Will cord-nevers stick to their guns?

As we enter a generation of people that have never paid for TV, Ericsson’s Simon Frost looks at how pay-TV providers can win back eyeballs

Note: This article focuses on the US market

Everyone has had it. I even have a name for it: ‘The TV Scream.’ It is the rising feeling of frustration that comes from flicking through hundreds of TV channels and still not finding a satisfying program to settle down to. At these moments, if the thought has ever crossed your mind that you could be better off without a TV subscription, you are far from alone.

The ‘cord cutting’ movement, characterised by the act of cancelling a TV subscription in favour of free-to-air linear TV complemented with new subscription video on demand (VOD) services, has become a much discussed term in recent years as media industry figures mull over whether this phenomenon is just a passing blip, or the beginning of a more serious development.

Then there are the ‘cord nevers’, a reference to the group of consumers who have never paid for traditional pay-TV services. Ever since Stefan Anninger coined the term, as part of a Credit Suisse report in November 2011, the TV and Media industry has had to readdress its approach to appealing to this consumer group, which is made of both young and older demographics.

In a recent interview with The Associated Press, Roger Lynch, CEO, Sling TV, said there are currently around 21 million homes in the US without pay-TV, of which 16 million are cord-nevers and 5 million are cord-cutters.

TV consumers today can be segmented into around six categories of behaviour and needs, but above all else, they want complete choice, whether binge watching through entire series or exploring niche content, or accessing linear content and the unrivalled live sports experience.

In order to win back eyeballs, pay-TV providers need to deliver exactly what the consumer desires from their TV service, without asking them to pay through the roof. I am confident that cord-cutters could return back to the TV service providers that raised them, if the depth of transformation and effectiveness of consumer marketing can re-establish perceived perception of new value.

However, the challenge for these providers is to realise this transformation and quickly, before consumers become fully comfortable with a sea of OTT apps and fragmented experiences.

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There will always be value in curation and bundling and this needs to be fused with an obsessive attitude to delivering the most amazing viewing experience, always ensuring the most individually compelling content is available at the right price.

In a July 2016 interview with BloombergBusinessweek, Jeff Bewkes, CEO of Time Warner, supported this viewpoint, citing HBO’s 30 per cent share of the 100 million US Pay TV subscriber market as a prime example of the future potential of this market.

He said: “the HBO penetration in some of our affiliates like Charter, Comcast, Cablevision is literally twice what it is in the less-penetrated affiliates like Time Warner Cable and Dish…You’re looking at 10 or 15 million natural Pay TV HBO subscribers in that group.”

By targeting the over-the-top (OTT) and pay-TV market in tandem, Bewkes believes HBO is “looking at 45 million subscribers, going up to 50, 60, 70 million.”

So how can TV service providers woo the cord-nevers? The answer to this question is going to make some people rich. However, if we look at past examples of where consumers were willing to spend their money in TV, the perfect recipe consisted of killer content + image and high sound quality + convenience.

This equation has stood for a considerable amount of time and cracking it is still the panacea. Now, however, service providers need to market it well and ensure the costs associated are lower than the perceived value. This applies to cord nevers too; after all, they are still consumers and they make purchasing decisions based on their assessment of each individual service.

Equally the industry can make leaps when the ‘stars align’. Take the early days of high definition (HD) for example, we saw resurgence in subscriptions and a notable increase in paid packages, driven by excitement that premium content was making leaps forwards in picture quality and leveraging recent consumer investment in HD TVs.

Today we are facing another massive advancement in TV quality, one that could prompt a similar behaviour change. There are technologies on the horizon (Ultra HD with High Dynamic Range for example) that will transform TV watching so dramatically that experiences bear close resemblance to cinematic viewing; intense, utterly realistic and all-consuming.

Past shifts in picture quality such as analogue to digital, standard definition (SD) to HD, and 3D to some extent, have seen people embrace the enhancement and show a willingness to pay, making this sensible bait for TV media businesses.

