If the cloud is commoditizing distribution, ubiquitous availability of TV programming on a time-shifted, a la carte basis is commoditizing the content itself, making it ever harder for TV networks and studios to rely on the old release window strategies to sustain the top-line revenues associated with bundling of live programming into pay TV packages and first-run theatrical releases of movies. In other words, the more cord-cutting they inspire, the worse it gets for them.
After a period of debate over how serious an issue “cord-cutting” might be, it’s now clear to everyone that the combination of “cord-nevers” and “cord-barelies” – in other words, people who are regular consumers of time-shifted TV and on-demand movies from the Internet – pose a serious challenge to traditional pay TV distributors and networks. In June Participant Media’s Pivot cable network released a study that made this point, noting that along with 8.6 million broadband-only subscribers in the Millennial age group (18-34), there are another 17.9 million Millennial “cross-platformers” who subscribe to pay TV and broadband but are considering dropping pay TV. The study also reported that 14 million “Gen Xers” (35-49) are also in the cord-cutting risk category among cross-platformers.
Of course, it’s not just all about cord-cutting when it comes to what’s driving pay TV subscriber losses in cable and satellite. According to the latest report on subscription trends from Leichman Research, the top nine cable companies registered a net loss of 555,000 pay TV subscribers while Verizon and AT&T gained 373,000. With the two top DBS providers losing 162,000, the overall net loss for the top players in pay TV came to 345,000 for the quarter. No doubt, some cable and satellite cord-cutters are shifting to telco TV.
Looking at Europe, where one sees individual broadcasters leveraging the cloud to deliver a bundle of pay TV services over broadband, incumbent providers reaching beyond traditional borders with cloud-supported OTT offerings and big telecoms offering cloud-based wholesale offerings of pay TV distribution support, it’s reasonable to assume that the situation for incumbent providers in North America is destined to get a lot more challenging. After all, those cloud systems offered by a growing number of vendors appear to be good enough to foster pay TV quality delivery over broadband in Europe; there’s no reason to think they won’t be used to similar ends here.
Combine the potential for far more competition for a dwindling base of pay TV subscribers with the ubiquitous availability of time-shifted alternatives to bundled premium service, and it’s not hard to envision what lies ahead. For incumbent network distributors the challenge is to find ways to use their facilities to drive new revenues through commercial services, smart home applications and specialized niche services like health care. Multiscreen TV, too, opens revenue opportunities through advanced advertising and possibly, as we’re starting to see in Europe, value-add fees or in conjunction with higher priced tiers.
But it’s a different story for the content suppliers, who would be hard pressed to compensate for the losses in subscription fees with revenues from OTT outlets, no matter how aggressive they become in making their content available to such outlets. What began as a dabbling in OTT on the part of major networks has snowballed into a diminishing returns scramble to catch all those non-subscribing viewers.
Given the long-term dangers for the networks, they would seem to have every reason to be working with their incumbent distributor affiliates to strengthen rather than dilute the value of their content. But the relations on that front reflect mindsets that are locked into near-term metrics with no thought given to long-term trend lines.
Maybe the TV networks have some other ideas about how to turn the downward spiral ahead for bundled pay TV to their advantage. We’ll be listening for any bright ideas as we head into the fall round of trade shows.