COVID-19 Impact: Challenges and Opportunities in Pay TV and OTT Markets

While cord-cutting is not a new phenomenon, the COVID-19 pandemic seems to have triggered the shift away from the pay TV market and toward Over-the-Top (OTT) video streaming services to move even faster. Traditional pay TV services, such as cable, satellite, and Internet Protocol Television (IPTV) in North America, have been losing their subscriber bases over the past few years. During 1Q 2020, when the lockdowns due to COVID-19 began, the pay TV market was hit harder, with a loss of more than 2 million subscribers in North America alone. European operator Sky also reported a loss of 65,000 customers in 1Q 2020. While pay TV operators experienced plunging user bases, video streaming services reported a significant growth in their user bases throughout the first quarter of 2020.

Many sporting events were canceled during the lockdowns as governments tried to control the spread of COVID-19. For example, the summer 2020 Olympic Games have been postponed to 2021. Some sports leagues have begun competition again, however, although usually without fans able to attend, but many are still either in limbo or cancelled for the year. Sports are among the major attractions for consumers to remain subscribed to pay TV packages; the lack of sports made consumers look into other options for video entertainment, which ultimately resulted in the loss of pay TV subscriptions. In order to reduce the number of subscribers terminating its service, Sky allowed its sports package subscribers to pause paying subscription fees from March 2020 to mid-June, when Premier League games resumed.

During the first quarter of 2020 Netflix gained nearly 16 million subscribers and Europe’s video streaming service Viaplay added more than 300,000 subscribers, partly due to its price reduction for sports packages and increasing streaming demand during the COVID-19 lock downs. Although this sudden hike in the video streaming user base could be temporary, the growth is expected to continue in the years to come. In the short term, many popular sports programs may still be limited, which would continue to drive the shift toward streaming. The disruption of operations in the tourism and service sectors could take longer to get back to normal conditions as well, which could lead to many consumers choosing cost-effective video streaming services.

Although the pay TV user base is declining in mature markets, it is still the dominating platform for accessing video services worldwide. Pay TV operators are likely to have a longer relationship with their customers, while streaming subscribers can be with a particular service for only a short period of time. Pay TV operators can take advantage of that relationship and their knowledge of their existing subscriber base to reduce churn. Recreating packages to better meet customers’ needs and pricing is one way for pay TV operators to maintain their customer base. Many cord-cutters expressed that they regularly watch only a select number of the many channels their TV packages offer; offering personalized TV that allows users to pick the channels they want to bundle could be another way to meet customers’ requirements.

Integrating video streaming with the development of hybrid Set-Top Boxes (STB) provides customers additional options beyond terminating their pay TV packages in favor of streaming services. Many service providers are already offering such an option, either by integrating third-party streaming services such as Netflix into their pay TV platforms or by offering standalone streaming platforms like Sky Now. By providing alternative subscription video options, operators can improve customer stickiness to their platform and lower the possibility of users accessing illegal streaming services. Services offered by operators need to be able to differentiate from their competition; for example, users should see advantages such as cost efficiency, better User Interfaces (UIs), and advanced features like cloud Digital Video Recorder (DVR) or Internet of Things (IoT) compatibility when purchasing streaming from service providers instead of a retail store.

Although emerging markets have yet to experience cord-cutting at the same rate as more mature markets, operators can take the initiative to provide streaming options in advance. The optional purchase of low-cost streaming devices such as streaming dongles can allow users to have streaming features in addition to a traditional pay TV service. The uncertain economic conditions and challenges in the pay TV market caused by COVID-19 can lead to delays in heavy investment into newer or more costly STBs with new features. Nonetheless, this creates the opportunity for STB makers to provide hybrid or streaming devices: for example, TiVo launched a streaming dongle priced at US$50 in response to the changing demand. Partnerships with pay TV and broadband operators to accommodate the demand across different markets will help boost device makers’ market shares. A sharp increase in video streaming service adoption could be a temporary impact of COVID-19, since the usage can decline when workplaces and schools reopen. However, the shift of pay TV users toward video streaming services is likely to continue beyond the pandemic. As increasing numbers of streaming devices and services are entering the market, service providers and device manufactures need to assure innovations and competitive pricing of their products and services to achieve long-term success.