The "death by Netflix" scenario for the future of pay TV has been greatly exaggerated – this week, we look at the full picture for the year ahead for pay TV, which is much more complex and optimistic than the headlines might lead us to believe.

1. GET PAY TV SMART
The year ahead

2. GET PAY TV SMART
The year ahead
The "death by Netflix" scenario for the future of pay TV has been greatly exaggerated in
2018. Ovum's Ed Barton (Chief Analyst of the Entertainment Practice) and Rob Gallagher
(Research Director of the Consumer & Entertainment Services) assured us that the picture
was much more complex and optimistic than the headlines might lead us to believe. While
the OTTs certainly do bring a range of ever-evolving challenges to the media and
entertainment sector, the analysts offered us a balanced view of the threats as well as
opportunities facing category players in 2019.
THE OTT THREAT WILL INTENSIFY GLOBALLY
Indeed, Netflix and Amazon will continue their dominance over online video in 2019 and
will remain the biggest source of concern for the traditional providers. This year will see
the two giants further expanding internationally as their core markets become saturated.
Netflix is expected to continue its aggressive localisation efforts and to sign more high-
profile operator deals following the refocus on partnering with market leaders,
exemplified by Comcast and SKY in 2018. Ovum predicts that Netflix will reach 150 million
subscribers globally (up by 15 million from 2018), 60 per cent of which will be outside of
the US1
.
“In 2019 Netflix will be relentless in its pursuit of all audiences
everywhere, and feverish competition will remain the norm as
a result.”2
Similarly, in 2019 Amazon will push for further growth in its Prime markets, with a focus on
Canada, India, the Netherlands, Australia and Singapore. Thanks to its all-encompassing
Prime proposition that stretches well beyond entertainment, “the disruptive threat of
Amazon could become greater than that of Netflix in 2019 and beyond”3
, especially since
the tech giant is under no pressure to make money on its video offering, which it
subsidises in order to drive retail sales.
Beyond the two obvious market leaders, the OTT space will become further crowded in
2019 as many small players will fight for their share of the growing market.
1
2019 Trends to Watch: Premium OTT Video, Ovum 2
2019 Trends to Watch: Premium OTT Video, Ovum
3
2019 Trends to Watch: Premium OTT Video, Ovum

3. GET PAY TV SMART
The year ahead
“I don't think there's any major media company on the planet
that ultimately won't have a direct-to-consumer product
launched in short to medium term.”
-Lachlan Murdoch, 21st Century Fox
Disney+, Warner Flix and Quibi (a mobile-focused streaming service offering content
produced for the mobile viewer, short and filmed in portrait mode) are amongst the most
anticipated OTT launches in 2019. Ed Barton and Rob Gallagher warned us that the uptake
objectives for some of these services seemed overly optimistic and the post-launch reality
of 2019 might come as a harsh disappointment. Yet, for the likes of Disney, the launch of a
direct-to-consumer offering (and the associated cost that might take years to get a return
on) is a lesser risk than not making this move.
Analysts expect the most disruptive activity in 2019 to come from OTT TV platforms (e.g.
Android TV, Amazon Fire TV, Apple TV) – both traditional pay TV providers/broadcasters
and OTT services will run the risk of having to give up the ownership of the end customer
touchpoint to these platforms who will be in control of the user experience and the
transactional relationship (subscriptions).
However, FAANG4
are by no means invincible. In 2019 they will be subject to an increasing
pressure and attention from the regulators. Google and Facebook in particular will have to
endure continued scrutiny that the latter might struggle to fully recover from.
MEGA-PLAYERS WILL SEEK TO PROVE THEMSELVES POST 2018 M&A WAVE
As the likes of Netflix and Amazon accrue dominance, some of the key telco and
entertainment players globally have been joining forces to gain competitive strength. 2018
was a year of big moves in the communications and media segment – “the landscape has
been reshaped as a result of super-sized mergers and acquisitions (Disney Fox; Comcast
Sky; AT&T Time Warner and Liberty Global and Vodafone)”5
. The strategy behind the
high-profile M&A activity has been “let’s scale up and see if it works”6
. Arguably, this
approach is yet to be proven successful.
4
FAANG - Facebook, Amazon, Apple, Netflix, Google
5
Ovum 2019 predictions session for BBDO Knows, Ovum
6
Ovum 2019 predictions session for BBDO Knows, Ovum

4. GET PAY TV SMART
The year ahead
“2019 will determine whether these transactions were
successful in their objective to compete more effectively with
FAANGs.”7
Ed Barton sees Verizon’s recent writing off of “almost $5bn from Oath, the struggling
[media] division assembled through the costly acquisitions of AOL and Yahoo”8
as a
warning sign of how badly transactions can go. With macro-economic factors expected to
be largely negative due to continued political and economic uncertainty, 2019 is set to be
a decisive and challenging year for the newly super-sized players.
Content investment strategies will be an interesting space to watch in 2019 as the super-
sized budgets of top three players (AT&T Warner, Disney Fox and Comcast SKY) will
outstrip those of Netflix by up to five times. Traditional players will continue investing in
increasingly costly sports rights – still a highly powerful premium content that gives them
a strong competitive advantage over the likes of Netflix. AT&T will have the most
differentiated content offering in 2019, largely thanks to the last season of Game of
Thrones, yet the challenge it will face will be in keeping up (investing in) highly
personalised and seamless user experience that can match that of OTT competitors.
OWN OTT SERVICES WILL BECOME UBIQUITOUS WITH MIXED RESULTS
Pay-TV providers have been launching their own OTT products across the globe in order
to remain relevant to the evolving customer base. Subscriptions to these are expected to
grow in 2019, in particular, for the most successful players like DISH Network reaching
28% of total subscriptions, SKY Europe – 16% and AT&T/DirecTV – 12%9
. This will result in
a positive impact on the overall churn, but a negative impact on revenues as providers
struggle to migrate OTT subscribers to more premium subscriptions.
SKY and its NOW TV service remain the biggest success story that many will seek to
replicate. Investment in premium content and exclusive content deals, as well as the
recent Netflix partnership, have been essential in helping the provider maintain its
premium customer base, while NOW TV OTT propositions have allowed it to reach new
cord-never audiences. Ovum estimates that “more than 70% of NOW TV’s subscribers had
never spent with Sky prior to subscribing to NOW TV”10
.
7
Ovum 2019 predictions session for BBDO Knows
8
FT https://www.ft.com/content/50acafb4-fd4d-11e8-ac00-57a2a826423e
9
Ovum 2019 predictions session for BBDO Knows 10
2019 Trends to Watch: Global TV and Video Markets, Ovum

