Consumers are radically transforming the way they enjoy media and entertainment. Gone are the days of endless channel surfing; today we’re in an era of instant online content delivery streamed directly to smart devices.
It used to be that the term “cord cutters” was reserved for tech-savvy millennials, but that’s changing. According to Experian Marketing Services, “an estimated 7.3 percent of U.S. households (8.6 million homes) today are considered ‘cord-cutters,’ meaning they have high speed internet but no cable or satellite television service.”
For cable and satellite TV providers, this is a bit of a doomsday scenario— they lost 383,000 subscribers in 2015 and many predict that number will only grow in the years ahead.
Not all customers, however, are ready to “cut the cord” entirely—many still opt for a mix of cable and over-the-top (OTT) delivered content. But the overall market demands have fundamentally shifted: consumers want faster delivery of content and they want to be able to pick and choose their programming. As a result, service providers must be able to adapt quickly to meet this growing demand. That means having the back-office infrastructure in place to handle the massive scale of recurring revenue from both OTT and traditional content.
First, let’s look at what makes OTT so attractive for consumers. While most consumers are tired of paying large monthly sums for hundreds of channels they never watch, the real draw of OTT lies within the broader convergence of convenient, reliable technology, as well as creative, engaging content that can be reviewed when consumers want to see it, not when a provider chooses to show it.
Businesses that want to play in the rapidly growing OTT value chain (and at latest count, there were more than 100 stand-alone OTTs on the market) will need to have a rapid time-to-market, highly and easily configurable and cost-effective billing system in place. Due to the evolving nature of OTT and the onset of stronger competition, their billing system should offer a sophisticated rating engine capable of handling unique combinations of VOD, linear (real-time) and "catch-up" viewing that can capitalize on one-time and recurring revenue streams while also making it easy for consumers to access the content they want, when they want it.
A number of content companies already have begun successfully side-stepping cable companies and capitalizing on OTT. Channels like HBO and Starz have offered content as a premium subscription through mobile apps as well as through a channel on Smart TVs. Transactional Video on Demand (TVOD) marketplaces such as Amazon Instant Video, VUDU, iTunes and Google Play have monetized content by making it available in a pay-by-episode or pay-per-season model. And Subscription Video on Demand (SVOD) providers such as Netflix, Amazon Prime and Hulu operate only online, never having been a cable channel at all.
So why is it that these OTT providers have seen so much success while their cable competitors struggle to keep up? The answer lies within their billing systems.
For years, cable behemoths like Comcast and Time Warner have maintained inflexible billing systems that are antiquated, expensive to upgrade and lengthen the average time-to-market for new service offerings. As a result, à la carte TV and other OTT services are largely an impossible proposition for these incumbents because they lack the agility needed to efficiently monetize the new products and services.
New entrants and the few legacy providers that are doing this well are succeeding because they offer consumers the ability to customize their relationship with their provider in a way that reflects their personal interests, not those of the overall marketplace. Companies unable to do this are failing, often because of their reliance on legacy, on-premise billing systems that restrict their ability to update their offerings based on consumer demand. Most people would ask why companies continue to rely on old, inflexible legacy billing platforms. Often it is because companies have invested hundreds of millions of dollars in their billing systems with outdated on-premise enterprise software contracts that skew in the vendor’s favor when an upgrade is required.
With revenue from the OTT market expected to exceed $10 billion by 2018, according to Infonetics Research, the opportunities to capitalize on the consumption economy are endless. But with more and more programmers entering the OTT market, only those with the most agile billing models will survive. It may be tough for an organization to ask its leadership to make an investment in a SaaS infrastructure model, but the direction of the industry is clear, and the numbers speak volumes. Ask any CFO which model they prefer, and I think you’ll see that the current installed base of antiquated platforms and old-school business models will be flotsam and jetsam in the near future.
James Messer is CEO and co-founder of goTransverse, a billing specialist that is a wholly owned subsidiary of Siedentopf KG.