Advanced Monetization Modes Fuel Battle for OTT Supremacy

Marty Roberts, SVP, marketing & sales, thePlatform

Marty Roberts, SVP, marketing & sales, thePlatform

August 30, 2012 – What was once an over-the-top versus traditional pay TV battle for consumers spanning separate playing fields is rapidly shifting to an online-centric shootout where network service providers and pure OTT players alike are competing to drive revenues through advanced modes of video commerce.
While, according to Leichtman Research Group, Inc. (LRG), multichannel TV services continue to engage 87 percent of U.S. households, there are plenty of factors identified in LRG’s and other entities’ recent research that lend urgency to pay TV providers’ need to go head-to-head with OTT competitors more aggressively than they have so far with TV Everywhere strategies. At the same time, with ever more funds pouring into development of compelling OTT premium video services, better ways to generate revenue are top of mind among the pure-play OTT distributors as well.

In a telephone survey of 1,369 households from throughout the United States, LRG reported in July that the impact of a poor economy poses the greatest threat to pay TV subscription stability. Thirty-nine percent of the 42 percent of respondents who said they’ve been negatively impacted by the economy, or 16 percent of all respondents, have reduced spending on TV, Internet and phones services over the past year, and 32 percent of the economically squeezed respondents reported they’ll likely reduce spending in the next six months.

“The penetration of U.S. households subscribing to a multichannel video service has leveled off at about 87 percent nationwide over the past three years,” says LRG president Bruce Leichtman. “The defining characteristic of those who do not subscribe to a multichannel video service remains the level of household income. In addition, those facing economic challenges are most likely to switch provider, or reduce spending on services.”

Meanwhile, whether or not they subscribe to pay TV services, end users are becoming increasingly acclimated to using the Internet for a share of their viewing. In a new study Parks Associates says 25 percent of all video viewing in U.S. broadband households now occurs on platforms other than the TV, such as PCs, smartphones and tablets.

Of course, this includes the huge volume of short-form video consumption that does not compete with long-form pay TV, but the trend nonetheless bespeaks the shifting cultural environment for TV consumption. “One-third of U.S. broadband households streamed a TV show in the past 30 days, and these consumer viewing habits are raising expectations for new service offerings,” says Parks research director Brett Sappington.

In another report Parks profiles the impact Netflix is having as a cost-effective alternative to pay TV broadcast, pay-per-view and video-on-demand offerings. “Consumers can pay for a month of Netflix for about the same amount as for two pay-TV VOD movies,” Sappington notes. “Parks Associates research shows consumers know the quality of the OTT service is not comparable to pay-TV quality, but the cost-benefit comparison is enough to affect their purchase decisions.”

The research found 16 percent of U.S. broadband consumers, when watching movies on VOD, consider instead using an online subscription service as an alternative. Similarly, 18 percent of those watching TV programs on a premium channel like HBO consider using a subscription streaming service such as Netflix instead.

So far, TV Everywhere as a service provider line of defense against the allure of OTT options has not proven particularly effective, owing largely to lack of consumer awareness. Parks reports that only about a fifth of pay TV subscribers know their cable, satellite or telco service provider offers products that let them view video content on digital devices over the Internet.

But service providers’ lackadaisical approach to promoting TV Everywhere and developing its monetization potential may be about to change as OTT players like Google, Hulu, Netflix, Amazon, Apple and myriad others step up their efforts to recoup the money they’re spending on content in this space. Increasingly, these players are creating environments that support development of sophisticated advertising and subscription models tied to specific programs and rights windows.

A small case in point is Hulu’s pursuit of branded entertainment, where a single sponsor or set of sponsors is tied to a specific program or program series with the power to leverage exposure across multiple social media outlets. Ad Week recently reported Ford Motor Co. and Schick are sponsoring the second installation of Alloy Digital’s “Dating Rules,” a series of six- to eight-minute episodes tracking the fictional life of a young woman who communicates with her future self.

