Is the Triple Play Dead?

Some might argue the era of bundling (triple-play and other offers) is over, and irrelevant, as customers are dropping linear video subscriptions.

The countervailing argument is that service providers are simply going to create new bundles, since the bundle itself is a hugely beneficial retail packaging tactic.

You can decide which strategy is more likely: killing bundles or changing the bundle elements.

But so long as bundling just two services can cut churn by half, or bundling four instead of three services cuts churn another 50 percent, service providers are going to bundle.

It is worth remembering that firms generally are lead by executives capable of understanding the fundamental revenue and profit drivers of their businesses, and can adapt.

One can argue that it makes no fundamental difference whether bundles are built on linear or streaming video; include mobility or not; home security or not. In the future other services are likely to become important as well.

There are gross revenue and margin issues to be addressed, but irrespective of the specific constituent contributors to consumer service bundles, bundles absolutely work, and for well-understood reasons. And that remains true, even if some products face declining demand.

In fact, it is easy to point out that bundling is an effective tactic for propping up sales of such products with lower value. In some cases, the incremental cost of adding a voice service is so low--and comes with a big enough overall discount--that buying a triple play package makes more sense than buying a dual-play package.

In other words, it often is the case that buying a triple play costs less than a dual-play service.  

Bundles increase perceived value; allow service providers to offer price discounts without damaging retail price points for standalone services; reduce churn and boost marketing potential.

In the mobile business the most-recent example are offers of free streaming when customers buy top-end internet access plans. The rumored DirecTV Now  service that would be free for AT&T mobile customers provides a good example.

A European mobile operator able to bundle multiple services found much-lower churn rates on accounts buying two, three or four services.

source: Merkle Sokrati

We shall see, but it is rational to argue that not even declining linear video take rates will change the strategic value of the triple play.

Majority of Homes with Fixed Network Internet Access Also Buy Streaming Services and Linear TV

About half of all U.S. households that buy fixed network internet access also buy linear video service and at least one streaming service as well, say researchers at Parks Associates.

About 11 percent of homes buying broadband use antennas for over-the-air broadcast TV.

LInear video subscriptions fell from 87 percent  to 77 percent between 2012 and 2017, Parks Associates says.

If you want to know why firms such as Comcast now bundle Netflix access as one more channel option, the reason is that this reduces churn. According to Parks Associates, 33 percent of cord cutters would have stayed with their linear service provider if offered a Netflix-style service bundled with broadcast TV channels.

Some will question the long-term value, as smart TVs able to directly receive Netflix and other streaming services become the standard TV device in homes. It might be marginally easier to open Netflix when it is offered as just one more channel in the TV lineup.

Still, how much extra effort is it to pull up Netflix or any other supported streaming service directly from the smart TV?

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source: Parks Associates

20% of U.S. Residents Do Not Buy Fixed Network Internet Access

About 20 percent of U.S. residents now use their smartphones and mobile data services exclusively for internet access. That is a seven point increase from the 13 percent who used mobile exclusively for internet access in 2015.

Some 65 percent of U.S. residents report they subscribe to traditional broadband service at home, down two percentage points from the 67 percent reporting they bought fixed network internet access in July 2015.

About five percent of poll respondents say they do not buy fixed network internet access or smartphone service.

Some 11 percent of U.S. residents indicate that they do not use the internet at all.

Such non-buyers are disproportionately likely to be older. Some 40 percent of U.S. residents 65 and older report they do not buy internet access or use smartphones.

Some 25 percent of rural residents say they buy neither. About 25 percent of those who have not attended college and 23 percent of respondents in  households earning less than $30,000 per year also are in this category.

Bundling Really Does Work

Bundling of consumer services has been a mainstay of consumer services packaging for decades, for good reasons. Selling a package of services (triple play of voice, internet access, voice, for example) has been shown to reduce churn.

Also, packaging multiple services for one price is a form of discounting, with the advantage that any buyer cannot easily determine how much each constituent service costs, providing some protection against price-based offers from rival providers selling any single one of the services.

source: AT&T

Now Comcast is bundling free speed increases for customers who buy a dual-play package of linear video and internet access.

