As YouTube prepares to launch its new “Unplugged” subscription service, Dominic Smith investigates the changing business model for TV broadcasters.
It’s estimated that by 2020 worldwide pay-TV subscribers will exceed 1.1 billion
, but even before we reach that date, the way we watch television looks set to dramatically change.
The established model of cable and satellite packages is already looking dated, and customers are becoming tired of having to pay for hundreds of channels, most of which they will never watch, simply so that they can keep up with their favourite sports or drama series. Increasingly, viewers are rejecting the television networks’ schedules and consuming video content via the internet, on tablets and phones – when and however it suits them.
A survey by LEK Consulting
of so-called digital natives’ or millennials’ (consumers in the age group of 18-34) viewing habits in the UK earlier this year also found that the under-35s are unlikely to give up their YouTube and Netflix habits when they acquire their own home and family (as had been previously assumed).
Is the former Top Gear team signposting the way?
Looking at programme makers here in the UK, it’s interesting to note that when Jeremy Clarkson was sacked from the BBC, he and his Top Gear colleagues chose to move, not to Sky, or ITV, but to Amazon’s online subscription
television service. And whatever you may think of the presenter’s people skills, Jeremy Clarkson undoubtedly has a shrewd eye for business – just think of the fortune he made out of his share of the Top Gear ‘brand’.
YouTube is about to be ‘Unplugged’
Research conducted in the US by TiVo
also calculated that by the end of 2016 there will be 78 million digital video viewers within the millennial generation and 61% of this group is regularly accessing video content via streaming services like YouTube, Netflix, Hulu and Amazon. Given these figures, the much-talked about news that Google-owned YouTube has joined the race to launch a new subscription television service called ‘Unplugged’, is no surprise.
Understanding the value of a subscription service to business
The subscription business model is rapidly gaining momentum across a range of business sectors, not just in the media industry. In the Cerillion White Paper, Cloud Billing – Enabling Business Innovation and Revenue Growth,
we explain how the subscription revolution is changing the way companies do business as they evolve from selling products to becoming ‘as-a-service’ providers.
A subscription provides periodic use or access to a product or service, benefiting suppliers by securing a steady stream of recurring revenue and providing a regular contact point to strengthen the customer relationship, reducing churn and making it easier to cross-sell and up-sell new services.
Offering major and minor network content
YouTube ‘Unplugged’ will offer content from the major broadcasting companies and channels as well as from smaller networks, but success really depends on the quality of the content. Anonymous sources recently told Bloomberg
that YouTube has already held talks with the major US networks, including Comcast’s NBCUniversal, Viacom, 21st Century Fox, and CBS – but the same sources also revealed that as yet, no deals have been agreed.
The race is on – but who will be left on the starting blocks?
If PwC’s estimates
are correct, by 2019, television will generate nearly half a trillion dollars from customer subscription fees and advertising revenue across the globe, so it’s not hard to see why so many tech companies are racing to break into the market.
In the meantime, the established television networks have hesitated over whether they should licence all their content to streaming services or keep it with the big pay-TV operators, but these traditional models are slowly losing subscribers, so the new online live-TV services could be a valuable new source of revenue that may look increasingly attractive to the ‘old guard’.
How will this impact public service broadcasting?
So what does all this mean for the BBC and the licence fee model still used in the UK? TIME
magazine argues that: “The large number of digital competitors also means more must-see TV will end up on online platforms.” This includes shows that were previously part of traditional television such as Sesame Street, originally aired as an educational tool for children in the US, which until 2015 had been a mainstay of PBS since its launch in 1969, but is now exclusively available via the paid-for HBO service.
Will the BBC move to a subscription fee?
Although Culture Secretary John Whittingdale's White Paper on the BBC’s charter renewal
has not quite brought the dramatic changes that were predicted by many, there are some key points that may signal a long-term change of direction: For instance, the “iPlayer loophole” will be closed – which means that people watching BBC programmes on-demand will have to purchase a TV licence – and the BBC will effectively have to compete more directly with other streamed content providers.
But while the government says that there are no immediate plans to replace the licence fee with a subscription model, it has also said that the BBC will be given an ‘opportunity’ to consider and explore whether to make any of its content available on a subscription-only basis – so it’s still a possibility.
So what’s the deal?
How will YouTube’s television service be delivered? The company is said to be aiming to offer a package of channels at a subscription charge of around $35 or just under £25 per month. This could be a main ‘bundle’ with content from three or four large TV networks along with some smaller ones, or YouTube may offer so-called ‘skinny bundles’ of channels based around themes such as comedy, drama, or sport. Bloomberg
reports that YouTube would charge one subscription for the main bundle and extra fees for the themed ones.
To support the tremendous demands of the project, YouTube is said to have already overhauled its technical architecture, but it, and other providers will need systems that are both robust and agile if they are to manage so many different types of subscription and billing.
The global nature of the transactions involved also presents new challenges. In the course of our work in the telecoms industry, we recognised the demand for flexible charging and billing in other verticals and launched our SaaS billing solution, Cerillion Skyline
, to address the next generation of digital subscriptions and usage-based services.
The key benefit of going down the subscriptions route and of putting in place a flexible and user-friendly payment model to support it, is that you are creating a billing relationship that makes it easy for your customers to buy additional services from you, and therefore less likely that they will buy from someone else.
One of the reasons Amazon has been so successful is that they made it incredibly easy to buy with their ‘1-Click’ ordering process – the convenience means that customers will come back to buy again, rather than looking somewhere else.
Good news for some
So, these new TV packages could be good news for media businesses and technically savvy consumers, but what of the ‘baby boomers’, the older generations who may simply be put off by such a myriad of options?
Consumers will have to be sure that as they sign up to more and more themed “skinny bundles” in order to cover all their interests, they don’t end up paying even more than they did for their all in one cable or satellite packages – and with such a frenzy of competition, the content providers have to ensure that they deliver great programmes – and an efficient and transparent service.