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Profit is not a dirty word

But, knowingly or unknowingly, Video on Demand (VOD) and other Value Added Service (VAS) providers seem to ‘abandon’ the pursuit of profit — which, in the near-term, damages the rotor of their service offerings, and in the long term, destroys the engine of their business.

In their efforts to offer VOD (and other VAS), service providers today are suffering substantial losses in revenue streams as a result of ‘all-you-can-eat’ pricing, inability to do content-value-based pricing and ineffective partner settlement systems. The future might turn bleak for many of these operators sooner than later, if the current levels of ‘no-profit’ or losses continue.

Agreed, with ARPU (Average Revenue per User) stagnating, offering VAS in association with partners is the best way forward. Also, VOD is an innovation the customers always wanted. But truth be said, faith in innovation goes with faith in profits. Before making further advancements in providing customers with what they want, the service providers need to put in place the most obvious – a pricing and billing system that supports the types of billing situations (bill-per-use) that VOD and other VAS present.

However, they have not been very successful in this endeavor, primarily due to the technical inability to implement competitive pricing strategies. This inability is deep-rooted in their existing pricing and billing systems. These systems were installed in an era when only ‘all-you-can-eat’ service offerings existed, and the concept of usage-based services was not even envisioned. Over time, these systems have become ingrained into the core operations of the service providers.

Replacing the existing billing systems with fresh ones capable of usage-based pricing is not a viable alternative, as it involves tremendous cost, effort and time – in not just replacing the system, but also in re-building the interfaces with all other software, which have been developed over the years. In the face of this daunting challenge, and with the fear of customer churn looming large, most operators have chosen to live with the limitations of their legacy systems, thus compromising on profits, and in many cases, accumulating losses.

Tracking usage and pricing is also important to enable accurate and timely revenue settlement with content providers. Such precision in settlements is critical to winning the confidence and support of content providers. This, in turn, prompts them to make content available to service providers at the same scale and terms as they currently provide to on-line or conventional video rental companies.

What service providers need is an alternative to forklift upgrades of their legacy billing systems. They should be able to add to their existing IT infrastructure, an adjunct usage-based pricing module that provides the required incremental pricing functionality, without having to replace any. And yes, of course, the module should earn them PROFITS!

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