About 50% of Hulu subscribers take $11.99 limited-ads option

A significant number of Hulu’s more than 20 million subscribers are paying for the more expensive limited-commercials option.

That’s according to Fox CEO James Murdoch, who told Recode that about 50% of Hulu subscribers are willing to pay $11.99 per month to cut down on ads popping up during streams. Fox—along with NBCUniversal, Disney and Time Warner—is a part owner of Hulu.

Recode later updated its story to cite insiders who say that more than 60% of Hulu subscribers still take the less expensive, ad-supported tier.

Earlier this month, Hulu revealed that it now has more than 20 million subscribers, but the service has yet to reveal how many of its subscribers are opting for the $40-per-month live-TV service.

Hulu also said it has grown total engagement by more than 60% and that 78% of viewing on the service takes place in the living room on connected TVs.

“Hulu is the complete TV experience for consumers, offering both live and on-demand programming and more consumer choice than ever before,” said Hulu CEO Randy Freer in a statement. “We are the only place that delivers award-winning content, ad loads less than half that of traditional television, with ads that are always viewable and always in a brand-safe environment—and we are leading the TV and advertising industries into the future.”

The strong uptake for Hulu’s more expensive tier with limited commercials is similar to the numbers CBS has been able to put up for its All Access streaming service.

Earlier this month, CBS said about one-third of its 2.5 million All Access subscribers are opting for the $9.99-per-month ad-free tier of the service.

Joe Ianniello, chief operating officer at CBS, said the fact that consumers are willing to pay more for a premium channel experience with CBS shows gives the company some added leverage when negotiating things like carriage and distribution.

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OTT Video Services to Climb to US$51.4 billion in 2022

The growth of subscription OTT services has been driving the changing trends in the Pay-TV landscape. OTT video services have attracted hundreds of millions of subscribers worldwide, causing pressure on traditional Pay-TV operators. This OTT growth trend is expected to continue, reaching a subscriber base of 400 million in 2018, according to a recent report by ABI Research, a market-foresight advisory firm providing strategic guidance on the most compelling transformative technologies.

OTT video services offer less expensive alternatives and no long-term contract features compared to existing Pay-TV offerings that are driving an increasing number of Pay-TV customers to switch to these OTT services. In markets such as North America and Europe, Pay-TV operators have jumped into the OTT market to improve churn by providing less costly video service. DirecTV’s Now, Dish Network’s Sling TV, and Sky’s Now TV are among the operators which offer Virtual Multichannel Video Programming Distributor (vMVPD) services, linear channels via an internet connection.

“vMVPD services offer live TV packages as low as US$10 and customized packages are attracting cost-sensitive customers,” said Khin Sandi Lynn, Industry Analyst at ABI Research. Dish Network’s Sling has secured more than 2 million subscribers in the two years since it launched. Similarly, DirecTV Now has gained 1.2 million subscribers within one year of its launch, offsetting the subscriber loss of its satellite TV platform. “Pay-TV operators recognize the consumer demand for vMVPD services and are trying to expand their OTT offering by providing more content choice to compete against other subscription OTT services such as Netflix,” Lynn noted.

Despite the low cost of basic vMVPD packages, the availability of live sports packages and customization features contribute the higher ARPU compared to other subscription OTT services. Hulu and YouTube launched live streaming packages in 2017 creating more competition in the vMVPD market. “As competition intensifies, content and quality of service are crucial to win the OTT war,” concludes Lynn. ABI Research forecasts that OTT video services will put more pressure on traditional Pay-TV services especially in the developed markets with high broadband and Pay-TV penetration. The worldwide OTT video market is expected to grow at CAGR 10% to generate US$51.4 billion in 2022.

These findings are from ABI Research’s Service Provider OTT Services and Set-top boxes Update report.

Neglect customer experience at your peril, research warns Pay-TV providers

Pay-TV operators can no longer simply rely on the strength of their content offering to maintain subscriber loyalty, but must raise their customer relationship management game to gain ground in an increasingly competitive marketplace.

This is the top-line find of a survey of more than 6,200 consumers in Australia, Brazil, Germany, Singapore, the United Kingdom and the United States from subscription, billing and CRM specialist Paywizard. The Facing the Perils of Failed Customer Experience survey carried the warning for operators that more than four-fifths of consumers would cancel a pay-TV subscription due to poor customer experience, such as if service and support were lacking and the company seemed out of touch with their needs. Indeed, the data showed that a quarter have actually done so in the past year.

By contrast, the survey also found that almost half (46%) of consumers have retained a digital pay-TV subscription they might otherwise have cancelled because of positive customer experience. The findings show, said Paywizard, that younger consumers place greater value on customer experience when it comes to sticking with a provider. Just under three-fifths of those under age 35 say this has been a factor in keeping a service over the past year.

Nearly three-quarters of consumers who have added a digital pay-TV subscription over the past year end up increasing their overall spend on television and entertainment. On the other hand, more than a quarter still reduced total TV spend by downgrading their general pay-TV package or cutting other subscriptions – making clear that there are losers among operators that fail to build strong bonds with their customers.

To be on the winning end of consumers’ decisions regarding their TV and entertainment budgets, Paywizard advises pay-TV operators to overcome a ‘dip-in, dip-out’ attitude on the part of subscribers. The survey revealed that most consumers intend to drop some pay-TV services – for instance, cutting part of a cable or satellite package – if they take another, such as an on-demand video subscription. Almost two-thirds of those who have not taken a new subscription in the past would cut back on other digital subscriptions or downgrade a general package to bring down the cost if they were to sign up to a new or additional pay-over-the-top (OTT) service.

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