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30 May 2019

OTT fragmentation triggers consumer call for super-aggregation

Consumer discontentment with OTT fragmentation is rising and has been recognized in a spate of surveys about the state of streaming both in North America and Europe. Mounting frustration with the need to subscribe to multiple services was already apparent at least a year ago, for example in the previous 2018 version of one of the studies just published from Hub Entertainment Research covering the US. That study published in March 2018 found that even among US consumers subscribing to 4 or more streaming services, only 62% reported their entertainment needs as being well met. They also complained of paying as much as they would have for a traditional multiplay pay TV package when broadband costs are considered.

More forward-looking pay TV operators were already taking note, as three of Europe’s leading MSOs declared themselves in the re-aggregation business, including SVoD as well as legacy channels. These were Vodafone Germany, Liberty Global’s Virgin Media in the UK and Portugal’s NOS. They talked about onboarding the content users want to watch, but talk is cheap and a year on there is little sign of any of these yet fulfilling their super-aggregation ambitions, which some refer to as “onboarding”. Vodafone Germany brought the German Maxdome SVoD portal onboard, as well as Netflix.

But in the year since then events have moved on with Disney, AT&T WarnerMedia and Comcast NBCUniversal all preparing to launch streaming SVoD services offering their premium content later in 2019 or very early 2020. These services are pitched directly against Netflix and suggest the content world will become even more defragmented. But even these giants may have taken note of recent findings that anti-fragmentation sentiment has strengthened and also showed up more in Europe. A recent study from Nielsen’s entertainment metadata specialist Gracenote and digital media analyst firm nScreenMedia, entitled TV Universe – UK, Sweden, Germany: How People Watch Television Today, underlines growing discontentment among consumers over the need to juggle multiple services to get all the video content they want.

The question is what if any affect such feedback will have on strategies of the big content players, as well as Netflix. It is after all only a year or two ago that Netflix was seen as the super aggregator of choice for SVoD, which is precisely what provoked the response of the other big content houses which anticipated their revenues being sucked away and becoming subsidiary players in a new content age dominated by streaming. All these players had concluded that they must go D2C (Direct to Consumer) if they were to thrive and seriously disrupt those that in turn had invaded their territory, primarily Netflix, Amazon and Apple.

There is little likelihood therefore of those content houses changing tack much and for Disney at least these recent surveys even vindicate its strategy, due to its focus on family and kids. Disney will have inspected recent surveys assessing how many consumers would churn from Netflix to its streaming service. This was identified as a significant threat among households with children by Hub Research. More specific indications have come from Houston-based Streaming Observer, which found that while 37.5% of US Netflix subscribers would try out Disney+, initially as an additional service, 23% of those parents with children 15 or younger would consider cancelling Netflix in favor of Disney+. This would be on the grounds that Disney+ would also satisfy their own content needs as well as their offspring’s in a single readily searchable offering, while saving money.

Even among Netflix subscribers without children, 10% would consider moving across, but past experience suggests that fewer of this category would actually do so unless they were particular swayed by some particular series or movie on Disney, or by the marginally lower price.

Disney is likely to restrict its content to its streaming platform because it wants to divert as many people as possible to its app. It may still be open to recommendation services operating outside the app and is also ensuring it aggregates all its own linear and SVoD content effectively for users that want that. It created ESPN Plus in 2018 with an ambition to be the online hub for sports fans with flexible pricing so that customers can upgrade or downgrade and buy individual teams, seasons and weekends. There will also be the option of combining ESPN Plus with Disney+ for a complete streaming package.

But ESPN+ falls over the same hurdle as all the SVoD offerings, which is that it is limited to the content it has rights for, so that does not solve the aggregation conundrum for consumers either. What is clear is that when talking of a super-aggregator, consumers do not want a return of the bloated over-priced pay TV package, which prompted the churn stampede in the first place. They want a more flexible granular package where they can pick the cherries they want to eat but leave on the bush those they do not, with prices adjusting flexibly as they slide between options. In any case, having a single source does not by itself guarantee finding something consumers want to watch, even if it may enable swifter navigation afterwards.

Meanwhile, aggregation by device has become popular through Roku, Xbox One, Amazon Fire TV and the original Apple TV in particular, all of which have unified search with options to use voice or text search. But not all consumers want to purchase such devices and the level of search is poorer than within individual services such as Netflix.

The tide is swinging somewhat towards aggregation at the billing level for streaming, where Amazon has set the pace and now Apple will follow with Apple TV+ when that launches in the Fall of 2019. This by definition solves the aggregation problem at the subscription level, at least it would if any given service embraced all the content consumers might conceivably want to watch. The idea is to avoid having to pay multiple bills, even if it does not guarantee near instantaneous switching between channels or streams.

Amazon has three tiers to its Prime Video, starting with its own content at the top including its originals, then third party channels that are also well integrated for search and navigation, and finally apps that can be downloaded. The latter are less well integrated but at least come under the same bill.

Some pay TV operators are also looking to become what might be called “lean aggregators” offering just content people want, more complete than “skinny bundles” while being more flexible than the bloated “mother ship packages”. Comcast’s Flex unveiled in March 2019, almost the day Apple TV+ was launched, is such an offering at just $5 a month, bundling Netflix, Prime Video, HBO, and other apps – wrapped up with the operator’s X1 voice remote for the user experience. This at present is confined to Comcast’s own broadband subscribers and requires a set top.

Smaller operators will find it harder to develop compelling aggregation services and may require assistance, which is why Google’s Android TV Operator Tier has been gaining so much ground. This is designed precisely for devices managed and distributed by pay TV operators, providing access to the multitude of apps available via the Google Play store. It has proved popular because Google takes more of a back seat than it did, allowing operators to blend their own content with popular third-party apps all through their own, hopefully coherent, UI. A number of more progressive medium sized operators, such as Swisscom and Sweden’s ComHem, have already built platforms on the Android Operator Tier with apps such as Netflix and Amazon added, within a single bill and where they collect the data for search, recommendation and other areas of analytics.

The Reference Design Kit (RDK), as a pre-integrated software stack managed by Comcast, Liberty Global and Charter, has gained similar traction with larger operators. In both cases there is the question of integration with third party OTT services and apps, in the case of Android TV Operator Tier those beyond the Google Play Store. That is where other platforms have a role to play in facilitating the associated business models, with the traditional revenue protection firms such as Verimatrix and Nagra getting involved.

They are integrating their various security and rights management packages to deliver a single end-to-end workflow capable of automating the processes required to bring content through the pipeline from owners to distributors to consumers. This would also give operators visibility across the content flow, including upstream to the owners so that content rights can be determined and ingest into the system automatically for example.

Data will play a key role for operators in order to optimize recommendation and make informed content choices, but it will be their ability to obtain assets at affordable prices that will ultimately determine success. Many providers of such assets will be reluctant to concede them this position with control over data inside a coherent platform such as Android. It is clear then the idea of universal aggregation is doomed in the foreseeable future as service provision coalesces around several major content universes, including Disney, Warner Media, Comcast NBC Universal, Netflix, Amazon and – in future – Apple, even if the latter has a lot of catching up to do. Of these, Amazon alone is pursuing aggregation, but then this is part of its strategy to promote Prime which is not just about video. Netflix is the one compelled to sustain its current high level of content investment inflation to meet the rising competition from the studios, since its original goal to be a super-aggregator itself has been thwarted.