The video industry continues to see a shift in a number of time consumers watch their traditional pay-TV service, as more content is being viewed on Over-The-Top (OTT) services such as Netflix, Hulu, and others. Pay-TV providers must focus not only on why consumers are gravitating to these OTT offerings but also on how these providers can slow and ultimately reverse the trend. The average Netflix subscriber watches content for 1 hour and 33 minutes per day, while the average pay-TV subscriber watches a little over 2 hours and 30 minutes of content each day. However, a trend Digitalsmiths continues to observe is that the amount of time spent watching content is increasing for Netflix, while it is actually decreasing for pay-TV. Additionally, 92% of Netflix subscribers are satisfied with Netflix’s service, while 76% of pay-TV subscribers are satisfied with their provider’s service.

Here is a breakdown of how respondents, who are also pay-TV subscribers, feel about the content discovery experience, ranked in order:

1. Subscription OTT services offer the best experience, with 78.2% of respondents saying these services make it easy to fi nd something to watch.

2. Paid Video-on-Demand (PVOD) catalogues of pay-TV providers came in second, with 66.0% of respondents stating they fi nd the discovery experience easy.

3. Linear TV falls into a third, with 58.2% of respondents answering it is easy to fi nd something to watch on their pay-TV service.

What is Netflix doing that is resulting in both an increase in the time spent watching the service, as well as overall subscriber growth? Netflix is investing an incredible amount of time and money into understanding its subscriber base, down to the individual profiles created within accounts. The wealth of data Netflix captures, and analyses benefits the company tremendously. First and most importantly, this data enables Netflix to deliver its subscribers a series of personalised content recommendations, resulting in what Netflix estimates drives 75% of views. Secondly, the data helps with content acquisition decisions. Pay-TV providers have years of data similar to what Netflix is capturing, but the data seems to exist in a diverse number of silos, rather than being integrated, and the data is often difficult to access. Until pay- TV providers identify and deploy data-driven, personalised content recommendations, the market will Digitalsmiths, a TiVo company and the leader in content discovery technology and analytics, obviously has strong theories on what is causing phenomenal changes and how these trends can be halted or, better yet, reversed. Digitalsmiths shares its quarterly findings with Television Asia Plus. likely see Netflix viewing continue to climb while cord-cutting and cord cheating continue to increase. How much data does Netflix leverage? Netflix is processing over 400 billion interactions daily, managing 8 million events and 17GB per second during peak times. Below is a breakdown of the data Netflix captures for its 40+ million domestic subscribers and 65+ million global subscribers. GB per second during peak times. Below is a breakdown of the data Netflix captures for its 40+ million domestic subscribers and 65+ million global subscribers.

► Pause, rewind, and fast forward
► The day of the week on which
content is viewed (Netfl ix has
found people tend to watch
TV shows during the week and
movies during the weekend.)
► The date on which content is viewed
► The time when content is viewed
► The location where content is
viewed (i.e., zip code)
► The device on which content is
viewed (Does the viewer use a
tablet for TV shows and Roku for
movies? Does the viewer access
the Kids section more on an
iPad, etc.?).
► The duration after which a viewer
pauses and leaves content (and if
he/she ever comes back)
► Ratings (about 4 million per day)
► Searches (about 3 million per day)
► Browsing and scrolling behaviour
► Data within movies

On the last point (Data within movies), Netflix collects and analyses data for subscribers’ movie-viewing behaviours. For example, Netflix takes various “screen shots” to look at “in the moment” characteristics. Some have figured these characteristics may be the volume, colours, and scenery that help Netflix determine what its subscribers like. It has been reported from numerous sources that Netflix’s data collection efforts cost roughly US$150 million annually. This investment includes the efforts of hundreds of employees who are tasked with enhancing the metadata of content, which is then leveraged in Netflix’s personalised recommendations functionality. Based on a few educated assumptions, Digitalsmiths estimates Netflix is investing over 20 times more than the average pay- TV provider to deliver personalised recommendations.

Even more shocking is the percentage of Average Revenue Per User (ARPU) that is reinvested toward personalised recommendations. The top of the next page contains a comparison Digitalsmiths created to illustrate the investment in recommendations by Netfl ix and pay-TV providers. Now, take this analysis one step further and compare Netflix’s annual revenue to some of the top U.S. pay-TV providers. Netflix has annual revenues of approximately US$5.5 billion, while Charter has almost double the annual revenues at US$9.11 billion, and DirecTV has annual revenues of US$33.3 billion. When the recommendations budget is put into the perspective of revenue, why are pay-TV providers not investing even more in content discovery, overall UI/UX experiences, and data to power these next-generation viewing experiences?

With substantial growth combined with very little churn, Netflix is obviously onto something. Can pay-TV providers really compete with these OTT services? Do pay-TV providers have the content, data, and resources to offer an experience equal, or superior to that of Netflix? YES, and let’s look at some of the differentiators the pay- TV providers have that should help them win the war of eyeballs.

Netflix Versus Pay-TV Content Reach