Price, Value, User Experience Driving OTT Bundling, Parks Event Told

Consolidation will be a major theme in the over-the-top video market next year, manifesting in the form of the bundle, said Vikrant Mathur, co-founder of video technology and distribution company Future Today, on Parks Associates' virtual Future of Video event last week.

Competitors are bundling their products to differentiate, get exposure, reduce costs for customer acquisition and have additional revenue opportunities, said Parks contributing analyst Eric Sorensen. Some 40% of poll respondents believed the most prevalent type of bundles in the streaming video industry in 2022 will be between two content partners.

For bundles to appeal to consumers, they must be different from what viewers experienced in traditional pay TV where “we don’t have a choice, we’ve been charged too much and the experience is terrible,” Mathur said. To make the bundle a success, “we have to improve across at least one of those three dimensions.”

Matt Durgin, LG senior director-North American partnerships, said different business models are evolving at the same time. He cited efforts by Amazon and Netflix to go global with content and “famously succeeding,” contrasting that with the free, advertising-supported streaming TV (FAST) market where there’s a lot of experimentation with different content. Bundling, unbundling and consolidation are all happening at once, he said, resulting in a successful model where consumers can "unbundle and then rebundle based on what’s important to them.”

Samsung Director-Business Development Susan Agliata referenced a “micro-bundle” scenario where the “consumer will win” by being able to pick and choose what they want to watch. Long term, the market winners will be platforms, billing providers and those that allow consumers to have choice “but get value from that choice as well.”

Sorensen said 37% of all broadband homes subscribe to a new OTT service through a bundle from their home, internet or cable provider. About a third get services via aggregators such as Amazon Prime and Roku, and 29% get them directly from the service's website or app. Agliata said eventually the industry will reach a point of maturation without "very aggressive churn rates” and aggressive promotional efforts “to give users 10 services and see what sticks.”

The mechanics of bundling may not change, but “who they’re getting them from” might, said Mathur. The companies that control the interface, whether it’s the TV, set-top box or streaming stick, are in “the best position to replace the traditional operators and start to offer the bundles that we have traditionally been consuming through our cable service providers.”

Providers' success in the space will depend on how well they adapt to the OTT environment by offering services as part of an internet or cell phone package, Mathur said. He cited Verizon’s big push a few years ago into content and media, “and it seems like they’re now scaling back from it.” Bundles will continue, but it’s unclear whether that will be from traditional providers: “I think OEMs in the streaming space are in the best position to replace the traditional operators,” which he called “good news for LG and Samsung.”

Matt Graham, general manager-Acorn TV and Sundance Now, questioned the "lifetime value" of platform customers. There’s a certain amount of “give” in bundling arrangements, so “was the discount on the [average revenue per user] worth it?” Graham cited a “rush to grab market share now” where “everybody’s looking for awareness.” As the OTT video space matures, which is happening “rapidly,” the drivers behind bundles and partnerships will shift toward long-term value, he said. Device makers have to ensure that the customers they bring in are valuable to content providers “because otherwise, the content providers are just burning through customers that they may be able to otherwise cultivate into more valuable customers if they brought them on themselves.”

Graham cited a “pay to play” situation where platforms, as gatekeepers for the customer, offer a promotion or discount to their customers in exchange for “extras in better merchandising” over a certain period of time. It has resulted in good customer acquisition growth but also a lot of churn. “The hope is that you net out ahead of where you were,” he said.

With more choices available to them, customers are increasingly trying out different services but for shorter periods of time “because they’re hitting that limit in the number of services they’re willing to stack,” Graham said. Monthly budgets for entertainment content “hit a ceiling,” he said, so they’re “sampling and jumping from service to service.” Black Friday-like deals are letting them do that in a cost-effective way, he said.

Miguel Rodrigues, Kaltura senior vice president-product, media and telecom, said the bundle environment five years ago was all about price for consumers. As it has evolved, with more services offering free, ad-based options, the discussion isn’t just about price but also about the user experience. “No one wants to have multiple devices,” he said. “You don’t want to be that person that has five remote controls in your living room,” and have to choose which device you’re streaming through before even knowing what you want to watch, he said: “That’s going to influence what you’re going to watch next, and that just makes no sense whatsoever.”

Consolidating payment is part of simplifying the user experience, Rodrigues said. Many consumers are more comfortable with having a single, or just a few, companies storing their credit card information. “Maybe you’d be comfortable with the top two or three” or the cable or internet provider that already has payment details, he said, saying comfort is a core value of the content bundle. Having subscription fees included in an existing monthly bill is a plus, he said.

Discoverability is another key part of the user experience, Rodrigues said, advocating for a future single search or recommendation engine that covers all content on apps. Rodrigues would like bundling to be about “how we make our customers’ lives easier” in a way that they wouldn’t experience if they left the bundle.

LG's Durgin said customers have various means to get TV programming -- linear, streaming, over the air and free-ad supported content -- and content companies are largely participating in all the models. TV makers’ platforms have an advantage, knowing “what’s happening on the HDMI port,” over-the-air, in the FAST environment and with app partnerships, he said, saying content partners and TV makers should work together to make it easier for customers to go from one viewing model to another because “you are that last step before the consumer is actually making those choices.”