OTT TV for Millennials Has Become a No-Brainer

Fred Dawson, Editor, ScreenPlays Magazine

Fred Dawson, Editor, ScreenPlays Magazine

At our house we practice a form of social recommendations when it comes to discovering what we want to watch in the way of new TV programming. We ask our daughter and her boyfriend what they’re into.
 
It’s a sign of the times that two people who subscribe to pay TV would seek viewing advice from two who don’t even own a TV. As it happens, the majority of shows they recommend are on HBO.
 
In fact, it was when we first heard that Game of Thrones was one of their favorite shows that we learned the advice we were getting wasn’t about content available from legitimate time-delayed sources on the Internet. How, we asked, are you watching HBO?  “We steal it,” came the nonchalant reply.
 
Nothing unusual here, of course. Today a sizeable portion of an entire generation of otherwise law-abiding citizens has become adept at breaching the walls gatekeepers spend a fortune protecting. It happens so routinely that our 20-something thieves and their friends, a cluster of young professionals and doctoral candidates in New York City, think nothing of it.
 
No wonder, as reported elsewhere, HBO CEO Richard Plepler is hinting at making the premium service available as an online subscription separate from the pay TV package. When as many people worldwide might be watching an episode of Game of Thrones illegally as are watching it legally in the U.S., something has to give, and it’s not going to be the gate crashers, barring some kind of government crackdown of unimaginable proportions.
 
On learning of Plepler’s ruminations about going to pure-play OTT, we asked our cord-never TV reviewers whether they’d pay $12 monthly for an online subscription to HBO, which was the average price hundreds of thousands of respondents to a recent Twitter-based “Take My Money, HBO!” campaign said they would pay. Sure, they replied, although they said they’d prefer to pay on an a la carte basis of, say, $2 per show.
 
There’s an interesting thought. What if a new model were devised for online access to high-value content that offered the per-show purchase as well as monthly subscription option? Would these a la carte buyers, accustomed to unplanned, impulse behavior actually prefer cherry picking on a per-show payment basis from everything out there rather than paying monthly fees to selected channels?
 
If so, the OTT business model could become very attractive very quickly. Let’s say, for example, that the average a la carte programming price is set at $1 per hour per night. If just ten percent or 10 million of the 100 million or so people comprising this population of 12-to-35 year olds opted into the a la carte online model at a rate of ten shows per week, the annual revenue flowing into industry coffers from these currently untapped cord-nevers would come to $5.2 billion.
 
What are the risks that this programming option would induce existing pay TV subscribers to cut the cord? It’s not likely to be a winner for the channel-surfing lean-back crowd, especially if the a la carte approach ends up costing about the same or more than they’re spending for their pay TV subscriptions.
 
What are the risks the thieves would go on stealing rather than buying their programs? For some insight on this question, talk to a music industry executive.
 
The bet here is that Time Warner, having already launched an online version of its service in four Scandinavian countries, is spending considerable sums researching the bottom-line ramifications of various online business models. As Plepler put it, before implementing any such strategy, “We would have to make the math work.”
 
It’s a question on the minds of programming executives across the pay TV grid. As frequently reported in these pages, the content suppliers are aggressively testing many new modes of monetizing content online. But they haven’t crossed the line into live or briefly delayed online distribution.
 
What happens, however, if the raw economics prompt the leading premium service to go over that line? Or to put it another way, how long will the ad dollars and subscription fees to be gleaned from turning a generation of thieves into market participants remain off the table?
 
HBO, of course, is where pay TV began. It’s ironic that the biggest force behind a bunch of cable cowboys’ deciding to gamble on stringing coax across the cities of America might soon become the force that breaks the back of the bundled pay TV model.