Will Richmond recently published an article on how the Millenial cohort poses a unique acquisition problem for Pay-TV providers.
As Will explains, the hot debate centers around whether Millenials, who appear to want only particular shows on demand, will ever subscribe to cable. He quotes Charlie Ergen, who’s DISH Network just secured OTT rights to Disney / ESPN channels, and goes on to support the notion that a $20-30 lower priced bundle of content (personal subscription service or PSS) makes a lot of sense.
The real issue is whether the timing is right – have Millenials shown that they really won’t subscribe to Pay-TV?
The answer is – no.
Millenials are, to put it bluntly, young. They have limited funds.
Millenials are, to put it bluntly, young. They have limited funds. They are individuals rather than families, and therefore reflect specific interests rather than a range of viewing tastes. And most importantly, they have the technological means to get the shows they want, when and where they want them.
A PSS, tailored to an individual, with ultimate customizability, and delivered to any device, is simply a new Pay-TV offering that reflects the needs of this cohort and the new forms of delivery available today. While it pursues TV-to-any-device, cable must also experiment with innovative packaging and content bundles that will appeal to a wide range of audience segments.
Delivery methods are changing, but people still love content. The PSS is simply the logical next step in the evolution of the business model to reflect the manner in which the Millenial generation wishes to consume their content. As Richard Greenfield points out, a $75/mo price point may be prohibitive to this audience. But once the Millenial generation grows up, marries and has kids, their monthly bill will start to look an awful lot like their parents’.
The excerpt below is from a Needham Insights report outlining the “future of TV” published July 2013 references this very phenomenon, indicating that Pay-TV must invest in the next generation to lock them into future subscription revenue:
Economic Implications. We believe TV Everywhere adds to the price/value relationship of the bundle. We believe that the TV ecosystem is taking a 10-year view with this product, because this solution is directly responsive to demands by the youngest members of each U.S. household. We believe that the true economic upside of the extra investment in TV Everywhere today will com eold establishes his/her own household. We estimate that the value of old that subscribes to a cable, telco or satellite TV service when he/she forms his/her first independent household is approximately $40,000 of revenue to the TV ecosystem over their lifetime (calculated as 50 years of TV subscription fees times $70/month).If TV Everywhere helps “save” 5% of current multichannel households that would have otherwise defected, TV Everywhere would “save” $4.2 billion for each year that it elongates ecosystem subscription (calculated at 100 million multi-channel households x 5% x $70/month).
Investment Implications Services that add value to the bundle (like TV Everywhere) add value to the TV ecosystem, in our view. More generally, we believe that ecosystems that are “bundling up” add value over time. So far, TV ecosystem participants have generally been disciplined about protecting the value of the bundle. We believe that TV ecosystem participants should try to add services that allow incumbents to “bundle up” (such as “TV Everywhere”).