientele.