Gauging Impact of OTT Requires New Perspective

Fred Dawson, Editor, ScreenPlays Magazine

Fred Dawson, Editor, ScreenPlays Magazine

The past few weeks have produced a spate of developments that signal long-held commitments of content owners to protecting the TV subscription model from over-the-top cannibalization will be tested as never before in the year ahead.

For example, Google’s purchase of content security provider Widevine puts the search giant on track to pursue the content distribution game at the premium level much more aggressively than it could otherwise do through reliance on content suppliers and manufacturers to come up with whatever security arrangements they need for whatever business models they choose to pursue through Google TV. Meanwhile, other suppliers of content protection are rolling out new iterations of their technologies that are designed to meet premium content security requirements across all devices, thereby overcoming one major barrier to exploiting OTT as a pay TV outlet.

With subscription TV barely holding its own and, at some companies, showing quarterly drops for the first time, the question is whether content owners will have the will to resist the floodtide of premium content consumption underway on the Internet, thanks in large part to the success of Netflix’s streaming service. This success in turn is drawing ever more high-value content to the service. For example, Disney’s new deal with Netflix calls for distribution of ABC network and other TV programming no earlier than 15 days after the original telecast.

Media executives, including Time Warner CEO Jeffrey Bewkes in a recent interview with The New York Times, are arguing the low-cost Netflix juggernaut is about to come up against real-world economics with the need to renegotiate what has been a sweetheart deal with Starz for rights to streaming Sony and Disney movies. But Netflix has already shown it’s willing to play the higher-cost premium content game in its five-year deal with Epix, which it reportedly has agreed to pay close to $1 billion for rights to stream movies from Epix owners Paramount, MGM and Lionsgate 90 days after their pay-per-view release window. If there was upward pressure on Netflix subscription fees resulting from that deal, it wasn’t showing up in the latest monthly online rates announced by the service, which were lowered to $7.99 without access to DVDs by mail versus the previous price of $8.99 with access to one DVD per month.

But Netflix, other than a driver to the growing acclimation of the public to getting premium content online, is almost beside the point of what’s happening on a larger scale among major players. The Wall Street Journal reports media companies have been talking to Microsoft and Sony about creating subscription TV services for owners of those firms’ game consoles. TV set manufacturer Vizio is also said to be scouting deals for a subscription service. And Amazon is getting into the online subscription game as well.

More importantly, the studios have opted for electronic sell-through as their route to recouping revenues lost with the falloff in DVD sales. This has led to the soon-to-launch UltraViolet platform, which its leaders have told ScreenPlays will not be limited to purchase-to-own models but is likely to move into the stream-to-rent mode as well. UltraViolet has scheduled a press conference at the Consumer Electronics Show next month, suggesting the final pieces are now in place to allow commercial launch to go forward (see September p. 1 and October p. 1).

With content protection and adaptive streaming technologies supporting delivery of high-value, high-quality content over ever higher speed broadband networks to an ever larger base of connected TVs and set-tops, the year ahead promises to be rich in explorations of new business models. Content owners will struggle to find the right mix where the growing base of viewers online can be served while preserving the scheduled TV programming window on the legacy subscription side. Aggregators will struggle with ways to deliver value but cover ever mounting costs for ever shorter release window rights on premium content.

But as online consumption increases, schedule-defined viewing behavior declines. At some point playing with release windows to keep the high-cost value of the old model intact will give way to accommodating the mass exposure requirements of advertising to all those online viewers. All sides can adjust to participate in the new business scenario, but no one should assume there won’t be some big adjustments to be made.