The TV business is on the verge of being taken over by super aggregators with pay-tv in pole positioned to lead and SVODs holding the balance of power.
Tier 1 pay-TV operators and market leading SVODs are set to join forces in a delicate contractual battle to super-serve the consumer with super-massive libraries of streaming content and linear channels in a consolidated TV experience.
“Aggregation is on every major pay-tv operator’s agenda and that is a fundamental change from 12-18 months ago,” says Guy Bisson, research director at Ampere Analysis. “There is almost universal recognition of the need and importance of integrating streaming services as part of the pay-tv offer.”
When Netflix first came to town, SVODs were considered the enemy of pay-tv. Later there was a realisation that streaming services were complementary rather than cannibalistic to their business.
“More recently, that idea has been undercut as SVODs have begun to take market share as the primary means of consuming multichannel multi-source video,” says Bisson. “That trend has accelerated under Covid-19.”
In one sense super aggregation is not new. The history of pay-tv has been one of securing affiliate relationships with content providers and channels for carriage fees or revenue share.
“Super aggregation is an evolution of the distribution technology and of the consumer’s attitude to the way they consume content,” Bisson says. “The difference now is that operators have competition as aggregators from all sorts of places that they have never had before.”
Video platform provider Kaltura makes a distinction between super aggregators and universal syndicators. The former are pay-tv operators wanting to play the aggregator (not too dissimilar from their previous role) and universal syndicators are content providers (or broadcasters like ITV or BBC with international distribution) wanting to push their content everywhere including into super aggregator bundles.
- Read more: The future of TV is aggregation
The SVOD side of the bargain
Top of the list of universal syndicators are Netflix, Amazon and Disney+ which Digital TV Research estimates will comprise 67% of global SVOD subs, outside of China, by 2025.
There are also device-led content aggregators like Apple and advertising supported aggregators like Roku. Into the mix come more studio-led SVODs like HBO+ and new ViacomCBS streamer due in 2021 and labelled a ‘house of brands’ and a ‘super service’ by CEO Bob Bakish.
“SVODs recognise the benefit of collaboration with pay-tv providers,” underlines Bisson. “The importance is clear for studio-led direct to consumer launches.”
HBO+, for instance, concluded a deal for carriage on Comcast just a day before launch. The recently announced bundling of Disney+ for subscribers to Sky’s SkyQ boxes is seen as a win all round.
- Read more: Price emerges as key SVOD battleground
Aggregation followed by disaggregation is also a cyclical trend within the TV business but the recent spiralling of OTT services is reckoned to have tipped the point where consumers can’t take any more.
“The last decade was the decade of the app but video services have grown to such an extent that consumer choice and confusion has grown,” agrees Gideon Gilboa, EVP product, solutions & marketing at Kaltura. “The phenomenon of super aggregators will be to re-engineer those different OTT services into new types of TV bundles.”
While aggregators exist in the form of the media streamers provided by Roku, Apple TV, Amazon Fire and Google Chromecast, they effectively operate as app platforms rather than providing integrated viewing experiences.
“Consumers would rather have an attractive price point and the convenience of someone aggregating for them,” Gilboa says.
Viewing of online video during lockdown has surged, and subscribers are paying for an average of four streaming services, up from three before Covid-19, but consumers are reacting against the inconvenience and cost of having to deal with a multitude of paywalls to get to the content they want.
“People have more time on their hands, and they’re trying new things,” says Kevin Westcott, vice chairman of Deloitte which counts more than 300 individual subscription-video platforms in the US. “But at the same time, we are seeing a significant amount of churn.”
The rate of churn for SVODs reached 35% (up 25% annually) in 2019, according to research firm Parks Associates. This is because the explosion of OTT services is adding complexity, confusion and “subscription fatigue” for consumers.
“Audiences are tired of navigating between multiple services to find what they are looking for,” says Alex Wilkinson, Head of Sales and Marketing, Accedo. “The current approach is not only time consuming, but it’s also difficult for the user to compare content across different providers. It is clear that when aggregation is executed well, it can and does provide the customer with a wider choice of content within a single experience.”
All of this is thought to be driving consumers to look for a service that can manage all their billing and all their content under one roof. If that sounds like the old pay-TV, there’s a crucial difference.
“The concept of lock-in has gone away,” says Gideon Gilboa, EVP Product, Solutions & Marketing at Kaltura. “It has happened in data, voice, broadband and now in content. Consumers now have the expectation and the habit to change services.”
The pay-tv proposition
If pay-tv has come to terms with working with SVODs rather than purely against them, the leading operators also find themselves in a strong position to take on the mantle of super aggregator.
“Operators have vast subscriber bases, consumer trust and will have a key role in this ecosystem,” Wilkinson says. “By providing easy access to a selection of video services and by providing a superior cross-service user experience, we’ll see operators gradually regaining some of their previous role in this industry.”
Telcos have a particular edge in being able to bundle content with broadband, even mobile, and smart home services into multi-play packages. Mobile operators with 5G networks are likely to take this edge even further by competing head to head with fixed line providers plumbed with DOCSIS.3.
“Operators are well placed to become super aggregators,” says Adam Davies, senior manager product marketing at Synamedia. “They have the audiences, the relationships and the route to market, and let’s not downplay the fact that they have some very high value content as well. Importantly, no-one can deliver live, linear TV like the service provider with the massive scale of broadcast.
“The service provider is able to blend live linear services with the best of the SVOD services,” he adds. “They can offer enhancements, for example around catch-up and cloud DVR, and they can offer a single, federated search across multiple services, bringing convenience and simplicity to consumers.”
In addition, points out Jamie Mackinlay, SVP global sales and marketing at Amino, operators do not need to negotiate new content rights.
“The rights are negotiated by the streaming services themselves and the content is easily available to paying subscribers. The operator has now expanded their content library without the heavy lifting of protracted negotiations.”
By offering up more content there are more opportunities for engagement leading to greater data sets, which in turn helps executives make better decisions about investments in content and technology. It’s a virtuous cycle but the strategy is not as simple as it sounds.
“The reason is that streaming services are not particularly willing to share their data,” says Bisson. “Without data, it is very difficult for anyone to properly construct a compelling and comprehensive aggregation strategy. For example, you need access to metadata including navigational and behavioural information to serve better recommendations.”
Finding the balance between economics and control of the end customer is the big debate raging in the industry, according to Paul Pastor, chief business officer of Firstlight Media and co-founder of aggregation service TVPASS.
“Warner’s content is not on Roku or Amazon,” he says. “It is a proxy fight which will be repeated across the industry. SVODs don’t want to give pay-tv operators huge revenue share and operators don’t want to be disintermediated by having consumers go direct to content. It’s along those extremes that the battle is being fought.”
Pastor believes the heavyweight trio of Netflix, Amazon, and Disney+ hold a huge advantage. The depth and weight of their content portfolios will continue to drive eyeballs, driving data, which feeds the machine.
“The problem with the super aggregator model for other SVODs is that the search and discovery algorithms will show consumers the content which is most distributed and most watched. If two thirds of the market outside China is controlled by Netflix, Amazon and Disney, any search on a super aggregator platform will be skewed in their favour.”
No-one has cracked the super aggregator model yet, says Bisson. The cycle of super aggregation is still in early infancy.
“The challenge for the aggregator is to maintain their own identity while offering the widest choice of products,” Davies continues. “This may sound like a pipe dream, but we see it in other industries – supermarkets have some of the strongest brands globally yet many of the products they stock aren’t their own.
“Consumers aren’t just used to aggregation, they demand it.”