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Straight Talk Media & Entertainment

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There is no doubt that Netflix, YouTube, and other video innovators have upped consumers' expectations about what pay-TV services can and should be. Some commentators suggest that the only way is down, toward cheaper "skinny" bundles of less content and inexpensive streaming devices – or the complete fragmentation of TV into a la carte apps. However, Ovum data suggests that innovation is also driving a large proportion of consumers to demand bigger, better bundles which they are willing to pay more for.

It’s true that a significant number of consumers continue to consider "cutting the cord" – that is, cancel their pay-TV subscriptions to rely on Netflix, YouTube, and other alternatives instead. Ovum's been studying this phenomenon through its Digital Consumer Insights Survey, looking at thousands of consumers in key developed and developing markets around the world. According to Ovum's latest study of 16,000 consumers in 16 countries, nearly 5% said they consider online video to be their main TV service, and 4% of pay-TV subscribers said they were planning to cancel their subscription in favor of online or free-to-air alternatives.

So far, so in line with the dominant media narrative. However, we also asked more nuanced questions to discover pay-TV subscribers' plans. Do they plan to "shave the cord" by sticking with pay TV but downgrading their subscriptions or "boost the cord" by upgrading? Or do they plan to "keep the cord" by making no changes to their subscriptions at all? According to our data, the ratio of these "cord customers" to "cord-cutters" was roughly the same in November 2015 as it was a year earlier. In other words, consumers are not looking to abandon pay-TV services to the extent that some commentators would have you believe.

What is really interesting is that the number of “cord-boosters” is higher than the number of cord-cutters in all markets surveyed (see Figure 1). Far from causing these consumers to get rid of pay TV altogether, they are demanding more from operators. This theory is backed up by the fact that Netflix subscribers are not only more likely to be pay-TV subscribers (75%), they are also more likely to be cord-boosters (23%). Why do people subscribe to Netflix? Not because they hate pay TV, but because they want more TV in whatever form it might take.

The reason for upgrading cited overwhelmingly by cord-boosters may surprise some. More than 70% said they wanted "more/better TV channels," ahead of more HD content (26%), access to 4K ultra-HD (14%), and a more advanced TV set-top box (8%). These results highlight one of the fundamental challenges facing operators looking to target higher-spending cord-boosters, as other segments of the market look to maintain or reduce their spend on pay TV. Advanced ways to present and deliver services will no doubt play an important role, but ultimately only the best – and often highly expensive – content will win over cord-boosters, however it is packaged.

Straight Talk is a weekly briefing from the desk of the chief research officer. To receive this newsletter by email, please contact us.

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