Both companies’ products will be integrated with the episodes, with vignettes showing on the show’s dedicated Facebook and YouTube pages as well as Hulu. Ford and Schick are also running sweepstakes tied to the show, which, in its initial series run, garnered over 14 million views across Hulu, Facebook and YouTube.

But achieving the operational granularity that’s required to support an endless array of such monetization models cost effectively has been a big challenge. One sign of growing demand from both sides for comprehensive, easy-to-manage solutions is the new video commerce support system just introduced by thePlatform.

The Web video publishing services supplier, an independently operating unit of Comcast, is addressing the needs of OTT pure plays and MVPDs (multichannel video program distributors) alike with the means to automate monetization strategies appropriate to each rights window through the lifecycle of each content component, says Marty Roberts, senior vice president of sales and marketing at thePlatform. This includes modes of promotion and packaging that can be dynamically applied across content groupings in accord with rights timelines and other policies.

“We’ve taken this step in reaction to market demand for more dynamic monetization processes that bring together advertising, subscriptions, rentals and purchases in one central place,” Roberts says. “We were hearing all kinds of different ideas for putting together more dynamic content packages and bundles.”

While thePlatform has long supported monetization processes tied to point solutions like rental or advertising along with the functions essential to supporting TVE Everywhere, the market’s move to full-scale, multidimensional video commerce required major enhancements to the firm’s core mpx system. Beyond basic pay-per-view or download-to-own, mpx users now can configure season passes for TV shows, movie bundles for sequels and trilogies or create promotions based on actors, directors, specific content categories and more, Roberts notes.

“With millions of titles flowing into thePlatform, it’s essential that our customers be able to automate all these capabilities,” he says. ”We already have a couple of customers building out these types of services on mpx.”

“What we’re doing is pretty unique,” he adds. “As content is ingested we’re automatically processing it with pricing and other policies so that when it’s published you can push it out to your storefront for purchasing with all the features and customer care components included.”

Until now, service providers’ TV Everywhere services have been offered as a cost-free value add to existing subscribers. But operators want to bring their premium PPV options into the mix and to dynamically place advertising in programming offered through the free TVE window. “In addition to basic availability rules these capabilities bring into play geographic-sensitive requirements and IP rights restrictions where some content can only be accessed on the operator’s managed network or on devices in the home,” Roberts notes.

In effect, as MVPDs are focusing more on turning TVE into a more dynamic monetization environment, OTT content owners and distributors are looking for similar capabilities, moving them in the direction of becoming virtual MVPDs. In all cases, providers want to have a holistic approach that encompasses TVE functionalities, advertising, transactional commerce and creating and offering dynamic packages, all tracking with policies timed to various stages in the lifecycle, Roberts says.

“We’re giving you the flexibility to do things like putting together a season pass where the user can purchase not just the one or two episodes of a program series that are available from the current season but all the episodes to follow as well,” he says. “You can create bundles for action movies or movies featuring a favorite actor, for holiday promotions or movie trilogies, and you can set pricing strategies around windows where, for example, a movie or program is offered at list for the first 60 days and then is discounted 20 percent for viewing after that.”

All of this can be accomplished without resort to the type of manual tagging that’s always been part of pricing packages, he adds. “We have a very dynamic tagging system for promoting packages on apps and into guide systems as well,” he says.

The new video commerce components are offered on a modular basis to accommodate customers with existing billing and back-office systems as well as those who need comprehensive e-commerce support. “In cases where customers have billing system we can interface with their product catalogs to put together dynamic packages so that when a transaction is consummated it will be routed through the billing system and then will be placed as an entitlement into our solution for access by that user,” Roberts explains.

All of which, in the case of cable operators, sets the stage for rapid transition from today’s pay TV environment to the all-IP environment of the future. “We’re seeing a merging between the traditional business and the dynamism online that leads to a much more compelling experience for end users,” Roberts says.