The pay-TV industry is experiencing unprecedented global change, with many service providers facing a perfect storm of slowing growth, intensifying competition and disruption. The majority of executives surveyed think that competition is going to increase over the next five years and that service providers will struggle to grow their businesses. One in five said industry revenues are likely to decline over that period.

That is the conclusion of the second annual state of the industry research project commissioned by NAGRA, which provides content protection and multiscreen television solutions. It is based on an analysis of the offerings of over 230 service providers and an online survey of 125 industry executives.

It found that half of the executives surveyed believe that content piracy will lead to greater pressures on the industry over the next five years. An estimated $7 billion a year is lost through unrealised revenues due to unauthorised viewing.

While the outlook remains challenging, there was a consensus among executives that innovation has become more important to the industry over the last year, with three quarters of them considering it to be a top strategic priority and 57% saying it was the number one priority.

Pay-TV executives attitude to innovation. Source: NAGRA Pay-TV Innovation Forum / MTM.

The research suggests that if the least innovative service providers upgraded their product and service portfolios at least to the level of the average innovators in their countries, global industry revenues could be improved by 11%, equivalent to $20 billion per year.

Among the new services on which they are focussing are standalone online video services, multiscreen ‘TV Everywhere’ and app-based services.

Service providers are also increasingly investing in adjacent areas, such as advanced advertising, internet of things and smart home.

Four out of ten executives surveyed see smart home as a commercially attractive area for pay-TV providers. This is most likely to be addressed by cable and telco companies, although they will face strong competition from global corporations.

“We need to think about how the likes of Google, Amazon, Apple, Facebook, and Netflix are affecting the video ecosystem,” said one industry executive. “I think we’re overestimating their impact in the short-term and underestimating in the long-term.”

“Pay-TV businesses have tended to follow rather than lead innovation… but now we’re increasingly challenged from the outside by the likes of Amazon and Netflix,” said another. “What we need to do is challenge ourselves internally, so that we can be in front of innovation rather than behind.”

Part of the problem is internal culture. “By far the biggest challenge is organisational change, said Oliver Hansard of Liberty Global. “Pay-TV businesses need to learn how to do things in a different way, become more agile and foster a ‘test and learn’ culture. Obviously change is difficult without the right market incentives, but the television industry has had digital challengers for some time now and is on notice.”

“Overall, it is clear that the industry recognises the changing nature of TV and the need to adapt quickly to this fast-changing environment,” wrote Simon Trudelle, the director of product marketing at NAGRA. “By developing new services and partnerships as part of their innovation roadmap, service providers and content owners will be able to transform and successfully prepare their businesses for the future.”

The report concludes with four main strategic priorities for pay-TV providers. It suggests that they should establish strategic partnerships with content providers and technology suppliers. They should cultivate the right digital culture, processes and capabilities to support innovation. They should focus on scale and diversifying product portfolios. And they should Invest in the advanced technologies needed to support business transformation.

The Global Pay-TV Innovation Landscape: Industry Perspectives on a Year of Change is available to download from the Nagra web site.