Charging a premium for adding OTT services such as Netflix Inc. (Nasdaq: NFLX) and Amazon is seen as the best strategy for pay-TV operators partnering with such companies.
As we have discussed in previous posts, video is never free. Apart from the distribution costs, it's expensive to license. This makes it very important to have an effective business model to monetize the service. (See Finding the Right Video Service Business Model.)
In the most recent Telco Transformation poll, respondents were asked, "What is the best revenue model for pay-TV operators that partner with an OTT provider such as Netflix, Hulu or Amazon Video?"
The highest percentage of respondents (25.64%) selected the premium option, where an additional fee would be charged to pay-TV subscribers who wanted to add an OTT service to their pay-TV line-up.
But other responses were not far behind. Almost the same number (23.08%) selected the option offering it for free, to add value to the pay-TV service and gain subscribers while cutting churn. And another 23.08% suggested pay-TV providers should provide such services at no additional charge on the TV, but for viewing on other devices, subscribers should have to pay an extra fee per month.
Another 20.51% picked a slightly different approach, saying it should be free only for subscribers who were already subscribing to the highest tier of service, and therefore generating the highest revenue and margins for the operator.
All of these responses are very close in terms of the number of respondents selecting them, suggesting that there is no clear monetization option upon which the industry has settled. Operators are still trying to find that magic formula that will generate revenue but not alienate subscribers.
It is clear, however, that these partnerships are seen as important within the industry. Only 7.69% of respondents felt that operators should not partner with OTT providers.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation