Telefónica/Movistar+ has been at the forefront of telecom operators seeking to invest in content as a key differentiator, not only through premium football, but also as a producer of highly regarded premium drama. Movistar+ president Sergio Oslé Varona talks to Stuart Thomson about the company’s approach ahead of his appearance at Video Exchange Streaming.
Few telecom operators have embraced the role of content provider – as opposed to simply content aggregator – as wholeheartedly as Telefónica.
The Spanish telco’s bundled TV platform, Movistar+, has invested significantly in premium content, not only through its hold of premium La Liga football rights but its investment in a raft of highly-rated original scripted series starting with historic drama La Peste and including shows such as Velvet Coleccion, Dime Quien Soy and El Embarcadero.
Following the growing number of telcos that seek simply to offer TV services by becoming aggregators of third-party apps is not a path that Sergio Oslé Varona, president of Movistar+, has any intention to follow. Oslé believes that becoming a gateway to Netflix and Amazon’s own in-app experience places service providers on the same level as the consumer device manufacturers with which they are competing.
“We don’t believe that is the right strategy for us. It brings us closer to competing with device manufacturers. In the end you don’t offer much different than what a smart TV manufacturer does,” says Oslé.
The Movistar+ chief identifies three layers of differentiation that help Telefónica attract and retain subscribers.
One is aggregating third-party content in the shape of linear channels and the video-on-demand user experience.
A second is to provide premium subscription content which includes Movistar+’s substantial premium football offering but also includes its line-up of highly-regarded original series and movies as well as – lesser-known outside of Spain – unscripted content.
The third and final layer is the company’s technical platform and its ability to differentiate through advanced functionality.
Telefónica has 4.1 million pay TV customers in Spain, making it the country’s pay TV leader by some distance. As with rivals, its pay TV service is bundled with other telecom services.
Customers need to sign up to the operator’s quad-play service to receive TV. However, for Oslé, the different layers of the Movistar+ TV experience make it very different from competitors, particularly those that increasingly are tempted simply to aggregate third-party apps.
Third-party content does however play an important role in the overall offering, including the content of app providers such as Netflix.
“We still rely a lot on third party content providers. We aggregate them on linear channels or we aggregate via our VoD user experience, which gives you easy access to content curated for you through different criteria,” says Oslé, who adds that it is “surprising” how much content is still consumed on the platform via linear channels, the overall drift to on-demand notwithstanding. The word ‘curation’ is crucial in this context, however.
“We still believe that there is something substantial that we can provide to our customers through getting rights and trying to aggregate an offer that we create ourselves,” he says.
The next tier of the Movistar+ offering is the premium tier, which traditionally has been build around football. Despite much commentary about the high price of rights in Spain for La Liga and other high-profile rights, Oslé says that the economics still make sense for Telefónica, and he points out that the amount paid for the current tranche of rights is already a bit less than was paid previously.
“As of today we run the numbers and it is profitable for us,” he says. “The price is always high. The rights are a substantial part of our cost base but [the rights holders] have already initiated a rationalisation phase.”
Oslé reserves some criticism for the obligatory wholesale regime under which Telefónica is forced to sell on rights to other parties that wish to access them. Only Orange among the country’s main operators has taken up the most recent offer, leading rival Vodafone struggling to defend its base. Football is also available via Mediaset’s Mitele+ online service. Movistar+ remains the service of choice for most football fans, though there is broader competition in the popular market for communal viewing in bars and restaurants.
“The world has changed in the last three years and it doesn’t reflect the balance of power between the different players now. [The regulator] was trying to ensure we didn’t use our scale to close the market,” says Oslé of the regulatory regime. The world, he suggests, is no longer one in which Telefónica can easily dominate the market for rights.
“With the advance of OTT that is no longer the case. We are fighting for all kinds of rights all the time and we are fighting against players that are global in nature. They sometimes don’t even have profitability as their key concern,” he says. “There are some aspects of the wholesale agreement that should be adapted to the new environment that we face. But even in the current scenario we are happy with our investment in football.”
Beyond premium sports, Movistar+ is widely known for its investment in a raft of high-profile drama series. The company produces about 12-15 series a year, and also invests in a number of non-scripted shows, making up the balance of its approximate spend of €100 million on both types of content.
“It enables us to differentiate ourselves. It is our soul. It is what enables us to go beyond being a distributor or device manufacturer or a set top box distributor,” says Oslé of this content investment, which he says is “working surprisingly well” for the company in terms of the engagement it delivers from viewers. He says the popularity of the shows has been “an order of magnitude” greater than what was originally anticipated and that his team had “ever imagined there was such as appetite” for high-quality local premium content in the country among people who are unable to find everything they want either on the country’s free-to-air TV channels or on the likes of Netflix.
Oslé says that Movistar+’s investment in originals also delivers measurable economic benefits. He says that what the company spends relative to how much is watched means that its spend on original content delivers the same benefit as content spend on third-party acquisitions.
Oslé is clear that Movistar+ is not trying to compete with Netflix or HBO, who he sees as little different than traditional suppliers such as the Hollywood majors. He returns to the theme of needing to go beyond aggregation.
