Moving Beyond Cost-Cutting to Optimize Streaming TCO
The video industry has changed considerably in the last few years. The market in which video services now operate is very different to that of the boom years experienced between the late 2010s and early 2020s. Macroeconomic challenges have caused growth to dramatically slow down while at the same time content and customer acquisition costs have risen. Operational complexity has increased, the market has become more competitive, and user expectations are evolving faster than services can keep up with. Costs are being watched with laser focus, and boardroom discussions are driven by profitability metrics that didn’t exist just a few years ago.
As a result, video services are under immense pressure to reduce costs and optimize Total Cost of Ownership (TCO). However, a tunnel vision focus on cost efficiency alone is a risky strategy for a number of reasons. If video services want to truly optimize TCO, they need to look much wider than solely focusing on cutting costs.
Cost Efficiency Alone is not Enough
Focusing solely on cost efficiency may have created a race to the bottom on cost, but it doesn’t enable providers to develop any real competitive advantage.
Over the last few years, streaming companies have focused heavily on optimizing TCO through measures such as cutting operational expenses, automation and reducing cloud costs. However, the video service operating with the lowest costs is not guaranteed to be the most successful. After all, every service can reduce costs, but cost savings do not create differentiation.
Real competitive advantage comes when a service can respond quickly to market changes and be able to scale operations without unnecessary complexity. It also comes from being able to launch new features quickly and efficiently that actually move the lever for viewers, and from being able to take personalization to new levels that go beyond what a typical service can deliver. None of this is possible if a service suffers from decision paralysis, choosing not to act through fear of getting it wrong or failing.
Video providers therefore need to look further than cost efficiency alone. They need to also reassess how they allocate resources, so that each dollar spent provides maximum ROI, while also maintaining service quality, and enabling innovation. Optimizing TCO is not just about reducing costs, but rather is about getting the balance right between innovation, quality and cost efficiency.
Understanding the Cost of Inaction
Delaying change when it is needed can have a significant operational and financial impact on a business. Waiting can feel like the safer option, especially when budgets are tight and the macroeconomic climate is such that most companies are operating in a risk-averse manner.
Acting too fast while technology is still immature or unproven increases the likelihood of problems and leads to unnecessary costs and operational risk. However, doing nothing also has an impact on your balance sheet. It can lead to missed opportunities and playing catch up with competitors who are innovating faster. Video providers who are too slow to act also run the risk of not being able to adapt fast enough to meet viewers’ changing needs.
The trouble is, the costs that come from not acting are often difficult to measure directly. Engineering teams may spend more time on maintenance than developing new capabilities, infrastructure costs are higher than they need to be and user experience gradually suffers. These costs rarely appear as a single line on the budget, but they still exist and what’s more, they compound over time.
While this is happening, operational complexity is increasing, technical debt is growing, and opportunities can be missed because services aren’t able to act. If innovation is continually pushed back, the effort and investment required to deliver the desired outcome can increase significantly. Video services therefore need to ask themselves not only what improvements will cost, but also what negative impact delaying change will cost too.
Optimizing Total Cost of Ownership
With so much at stake and so many variables to balance, it can be difficult to see how to go about reducing and optimizing TCO without compromising on quality and the capacity to innovate. There’s a clear need to address hidden costs such as those that arise from fragmented systems, redundant tooling, and custom integrations. Alongside this, operational efficiency also needs to be maximized. However, this is only possible by looking across the entire video service as a whole, rather than focusing on individual areas in isolation.
Another important step is to position the video service so it can benefit from economies of scale to lower both development and operational costs over time. This can be achieved by leveraging a shared infrastructure, proven integrations and automations. If they’ve not done so already, OTT services also need to move away from rigid, monolithic systems towards more flexible infrastructure with modular components. This enables services to adapt more easily as requirements change, while reducing unnecessary infrastructure overhead and limiting dependence on a single technology approach or vendor.
Alongside controlling and reducing costs, optimizing TCO also means preventing revenue leakage, namely churn but also other revenue leaks. Retaining customers, stabilizing recurring revenue, and eliminating manual reconciliation reduces long-term acquisition costs and improves financial predictability. AI-driven churn prediction and end-to-end observability can go a long way in helping video services identify at-risk subscribers and hidden revenue leaks.
Key Takeaway
OTT services won’t come out on top by focusing all attention on ensuring they’re operating at the lowest cost. Real competitive advantage comes from adopting architecture that provides the ability to stay agile, innovate, and quickly respond to market changes in a low-risk, cost-effective way. Ultimately, optimizing TCO is about creating a more cost-efficient foundation that enables innovation rather than restricts it.
[Editor's note: This is a contributed article from Accedo. Streaming Media accepts vendor bylines based solely on their value to our readers.]
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