Technology and connectivity is also changing the expectation of what ‘Television’ even is. We now expect to have access to anything – in fact everything – wherever we are in the world. But with this development come new frustrations as too much choice doesn’t necessarily deliver a fun experience. In fact, we continue to rely on our peers and influencers to shape what we buy and watch.

I have for some years now predicted the need to meet the demands of increasingly fickle consumers, due to the number of dynamic opportunities available to global audiences. They can now embrace and equally drop services, products, fashions and experiences in a heartbeat.

I am a firm believer in the need for all B2C organisations to be at the cutting edge of delight at all times, continually building strategies that can measure and react to these whims and changes.

Inflexible bundled packages and lengthy contracts have long been tolerated as part of the traditional TV experience but these established commercial models will need shaking up if providers want to recapture the hearts of cord-cutters and attract cord-nevers.

Convenience is the hallmark of modern life and this goes far beyond the media bubble. People are increasingly opting for ‘pay monthly’ setups, from gym membership to car insurance, even if this means paying more overall.

There is a genuine value in the consumer’s perception of being able to opt out. The precedent of zero lock-in from pay-as-you-go mobile, to internet-based subscription VOD means TV service providers need to trust consumer loyalty. The consumer’s inherent laziness for change will be a factor too, but only as long as they repeatedly recognise the perceived value in what they get.

There is a huge opportunity in TV to learn from other industries and leverage the increased marketing, communication and pro-active insights to prioritise and engage in continual dialogue with those that deliver the most revenue.

Clearly some rethinking is needed to reverse the cord-cutting pattern, but is it right to assume cord-nevers may be susceptible to wooing from subscription pay-TV service providers, as long as the price and format on offer is right? There are certainly a number of visible green shoots emerging.

A September 2016 study by cg42 found six percent of US cord nevers said they are “very or extremely likely” to subscribe to cable in the next 12 months, which the firm’s analysts believe will offer a one million household opportunity of pay-TV.

The research also reveals 90 per cent of US cord-nevers and cord-cutters use Netflix, which illustrates that while these groups are not currently willing to pay for traditional TV, they are willing to pay for micro packages of content. This highlights my perceived value equation that some pay-TV service providers are already experimenting with.

OTT delivered on-demand through smaller packages of content offers a prime opportunity to drive new revenues and eventually up-sell these to increased ARPU packages of content and services. In the UK for instance, Sky’s launch of the NOW TV Combo, brings together TV (via a hybrid digital terrestrial TV (DTT)/OTT set-top-box) with broadband and landline telephone services, without the need for a contract.

By delivering an agile, all-encompassing service, Sky is targeting the cord-never and cord-cutting market by removing the red tape of traditional bundles and instead, providing a far more convenient service, and critically Sky has access to a lot of the most compelling content and rights to be able to do this.

Yet despite these positive indicators, we need to be cautious about casually clumping these two groups together as one and the same. For instance, Cg42’s recent US study also found those with a pay-TV bundle (including TV, internet access and phone service) spend about $187 per month on average, while cord cutters spend about $83 a month and cord nevers, $71 per month.

It’s clear that it will be difficult to change the habits of a lifetime of cord-nevers but that’s not to say they won’t react if providers can prove TV really is being reinvented. The packages and services must illustrate obvious value.

According to Ericsson ConsumerLab TV and Media research, the most important features in today’s pay service are video quality and price, irrespective of the consumer’s age or preference for scheduled linear TV or on-demand services.

Everyone has a point where the offer on the table becomes too good to turn down; the challenge now for subscription-based pay-TV providers and premium broadcasters looking to sell-direct is to continually re-invent the ‘ultimate TV experience’. They need to communicate that offer relentlessly and in a way that always proactively acts to generate perceived value.

This will require businesses to start recognising the nuances between these groups, quickly converting their unique demands and expectations into actual offerings, not least so that providers can prove they are more than a match for Internet platforms.

In doing so, pay-TV providers can target future audiences and appeal to a new generation that are mobile-first, and demand seamless, personalised, high quality content as a given.

Convincing the consumer will be hard work. Nonetheless, by staying agile, responsive and committed to delighting consumers every day, the industry need never say never.

Simon Frost is head of media marketing at Ericsson