MSOs need to focus on powering dynamic promotions to increase revenue.
The push for multi-screen video services is creating new players in the digital content value chain, including over-the-top providers, and creating opportunities and challenges for service providers, advertisers, content providers and consumers.
The implications for providers are a new set of challenges related to integrating linear TV and VOD into a unified multi-screen solution supporting cable TV, mobile TV, Internet TV, etc., and challenges such as operational costs, content security and screen-tailored UI experiences.
At the same time, these service providers need to monetize the capital and operational expenditures of expanding to multiple screens through targeted advertising, social media personalization and tailored pricing promotions.
DO PROMOTIONS MATTER?
Recent success stories illustrate the power of promotions to generate more revenue per customer and attract more customers.
Groupon features a daily deal on the best things to do, see, eat and buy in more than 37 cities across 43 countries. In 2011, the company is on target to exceed $2 billion in revenue (approximately $3 billion to $4 billion) and triple its 55 million subscribers, claiming it has saved consumers $1.8 billion.
An interesting discount related to video involves its recent promotion with Lionsgate. For the premiere of “The Lincoln Lawyer,” Lionsgate teamed up with Groupon to sell $6 tickets for the movie. Groupon distributed the trailer to customers as part of its daily deal email. Afterward, customer polls uncovered that 89 percent of the people who bought the Groupon discount would not have seen the movie if not for Groupon.
Similar to Groupon and others, Amazon knows that discounted prices will increase volume and revenue. Recently, Lady Gaga’s “Born This Way” entered the history books as the 17th album to sell 1 million or more copies in one week (in her case, 1.11 million). Gaga received a massive boost from Amazon, which reportedly sold more than 400,000 copies of “Born This Way” in its 99-cent deep-discount digital download sales. While Amazon actually lost money in this case, the retailer understands that promotions go beyond simple deep discounts.
It offers other types of promotions, such as:
- Loyalty program – Amazon Prime members receive benefits such as free two-day shipping and unlimited access to an online library of more than 12,000 movies and TV shows. After joining this program, members more than doubled their annual spend to $900. In conjunction with Visa, Amazon offers credit cards that earn points, which can be used toward purchases. Other loyalty programs might have a shorter timeframe – e.g., in the next two weeks, receive Kindle eBook discounts on previously purchased print books.
- Temporary discounts – Amazon deals of the day offer discounts in the range of 50 percent to 75 percent off list price, such as with Lady Gaga’s “Born This Way” promotion.
- Personalized bundles – When purchasing an item, users are met with a suggested bundle of items, which are items that people who bought the item they’re buying also bought, and Amazon offers a discount if both items are purchased together.
- Dynamic pricing – Changing the price on the fly at a certain time can also drive more business. For example, save 70 percent on textbooks at the start of each college semester.
- Bundled offers – Amazon offers “buy one, get one free” and “get four for the price of three” promotions.
- Happy day/hour – These discounts happen at a pre-determined day or time. For instance, this Friday, all books under $10 are “buy one, get one free.”
- Vouchers – Although Amazon offers gift cards, it understands that the biggest value in vouchers is cross-promotion. An offer like “buy a book, stream a movie rental for free” can win customers for a newly launched service.
Much like promotions work in many business-to-consumer situations, they can be effective in on-demand environments, as well.
Virgin Media, a U.K. service provider that offers TV (3.5 million subscribers), broadband (5 million subscribers) and mobile (500,000 subscribers) services, has a feature-rich and highly scalable VOD platform that delivered more than 870 million on-demand streams in 2010. Virgin Media has leveraged shelf management promotions to realize a 10-times increase in average monthly views since its launch, jumping from 10.6 million in January 2007 to 90 million in December 2010.
Mobile operator 3UK’s original in-house video platform provided only linear mobile TV services with little personalization, and it later evolved the platform into a full VOD service with advertising VOD and subscription VOD elements. For the first time, end users were offered multi-screen access, personalized experiences with play/pause/resume, contextual offers, targeted advertising and upsell features.
As a result, 3UK saw more than a 400 percent increase in TV viewing, leading to a significant reduction in churn. Targeted SMS campaigns achieved high response and conversion rates that helped drive strong growth in new customer acquisitions.
PROVIDERS’ MERCHANDISING NEEDS
In order to increase revenue through promotions, service providers need a toolkit that can support transaction VOD, subscription VOD, free VOD, advertising VOD, bundles, coupons, happy hours, loyalty, all-you-can-eat, upsell and others. Users can build promotional bundles by simply adding content, or dynamic promotions can be created based on patterns, whereby new content is automatically added to an existing promotion during ingest.
