J.D. Power Reports: Popularity of Internet Entertainment Services Creates Customer Retention Challenges for Digital Lifestyle Providers

WESTLAKE VILLAGE, Calif., Aug. 21, 2013 /PRNewswire/ -- As the popularity of Internet entertainment services grows among consumers, digital lifestyle providers face customer retention challenges and seek to extend bundled service offerings, according to the J.D. Power 2013 Digital Lifestyle Study^SM released today.

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The study, now in its second year, examines consumer brand loyalty, propensity to subscribe to digital lifestyle products and preferences for aggregation of a wide array of services from one provider. Referred to as a digital lifestyle service package, it includes such entertainment components as video, television, audio and gaming; monitoring components, including home security, energy management and healthcare services; communication components, such as voice, Internet and wireless; and such other components as data backup and smart appliances.

KEY FINDINGS

• Consumers most often choose Internet service to include in a bundle, followed by voice and video, respectively.
• Consumers intend to bundle voice services, despite available alternatives.
• Consumers are receptive to home healthcare services.
• Younger consumers are most likely to share personal information, but expect free services in return.

The study segments consumers into five groups, based on age and other demographic and psychographic characteristics, in order to provide insights into their current and future digital lifestyle bundle preferences. Those segments are low-tech empty-nesters--mature households who use technology that has minimal impact on their daily lives; the family that techs together--teen and kid-focused technology purchase behaviors; generation wireless--youngest household  profile, with high investment and engagement in technology; offline seniors--elderly households with little technology interaction or concern; and emerging traditionalists--nuclear family household profile, with average technology investment.

Nearly two-thirds (61%) of consumers consider Internet service as the foundation of their future digital lifestyle bundle. It is the most-frequently chosen service in consumers' present and future digital lifestyle bundles, indicating that consumers understand the necessity of having fast, reliable broadband for entertainment, home automation and other services. While 70 percent of consumers in the offline seniors segment include Internet in their ideal bundle, only 54 percent of those in the generation wireless segment indicate the same. Younger consumers have a high propensity to be connected to the Internet and may rely more heavily on mobile broadband and publicly available networks.

"As the cost of subscription-based television increases and the speed and reliability of mobile broadband attracts a younger generation, consumers are more selective when choosing an entertainment and communications service provider," said Kirk Parsons, senior director of the telecommunications practice at J.D. Power. "Customer retention and acquisition are critical issues faced by telecom providers. To remain competitive, they are now offering bundled Internet-based services, such as home security, in order to provide additional value to a wide variety of consumer segments."

Opportunities for Revenue in Bundling Video Services
Forty percent of consumers select video service as part of their ideal future bundle, making it the third-most-frequently chosen option, following both Internet and voice service. The study indicates that consumers are more willing to search and invest in video entertainment online rather than via traditional TV service. Sixty-six percent of all consumers surveyed for the study--and 92 percent of those younger than 25 years old--regularly use an Internet video service, such as Netflix, Redbox or Amazon, in addition to television service. Further, consumers who use video services are not necessarily replacing traditional TV viewing, as they are significantly more likely to purchase video on demand from their cable or satellite provider than consumers who do not use video services.

"While digital lifestyle providers leverage video services to attract consumers, there are opportunities for new service providers to deliver a two- or even three-screen experience," said Parsons. "Eleven percent of tablet users indicate they view extended or additional programming and content online while they're viewing television."

Telecom Providers Positioned to Benefit from Future Bundle Adoption
Telecom providers are well-positioned to meet future consumer demands for aggregated digital lifestyle offerings. Nearly three-fourths (74%) of preferred future bundles in the United States and 78 percent in Canada include such non-traditional elements as home automation, energy management and home health monitoring. Home security appeals to younger consumers regardless of whether they own or rent their residence. In addition, they like the high-quality service offered by home security providers compared with do-it-yourself home automation solutions.

When future bundles are considered telecom providers are the preferred provider by 65 percent of U.S. consumers; 13 percent prefer security providers; and 7 percent prefer energy providers, while 16 percent prefer such other providers as technology giants (e.g., Google and Microsoft) and device manufacturers (e.g., Sony). However, generation wireless households have notably different preferences from the study average, with 57 percent preferring telecom providers and 21 percent preferring technology firms or device manufacturers.   

Incentives Reduce Privacy Concerns
Younger consumers (those between 18 and 25 years old) are willing to share their browsing and GPS location information in exchange for free services and special offers. More than one-half (55%) of young digital lifestyle consumers are likely to share their online browsing history for free services and 43 percent are likely to share this information for special offers. Thirty-seven percent of consumers are likely to share their GPS data in order to use location-based services. Only one-fifth (21%) say they are "very concerned" with their current service provider having access to their online browsing activity, compared with 27 percent who say  they are "not very concerned" and 9 percent who are "not at all concerned."

The 2013 Digital Lifestyle Study is based on 12,827 responses from members of Web-based panels in the United States and Canada that are comprised of a representative sample of consumers who are responsible for making their household decisions regarding home telecommunications, entertainment, security, and energy services. The study was fielded in June 2013.

About J.D. Power
J.D. Power is a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions. The company's quality and satisfaction measurements are based on responses from millions of consumers annually. Headquartered in Westlake Village, Calif., J.D. Power has offices in North/South America, Europe and Asia Pacific. For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power is a business unit of McGraw Hill Financial.

About McGraw Hill Financial
McGraw Hill Financial (NYSE: MHFI) is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include: Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, J.D. Power, and McGraw Hill Construction. The Company has approximately 17,000 employees in 27 countries. Additional information is available at www.mhfi.com 

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SOURCE J.D. Power and Associates