5. GET PAY TV SMART
The year ahead
“The strategy of OTT video service rollout is much more
sophisticated than simply cannibalising your premium
subscriber base.”11
Yet, most providers are still grappling with the challenge of positioning own OTT services
alongside legacy pay TV packages. Further customer segmentation and product/brand
architecture work will be required in 2019 to resolve the challenge and develop successful
upselling strategies.
Overall, analysts predict “audience data, ad targeting and predictive analytics” to be the
most significant sources of opportunities for pay TV providers in 2019 – areas in which
they have a lot of catching up to do with OTTs that have these capabilities at the core of
their businesses.
FLEXIBILITY AND PARTNERSHIPS WILL BE KEY TO SUCCESS
Video entertainment as a whole remains a growth category and, as a result, it has become
very crowded. Each type of players faces a different set of challenges, yet for all the
success will be determined by their ability to coexist and partner in order to deliver the
best possible overall entertainment experience to the customer.
“Service providers and platforms must focus on where
growth in 2019 will still be apparent – notably at the
intersection of these technologies in the bundling of pay TV
and OTT video and a tighter level of integration of these
services at a device, app, and service level.”12
Customers increasingly top up their traditional pay TV subscriptions with OTT and “pay
TV and OTT video combinations become the norm”. Partnerships between the likes of
SKY and Netflix, declaring the creation of “the ultimate TV package”13
reflect this
customer reality and the trend will continue into 2019. Ovum forecast that by the end of
2019, in the UK, the number of households with both pay TV and SVOD14
subscriptions will
reach over a third of total British households15
.
11
2019 Trends to Watch: Global TV and Video Markets, Ovum 12
2019 Trends to Watch: Global TV and Video Markets, Ovum 13
SKY News, https://news.sky.com/story/sky-and-netflix-announce-plans-to-create-ultimate-tv-package-11502300 14
Subscription Video on Demand 15
2019 Trends to Watch: Global TV and Video Markets, Ovum

6. GET PAY TV SMART
The year ahead
In addition to partnerships, success in 2019 will be determined by the degree of flexibility
offered to the customers, who are now empowered and spoilt for choice. Revenue growth
can be maximised by offering a wide range of charging models – from subscription to
transactional to ad-supported. Amazon Prime is a notable example offering all the options
with the exception of ad-supported, which the company is allegedly is in the process of
exploring16
.
A DECISIVE MOMENT FOR THE TRADITIONAL CATEGORY PLAYERS
According to category analysts, the time is running out for traditional pay TV operators
and broadcasters to make some important future-focused strategic decisions and
implement solutions that meet the needs of the new breed of customers – with new
viewing habits, subscription combinations and overall experience expectations.
“If operators do not act in the next year or so, then younger
demographics will be lost to other, more fashionable brands
that do offer what they require, and it will be difficult to
attract them back.”17
These decisions and actions will be crucial to shaping the perception of legacy brands and
their place in the new brand landscape dominated by digital players who continue to
command an ever-increasing share of customer love, attention, and increasingly, spend.
As each of the category players determine their strategic moves for 2019, the competitive
landscape will shift accordingly. Customer expectations and preferences, as well as new
technology (for example 5G, which is not expected to have a significant impact on the
category in 2019 but is definitely on everyone’s radar and will feature prominently in
strategic plans for the years to come) will always bring about new challenges and will
move the market in new directions. Agility of business models, focus on customer needs
and delivering the best possible entertainment experience will remain the determinants of
success in the ever-evolving context.
16
2019 Trends to Watch: Premium OTT Video, Ovum 17
2019 Trends to Watch: Global TV and Video Markets, Ovum

7. GET PAY TV SMART
The year ahead
If you are interested in learning more about the subject of this article, please contact
Melanie Norris, Global Planning Director, norrism@bbdoknows.com
ABOUT BBDO KNOWS
BBDO KNOWS is a planning resource for the BBDO network.
BBDO KNOWS offers thinking, strategy, insights and inspiration on key categories, key
themes and consumer segments.
If you are interested in learning more about the way BBDO thinks please contact Melanie
Norris, Global Planning Director, norrism@bbdoknows.com.
DISCLAIMER
The information and materials in this article are for general information purposes only. Whilst we try to ensure that
all information and data in this article is accurate, complete and up to date, this article should not be relied upon
and you should seek advice if you intend to use or rely upon any of the insights or data contained in this article.
This article must not be shared, downloaded, copied or distributed for commercial purposes without the prior
approval of BBDO. © BBDO 2019 All rights reserved.