The home service provider industry is in the midst of widespread change.
As consumers continue to adopt OTT video services and traditional pay-TV subscriptions are in decline, service providers are pivoting to focus on broadband and a variety of connectivity-dependent services. Consumers are increasingly replacing the traditional bundle of broadband and pay-TV with their own self-bundled combinations - mixing and matching broadband service with online pay-TV services (such as Sling TV and YouTube TV) and subscription OTT services (such as HBOMax, Netflix, and Disney+). As pay-TV subscription revenue declines, services are seeking to grow the broadband subscriber relationship (and ARPU) via new services, new bundles, and new partnerships.
OTT video services are a natural fit, allowing service providers to capitalize on consumer demand for streaming video, and leveraging the related connectivity they are already providing. Consumers are frequently overwhelmed by multiple subscriptions, bills, and account management duties. Service providers can deliver simplification to today’s consumers by offering OTT service subscriptions under a unified billing and management experience to consumers.
Parks Associates research finds that OTT bundling has become a key revenue source for pay-TV and other home service providers, with 40% of OTT subscribers reporting that 100% of their OTT services are bundled through a home service provider. Households with one or two children have the greatest percentage of bundled OTT services, and AT&T pay-TV subscribers report the highest percentage of OTT services bundled with a home service provider. Service providers should tap into this emerging trend.
Consumers are seeing value and simplicity in receiving a bundle of channels and services from a single source, and are increasingly turning to OTT services bundled with their home services. One-third of those with a bundled OTT service, are subscribed to an online TV service. This suggests that online TV services are a key driver of OTT service bundles. Online-only vMVPDs such as YouTube TV and Hulu + Live TV are dominant in the market, despite online pay-TV services also being offered from traditional pay-TV providers such as Comcast (Xfinity Instant TV).
Those with a bundled OTT service spend less on Internet and TV services. The differences in costs to the consumer hint at the dynamics behind OTT service bundling. Below-average ARPU for TV service suggests a bundled OTT service is a “skinny” alternative for more robust, traditional pay-TV options. Moreover, service providers do not appear to be upselling these subscribers premium Internet services better suited to streaming video. OTT bundles are a path to capturing low-end subscribers with “skinny” offerings, and are more appealing in general to price-conscious consumers.
There is considerable demand for OTT bundles from service providers for the added simplicity, value, and convenience that consumers feel they receive. Service providers would be well-advised to focus marketing messages on the value of bundle packages, and the convenience/simplicity offered. Nearly 60% of OTT subscribers would prefer a single bill and account for all of their services, and nearly one-half feel home service providers add more value when they offer OTT bundles. Additionally, nearly half of subscribers would opt to remain with their OTT service subscription, even after the promotional offer from their service provider ends.
A third of those not subscribing to OTT through service providers prefer separate subscriptions. This leading reason for not subscribing through a service provider, implies that consumers may be reluctant to commit to a larger dependence on or larger bill from their service provider, or a that they have a general mistrust of subscribing to OTT services through a service provider. Over one-quarter of those not bundling an OTT service report they were unaware that such a bundle was offered.
Continued marketing efforts are thus necessary to overcome consumer reluctance to combine their service subscriptions through a single source, and also overcome overall lack of awareness that the availability of such an offer exists.
Parks Associates will present consumer research impacting the streaming video market and address key trends and topics affecting the video and connected entertainment industries during its annual Future of Video: OTT, Pay TV, and Digital Media conference. In its fifth year, Future of Video will host virtual sessions July 21 and September 22 and in-person sessions in December.
Paul Erickson is a senior analyst at Parks Associates with more than 20 years of technology industry experience. Erickson’s coverage has spanned connected consumer electronics, pay & broadcast TV, digital & physical media, streaming devices and services, home and pro AV, smart home, user interface technologies and digital rights management.
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