Maybe it’s just the state of the world right now that people are going to find reason to freak out, no matter what business they’re in. But it seems strange that after steadfastly insisting the bundled channels subscription model was impregnable through the headiest days of the OTT boom, cable operators would be having profound second thoughts just as the high flyers in cyberspace are going into a tailspin.
If it were one or two online entities hitting a rough patch, you could chalk it up to mismanagement. Certainly Reed Hastings has taken his lumps in the blogosphere for moves that have cost Netflix plenty in stock value, lost customers and revenues.
But Hastings isn’t stupid, and, as the failure to renew the Starz deal attests, the economic foundation Netflix leveraged to hit pay dirt online needed a radical makeover, which is to say, a major investment in content backed by a bigger revenue base. Indeed, the lack of funds to pay for early-window content is causing upheavals at Yahoo!, AOL and Hulu, to name the most prominent victims of commoditization on the Web.
The proposed sale of Hulu, on the blocks since June with Google and DISH rumored to be the leading suitors, is especially telling. Policy differences are said to be a big reason media owners Comcast, Disney and News Corp. want out of the deal, but it’s unlikely those differences would be fatal to the partnership if they’d found a successful business model.
If success meant building an online TV outlet that would eventually produce a net addition to content owners’ take across all outlets old and new, it’s clear they’re way off the mark. The falloff in TV viewing among people in the 18 to 34 bracket is accelerating at an alarming rate, down 3.4 percent from two seasons ago and 2 percent from last year, according to Nielsen.
Big brand TV networks with their dabbling in online entertainment were big contributors to this trend, but not to the point of drawing viewers online with the consistency those brands enjoy on legacy TV channels. Once a person has moved to the Web for entertainment, the viewing experience becomes a scavenger’s hunt where the prize is bragging rights to discovering something all your friends want to hook into for whatever brief duration they’re willing to indulge before jumping back into the hunt.
Yet, just as all this is becoming crystal clear to the TV channels, cable operators are reported to be considering a push to persuade networks to buy into a la carte service models that could cost networks a huge share of their license fees. Threatening to undo the business model that prevented the programmers from turning OTT into a disaster for MSOs makes no sense.
With Comcast and Time Warner Cable alone reporting the loss of 1.2 million subscribers over the past year there’s no denying the costs of subscriptions are cutting into operators’ subscriber bases at a moment when consumers have lower cost options on the Web. But for cable operators and programmers alike the way out of the bind is to embrace the online environment and what it adds to subscriber experience. This can be done in ways that enhance the value of subscription service while ensuring that big brand TV has enough presence in the online space to be seen as a serious player by the young and restless.
The grand bargain calls for better use of advertising technology in the multi-screen premium service space to generate the ad revenues that can help defray programming costs and therefore keep subscription fees in bounds. It calls for creating a user-friendly online discovery experience that draws couch potatoes of all ages into the pleasures of Web entertainment and, at the same time, increases their dependence on their pay TV service providers for the navigational tools, multi-device connectivity and media management support that brings them the best of all worlds with minimum hassles.
With the network technologies, new hybrid service media gateways and big broadband pipes to bring this next-gen experience to consumers, the premium services industry has a huge opportunity to turn what seem to be threatening trends to advantage. Now isn’t the time for panic.