Post # 7. Pay TV: yesterday, today, and tomorrow

Television has been an everyday experience for generations of viewers. As new technologies appear and audience habits change, it has evolved with the times. Today, young companies are setting the trends while more established ones try to keep pace with them. Ministra TV platform team has prepared this article to give you some insights into  the development of pay TV. We’ll tell you what pay TV looked like when it first came on the scene, how it is evolving, what role the industry giants play, and what small operators should do.

A bit of history

Surprisingly, the first experiments with pay TV began as early as the 1920s and 30s, almost immediately after the invention of the TV. One of the pioneers of the industry — the American Zenith Radio Corporation — believed it was possible to make money on more than advertising. So in 1950, the company introduced a system called Phonevision, where a fee  for television services was included in users’ monthly telephone bills. The signal was broadcast over the airwaves, but you needed a phone to order telecasts and decode them. Phonevision existed until 1970, but it never caught on with viewers.

By the 1970s, the pay TV market had been established. Some pay TV systems used radio transmissions (UHF format), others employed signal transmission through satellites, and some used cable. Only cable and satellite TV became popular. An example from this era is HBO (Home Box Office). HBO only operated in two states until 1974, but it was able to fully cover the US when it began broadcasting via satellite.

In the 80s and 90s, cable television became the main source of content for viewers, and its main competitor was satellite. In 1995, IPTV was born, and signals began to be transmitted as IP packets. The first IPTV operators offered flexible tariff plans, browser functions, EPG, PVR, TimeShift, and even VoD. Television became interactive: users could vote for participants on music, dance, and other shows using their remote controls, rather than by phone or text. By the end of 2006, there were 142 paid VoD services in Europe; by 2009, the number had reached 650.

OTT services appeared in the middle of the first decade of the 21st century. In 2005, iTunes began offering paid access to some TV shows; YouTube was created in the same year. Amazon Video appeared in 2006, Netflix in 2007, and Hulu a year later.

In 2017, a billion households paid for television. Sixty-six percent of them were watching cable and satellite, and every fifth house was connected to IPTV. Close to 400 million viewers now use streaming services, but 70% of them are also subscribed to traditional TV.

 

Trends today and tomorrow

Viewers are gradually abandoning traditional services in favor of IPTV and OTT. They are attracted by access to video on demand, simpler content selection, multi-screen options, and better picture and sound quality. Now let’s delve deeper.

In 2012, only 26% of viewers paid for video on demand; today it’s 40%. The trend is growing, because users no longer want to pay for extra content. The usual cable or satellite plan includes 190 channels, but people don’t watch more than 10% of them. In developed countries, this type of subscription can cost from $50 to $100 per month, and against this backdrop, services like Netflix, Hulu, and Amazon Video look more attractive. Subscribing to one of them will cost you $9-14 monthly. To compete with them on price, small operators attract customers by offering one tariff plan for TV, internet, and telephone. And internet providers are building IPTV services based on ready-made infrastructure networks.

On average, viewers pay three times less for VoD services than for traditional TV. Despite this, TV still attracts users by providing an occasion for the family to get together in front of the screen.

According to a report from Ericsson TV and Media 2017, by 2020 VoD will represent 40% of the market. The main reasons viewers switch to streaming VoD services are low cost and the choice of content. The fact that these services do not have advertising or use ads that are highly targeted is also attractive.

One third of viewers believe that in the next 5 years they will be able to watch TV in virtual reality and control devices with their voices. By that time, every fifth person will have completely abandoned cable TV and switched to VoD.

Another problem for modern viewers is the challenge of choosing content. Every day they spend an hour doing this. And more often than with traditional TV, audiences can’t find anything interesting to watch. Twenty-six percent of users are ready to overpay, just for services that they hope make it easier to choose. In response to this, streaming services already offer viewers content based on their interests. To keep up, small operators should also offer good UI/UX and give users relevant personal recommendations.

Ericsson experts believe that the future lies in multi-screen. For the past 8 years, the proportion of users whose main device is a smartphone or tablet has grown three-fold. In the USA alone, 33% of subscribers to OTT services use three or more devices.

Pay TV is currently more often viewed on Smart TVs or TVs with STB set-top boxes, but by 2020, half of the TV and video views will be on mobile devices (including laptops). This is 85% more than in 2010. The mobile trend will continue into the next decade, so all operators should currently be providing good UX for small screens.

IPTV and OTT services are the future of TV, but they also have their pros and cons. IPTV provides quality service, but only within its network. OTT gives viewers access to content wherever internet access is available, but they do not affect the viewer’s connection speed. Operators who can combine both approaches in their service will have a definite advantage.

 

How did a small company become a giant?

California, 1997: Reed Hastings and Mark Randolph founded Netflix. It was an unusual rental service, where customers could make an order online and receive their order by mail. The market was still ruled by VHS tapes, but the fact that they were fragile made them difficult to ship. The company looked to the DVDs, which were gaining popularity and weren’t as easily damaged during shipping.

In 1999, Netflix introduced a monthly subscription. One price for free shipping, and as many DVDs as you wanted — something their competitors could not offer. The service is still available today, and in the US three million people are using it.

In 2007, the company launched the online service “Watch Now.” It was only available on PCs and only offered 1,000 movies, but that didn’t stop it from becoming popular. By allowing viewers to watch anything anytime, regular TV took a hit from Netflix.

The service evolved, and since 2016, it has become available in almost every corner of the world. At the end of 2017, Netflix had 117.6 million subscribers, and by 2020, it is poised to gain another 60. This year, Netflix will spend $2 billion on marketing.

TV operators and film studios, realizing what was in store for the industry, began to create their own VoD services. In 2019, Disney will stop using Netflix services and will launch its own streaming service. Netflix anticipated this and since 2013, the company has been releasing its own content. For five years, it has created more than 700 original works, including hits like “Stranger Things,” “The Crown,” and “House of Cards.” Original content is very important to three out of four Netflix viewers.

The company has even been able to shift the viewing habits of its audience. More than half of viewers don’t want to wait for weeks to see episodes of their favorite series; many are ready to watch a whole season in one sitting. The phrase “binge-watching” was coined to describe this trend. Netflix immediately releases entire seasons at a time to encourage audiences to watch a series in one go.

 

In conclusion

Since its inception, television has been a universal service with great commercial potential one that media companies are still trying to fully realize today.

Prior to the 1990s, there were no serious competitors for paid satellite and cable television, but by the end of the decade IPTV appeared. Interactive services became popular — EPG, TimeShift, PVR and, of course, VoD.

Television is becoming mobile. In two years the number of mobile views will equal the number of TV views, and will then surpass it.

IPTV has evolved into OTT services, which offer users content anytime, anywhere, and at a good price. Today, they set the trends, but that does not mean that small companies are out of the game. Seventy-five percent of households combine OTT, IPTV, satellite, and cable subscriptions. Viewers will never give up niche and live TV, which only local operators offer.

The pay TV market is changing before our eyes. Follow our blog to find out what’s coming next.