In its Houston market, Comcast is upgrading such dual-pay customers who have the 60-Megabits-per-second tier and whose internet service is bundled with other Comcast products to 150 Mbps.

Customers on the 150 Mbps tier (and buying one or more services) will see speeds increased to 250 Mbps.

Customers with the 250-Mbps service will see their speeds jump to either 400 Mbps or 1 Gbps, depending on the package.

Those deals seem to require use of the X1 modems, which Comcast wants consumers to have for other reasons, and which use the faster DOCSIS 3.1 platform.

Mobile service providers have found that consumers who buy family or multi-user plans, supporting multiple phones and services on a single account, likewise have found such customers also tend to have lower churn.

A European mobile operator able to bundle multiple services found much-lower churn rates on accounts buying two, three or four services.

source: Merkle Sokrati

In the Canadian market, quadruple-play, triple-pay and dual-play customers have lower churn rates than customers only a single service, by significant margins. The absolute lowest churn happens on accounts with four services, where accounts churned at one-seventh the level of single product accounts.

source: Ivey Business Review

source: IDC, Solon, Virgin Media

Live Streaming Assumes New Importance

As big a provider as Netflix is in the video streaming market, its “on demand” format remains a minority of currently-offered services, which now emphasis “live” or “real time” streaming. A survey of some 300 executives in the streaming business found that 63 percent of services used live or streaming formats.

Sports content seems to drive much of the interest, though for some news content also drives interest in live or streaming content, according to the survey published by Akamai.

source: Akamai

Product Lifecycles Explain Telco IoT, Content Moves

LIke any other product, consumer video entertainment subscriptions have a life cycle, and linear video subscription business now is past its peak, and is beginning a long decline. That process of product maturation now is a well-established trend in the communications business.

Prior products such as fixed network voice, long distance voice and mobile messaging also reached peaks. Fixed network voice subscriptions in the U.S. market peaked around the turn of the century. Long distance voice revenue, which had been declining for decades, likely reached a peak about the same time.

Mobile messaging also is being displaced by over-the-top messaging alternatives. In some markets, mobile revenue peaked in the second decade of this century. U.S. fixed network switched access lines peaked about the same time.  

You can see the impact in many ways, including industry employment. Use of long distance services peaked in 2000, according to the U.S. Federal Communications Commission.

source: FCC

source: FCC

U.S. streaming provider revenue (Netflix and others) grew 41 percent in 2017 to $11.9 billion. Revenue is forecast to reach $16.6 billion for 2018 and $27.6 billion for 2020, according to Convergence Research Group.  

In 2017 U.S. linear subscription revenue grew one percent to $107.6 billion ($94.30 per month average revenue per unit (ARPU). Revenue is forecast to decline slightly to $107.4 billion ($97.90 per month ARPU) in 2018.

We forecast US OTT subscriber households will far surpass TV subscribers in 2020, however US TV subscriber ARPU will be 4 times US OTT subscriber household ARPU down from 6 times in 2017.

Convergence Research estimates linear subscriptions are declining about four percent a year.

Such product lifecycles occur in all industries, and illustrate the reasons why firms such as Comcast, AT&T and Verizon have built, and are trying to increase, the amount of revenue earned from sources beyond connectivity (internet access, voice, messaging).

The same process of broadening revenue sources will happen in the 5G era, as revenue sources will be sought in platform, apps and other non-access areas.

5G Will Hit Inflection Point at 10% Adoption

For any successful consumer product, 10 percent adoption tends to the inflection point. That is the point at which adoption sharply accelerates. That has tended to be the pattern for mobile subscriptions as well.

So it would not be at all unusual to predict that 5G adoption, in any market, will hit an inflection point at about 10 percent adoption. That is basically what a forecast by GSMA Intelligence implies.

source: GSMA Intelligence

You can liken the 10-percent adoption to the shift from bleeding edge innovators to “early adopters,” which is about what 10-percent adoption represents. The key point is that adoption rates tend to accelerate after the 10-percent adoption point is reached.

source: Asymco

source: Samsung

source: Wall Street Journal and others

source: Pew Research Center