Examples of effective promotions include:
- Bundled offers – Buy four movies for the price of three.
- Coupons for free movies – During the Christmas season, all triple-play customers get a free movie.
- Happy hour – Buy a movie on Monday afternoon and get 50 percent off (note that the rental period is automatically reduced to assure consumption during “slow” hours).
- Movie box – Watch three horror movies out of the Halloween movie package.
- Loyalty program – After buying three movies within the same week, subscribers get a coupon for the movie of the week for free.
- All you can eat – For a fixed fee, consumers can view any movie within a set period of time.
- Gift certificate – Purchase a movie for a friend’s birthday.
Service providers can grant promotions to subscriber groups based on the pay-TV packages they have signed up for or the platform they are using. For example, each new premium-tier subscriber gets their first movie for free, or Sunday afternoon Disney movies are half price for the next two weeks for new subscribers, or all iPad users can participate in a loyalty program for action movies.
THE HISTORY CHANNEL
In addition to looking at subscriber entitlement and/or information to determine what promotions to provide, service providers can optimize offers based on past purchases and viewing history. Promotions could be limited to a maximum number of purchases – i.e., the first 1,000 people to buy this album get a coupon for a free mobile video download.
Furthermore, historical data can be used to determine how to construct future promotions. For example, service providers can add multiple assets into a bundle product in cases where a minimum purchase threshold has been reached for those assets. They can also introduce happy hour models on content selected by metadata rules that is below minimum viewing rates. The key is analyzing transaction statistics to help fine-tune the product offering.
Historical information on navigation is just as important as the purchase/viewing history. For example, historical information might indicate that the majority of purchases are limited to the first two levels of the catalog. This would suggest that assets be moved from lower catalog levels to the upper level if the assets are not meeting their purchase minimums.
Similarly, newly ingested content-matching rules might be assigned to a separate promotion section of the catalog. Service providers could also create business rules for a “last chance” catalog section for assets reaching the end of their license window.
All offers and promotions must adhere to the contract rights for that content. In addition to the typical start and end date criteria, DRM requirements, watermarking requirements, transcoding restrictions, platform restrictions, territory restrictions, copy restrictions, minimum guarantee, fee per pay and fee per subscriber have to be supported.
Content providers can also play a key role in the promotions process with the ability to manage their own assets, products and catalogs. Retailers that have access to that content should also have the ability to manage products and promotions. Content providers must receive full reports that show revenues across multiple platforms and an audit trail of every transaction and calculation step (this is also critical for customer care when a customer calls in with a question on their bill).
FUTURE INTEGRATION CHALLENGES
The lack of standard interfaces and offer definitions presents challenges to extending promotions across multiple deployments and systems, making each integration effort unique.
As illustrated in Figure 1, a merchandising system needs the following inputs and outputs:
- Assets (input) – Definition of the assets available for purchase or bundling into a promotion.
- Contracts (input) – Binding of assets to what is allowed for those assets. Can it be transcoded? Must it be delivered with DRM and/or watermarking? Can advertising be inserted around content? What platforms can it be delivered to? What promotions can it be offered under?
- Reports (input) – Historical navigation and purchase information that helps compare actual to promotion plans and adjust (automatically and manually) promotions.
- Campaign, product, catalog and shelf management (output) – Definition of how, where and when the asset should be presented to the consumer.
Today, some standards organizations, such as TV-Anytime Forum, CableLabs and SCTE, are tackling these interface standards; however, they need to be extended further to support the multiple platforms being deployed today and the advanced promotions needed to monetize those platforms. For example, CableLabs’ ADI v3 has defined “terms” (suggested pricing, royalty info and content restrictions on rental period and view limits); “presentations” (categories, display as new and display as last chance); and “bundles” (movie trilogies and TV series). TV-Anytime defines a base price and modifications to that price via promotions. However, these standards must be extended to define offerings of mixed media and mixed platforms. Furthermore, additional standards need to be defined for the other interfaces into and out of the merchandising system.
These interfaces should enable integrations that go beyond VOD, ultimately giving a service provider the ability to manage seamless promotions across any viewing screen or device.
Following the capital and operational expenditures in moving to multi-screen delivery, service providers will need to quickly defray those costs through targeted advertising, social media personalization and tailored pricing promotions. Merchandising is critical to creating the promotions that will entice consumers to spend more money, and having the tools to integrate multi-screen VOD offerings with other services is essential for providers to drive new revenues, add subscribers and reduce churn.