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Expanding Pay TV in the Connected Home
Consumers across Europe are increasingly accessing video content via myriad CE devices, and pay TV operators are innovating to compete with Netflix and other pure-play OTT services

Across Europe, consumers continue to be enamored with connected CE devices. According to Parks Associates research, 69% of broadband households in Spain and 67% in the U.K. own at least one internet-connected consumer electronics product. Adoption of connected devices remains lower in Germany (54% of broadband homes) than in other European markets. However, specific devices, notably smart TVs, are still popular. More than 40% of broadband households in Germany own a smart TV, including 7% with more than one.

These devices are the foundation of the next generation of pay TV services in Europe, avenues for OTT content and experiences to reach into the connected home. As they are established in ever-greater numbers in European households, service providers are actively building new services that leverage connected devices within broadband homes.

Mobile devices, including both smartphones and tablets, are a primary target for pay TV providers. More than 75% of broadband households in all three countries have a smartphone, over 40% bought one in the last 12 months, and approximately 40% plan to buy a smartphone in the next 12 months. Tablet adoption is lower but still significant at 48% in Germany, 61% in Spain, and 62% in the U.K.

European households commonly use these mobile devices for a variety of activities, including concurrent use with other connected devices. Each month, 47% of broadband households in Spain, 31% in the U.K., and 30% in Germany watch video on their mobile device while also watching video on a TV or PC. Over 50% also use their mobile devices to search for video content to watch.

Another important set of connected devices are PVRs and set-top boxes. Increasingly, consumers are using PVRs and set-top boxes to access online content and OTT services, often acquiring these boxes at retail. In the U.K., close to one-half of all U.K. PVR households bought their device at retail. In other European markets, purchasing a PVR at retail is even more common. Close to 50% of set-top boxes in the three countries can access online content. This trend is likely to deepen as operators such as Orange and BT begin to allow Netflix access via their set-top boxes.

Parks Associates research shows online video is popular with European consumers, and the high penetration of PC-to-TV connections indicates they are actively watching online video on the TV set. Fifty-four percent of Spanish and 38% of U.K. and German broadband households have a PC connected to a TV, versus less than one-third of broadband households in the U.S.

Spanish broadband households in particular show enthusiasm for online video, with 54% watching free online video at least once a month, compared to 40% in the U.K. and 26% in Germany. Spain also has the highest percentage (47%) of broadband households who receive only local broadcast channels.

Far from standing still, operators are actively adding features and services to remain competitive with OTT services and with each other. Several different approaches have emerged.

Several operators are offering their own OTT services, both to counter Netflix and to stay ahead of other pay TV providers. For example, the Sky Now TV OTT video service is gaining traction with both pay tv subscribers and non-subscribers. Other operators adding OTT services or planning to do so include Swisscom and Liberty Global.

Service providers are adding new features to enhance engagement, discovery, and consumption, such as mobile apps with second-screen options. These types of services can attract new subscribers and open new revenue opportunities. Spanish viewers in particular show interest in viewing and posting online comments and other social networking activities related to their video viewing, indicating a potential for even greater expansion and experimentation of second-screen services, such as video recommendations and interactive advertising.

These types of innovative service strategies will be increasingly important for service providers in capturing new customers and for broadcasters and cable networks to build new audiences. Attractive service offerings can also build loyalty among subscribers, especially in areas where percentages of pay tv service subscriptions and adoption of set-top boxes are low.

At the same time, providers must take extra care to avoid complexity in the end-user offering when deploying these services. The majority of U.K., Spanish, and German broadband households with multiple connected CE pick their preferred device based on ease of use, trumping factors such as programming, content availability, and device features. In short, broadband households will not sacrifice simplicity and ease-of-use for extra features. This demand puts additional pressure on the user interface (UI) and service integration to ensure new offerings are functional and intuitive.

Such market conditions will likely lead to further unique partnerships between OTT players and pay tv providers or between providers and other players in the connected home, including manufacturers and content owners. These arrangements will ultimately lead to greater adoption, retention, and usage. Deploying an offering that is rich in features but simple in presentation will be critical for the major industry players to succeed in Europe—and the key to successful and profitable market strategies.

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