“We are more than happy to distribute content from third parties. There were majors in the past and there will be new majors in the future. But we need to offer to our customers something more than just a collection of partners. That was probably always true, but it is now truer than ever. If you want to be a relevant distributor of content, you cannot just be a collection of apps. It doesn’t give you any edge against device manufacturers,” he says.
To win customers, it is necessary to offer them something that they can’t get elsewhere – or else compete purely on price. If Movistar+ can offer consumers “exclusive content that they couldn’t get elsewhere”, it can attract potential new customers and also give existing subscribers a reason not to migrate to another provider on cost grounds for fear they might be missing out.
Oslé says that original content also plays a role in enabling Movistar+ to retain relevance for underserved – and attractive – audience segments. In particular, he says, the service seeks original content that offers something to those audience segments that are unlikely to be drawn to the platform by football.
“We very purposefully use our own original production to fill in the gaps. We have partners that provide content but we are aware that for some of our audience segments there might be gaps and we target a lot of original production at those gaps. A lot is targeted at women or young people,” he says.
Movistar+ spends around €100 million a year on originals, the bulk devoted to scripted drama with a smaller chunk allocated to a raft of unscripted content. Oslé says that whether to increase this has been the subject of internal discussion. He says that Movistar+ tested a bigger slate for one quarter, but that the results were not satisfactory.
“We are not trying to build up inventory. We can get our inventory from third parties,” he says, adding that Movistar originals have to stand out to have value.
If you want to be a relevant distributor of content, you cannot just be a collection of apps – It doesn’t give you any edge against device manufacturers
He points out that Movistar+’s flagship channel #0 is really intended only as a shop window for content rather than a full-fledged channel that needs to be scheduled 24/7. He says Movistar+ has no ambition to create a Sky One-like offering.
“Our internal production needs space to breath. We are very careful when we release a series and we put a lot of care into communicating it. We treat them almost like new movies,” he says. “We learned that if we try to increase our pace and do more than one series a month or more than 25 entertainment programmes a year, it doesn’t work.”
On the non-scripted side, Movistar+ has in fact cut “many of the entertainment programmes that we made in the past”, says Oslé, to focus on about 25 shows a year that “really make a difference” such as the humour-infused late night show La Resistencia with David Broncano, which appeals to a sought-after youthful audience.
The overall aim, says Oslé, is to come up with a raft of scripted and unscripted shows that incentive people to “pay a little bit more” and stick with the Movistar+ service. Oslé’s team have not varied the pay TV formula overmuch. Telefónica recently launched a low-cost OTT TV version of the platform called Movistar Lite, but Oslé is clear that the intention with this is simply to attract new subscribers and then convert them to the main offering rather than to create an alternative platform that will build a strong separate base, such as Sky’s Now TV. In fact he contrasts Sky’s use of a distinct brand with Telefónica’s deliberate use of the Movistar brand for its own low-cost service.
“We are still focused on making our customers come to our overall package, but for those that don’t know us and for whom that is a leap of faith we wanted to launch what we internally call a sampler, and that is what Movistar Lite is,” he says. “You can see our own production and some of the stuff that our partners provide and some of the sport. But you are not able to enjoy the full experience. For that you need to upgrade to our overall package and you need to sign up to a quad-play bundle.”
The final element of that overall package that delivers differentiated value is the technology itself.
“We are part of a telco and we are very technologically driven. We are also increasing our investment in our own platform. We have our own OTT technology. Most customers reach us through IPTV but half also reach us thorough OTT and we have a very robust technology that we are able to stream over with very low delay, including for live events. We are also able to add advanced features,” he says. He cites the group’s investment in advanced advertising, with solutions to adapt ads including in a linear channel based on the characteristics of individual households as well as experiments in interactive advertising. Telefónica is also investing in voice recognition in the shape of its Aura technology. It has linked Aura with the TV platform to provide an improved customer experience to viewers.
Investment in OTT technology notwithstanding, in general Oslé shies away from the idea that the rules of the game have been fundamentally changed by streaming.
“Once all is said and done the rules will be more or less the same as 20 years ago. People like Netflix or the Hollywood majors have realised they can go straight to the customer but at the end they need to partner with distributors because they need to make sure their product reaches customers and someone takes care of the boring stuff like billing customers and managing churn,” he says.
He says that the majors have enjoyed a strong position in the past by being able to “focus on amazing content” while “passing on the commercial risk to parties like ourselves” by signing output deals.
Distributors, on the other hand, were able to carry that risk. “The reason they could do this is that we are very good at managing that risk, handling the commercial side of dealing with customers, and we would do that for a very low margin,” he says.
Oslé believes that in this context, Movistar+’s main competitors in the future will not be Netflix or Disney or WarnerMedia, or even the likes of Vodafone or Orange, but device manufacturers such as Apple or Amazon.
As far as those studios now taking the plunge into direct-to-consumer streaming are concerned – as well as the likes of pure OTT players such as Netflix – he is convinced most will quickly revert to a more traditional supplier-distributor relationship.
“I think we will end up in the same place. The new majors or the old ones will just try to strike deals with distributors which protect them from the hassle of dealing with customers, which is a low margin business that carries a ton of commercial risk,” he says.
“Some people have to do the actual management of the customers and put content in front of them and I think we will still be relevant in the future if only to fill that role – which is a role we have been filling for a long time.”
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