Once upon a time there were two five star hotels in two
major cities within the Asia Pacific region. They both had around 500 rooms and
operated under well established brands within their respective markets. Both
revamped and upgraded their in-room entertainment systems along similar
parameters, albeit with some small but significant differences.
Hotel A wanted a system heavily reliant on video on demand
content that featured an extensive selection of Hollywood blockbuster movies as
well as Asian and Western adult, on top of some standard interactive hospitality
features, such as weather and world time.
Hotel B also wanted to have Hollywood and Adult content, but
was more interested in using technology in an innovative way to offer services
such as interactive in-room dining and second screen applications that can be
accessed through a tablet.
A few months after both hotels introduced their new systems,
a look at how the two compare gives some surprising insights.
Let’s take VOD hit rates first. Hotel A scores average monthly
VOD hit rates of around 5% and healthy revenues in the 5-digit US$ range,
almost suggesting the heyday of VOD hit rates in hotels are back again. The hit
rates for Hotel B on the other hand, are limping along at a low 1.2%, much more
in line with the picture of declining VOD revenues hotels have been reporting
over the past few years.
So what’s the difference between Hotel A and Hotel B? Hotel
A was aware that it was particularly popular with regional business travelers
and consequently ensured that the entertainment portfolio was well stocked to
meet this demographic’s preferences. They also adopted a flat-rate content
business model that allows them to price their VOD library at a premium and thus
make the most of the demand for this service.
Hotel B, on the other hand, is located within a prime
shopping district and is frequented primarily by shoppers, honeymooners and
families – not the demographic that would necessarily watch movies in the hotel
room (and certainly not adult ones) when there are plenty of things to explore
around the hotel.
The key here is that Hotel B recognised this not be a
disadvantage– quite the opposite. Being aware of the fact that VOD would not be
a prime contributor to the bottom line, Hotel B decided to offer Hollywood VOD
free to guests, creating instant, albeit more intangible value. I wrote in
previous emails how Free to Guest (FTG) VOD is an inexpensive option for hotels
to gain brand differentiation that can be more valuable than the (inevitably)
declining revenues generated by offering it as a chargeable item (not to
mention the administrative effort attached to managing the usual revenue share
business model).
And Hotel B did more. It focused on other interactive
features that would not only enhance the experiences of their specific guest
profiles but also add to the bottom line. Using the Second Screen, where guests
can stream all hotel-specific features, including TV and VOD, on their iPad
within the hotel for the duration of their stay prove to be a big hit. So did
the interactive in-room dining menu that enables guests to order room service
straight from their TV screen, which increased the overall in-room dining
revenues significantly.
The moral of the story is of course that one shoe doesn’t
fit all. If you feel ham-strung by declining VOD revenues because your
demographic simply doesn’t want to watch anymore, offer it for free and get
some brand mileage out of it. But if your guests are heavy users of VOD, maximise
this revenue opportunity by stocking up your portfolio with appropriate
selections and revise your business model.
There is no doubting that content consumption as a whole is
in a state of flux. However, as I said before, it will be some time until a
business model emerges that connects the technology, delivery mechanism and
content available today in a meaningful way that is also applicable at an
enterprise level. Until then, hotels shouldn’t shy away from using the
available features and services to differentiate themselves and add to the
bottom line.
As long as the approach is not of the one-size-fits-all
variety, that is.
