Posts Tagged ‘Over The Top’

A La Carte TV: No Blue Plate Special?

As the winds of change push more and more consumers away from conventional pay TV packages and toward streaming, “over the top” video, an interesting report has just arrived from Needham and Co. analyst Laura Martin.

The report, detailed in the Los Angeles Times, says that moving to an “a la carte” model for delivery of TV programming would result in higher costs for consumers and possibly knock the foundation out from under media companies.

According to Martin, a la carte delivery of pay TV channels would cause at least 124 smaller channels to disappear altogether, taking with them 1.4 million jobs and at least $45B in advertising.

Martin has calculated that a typical entertainment cable channel costs about $280 million per year to operate and requires (with current retransmission and rights fees) about 165,000 viewers annually just to break even. As a result, only 50 or so channels would be likely to survive out of the nearly 200 channels of programming currently available across a multitude of pay TV outlets.

Martin also notes that the typical subscriber watches perhaps 20 channels at most out of an average selection of 180 channels. I think that number is high; anecdotal evidence from friends and colleagues suggest the number is much lower and close to 10 – 15 channels.

The Needham study states that, in addition to the economic cost of a move to a la carte pay TV – pegged at $80B to $113B of “U.S. consumer value” – the costs to subscribe to existing channels would also increase, as they would inevitably lose subscribers as well.

I’ve previously detailed the growing calls for moving sports channels to their own tier, given the additional cost burden they add to the average monthly cable bill (about 10% to 12%). Not surprisingly, companies like Disney (ABC, ESPN), Fox, Comcast (NBC), and CBS oppose a move like this.

But the fact is; consumers are increasingly voting to switch off pay TV services and instead rely on the likes of Comcast and Time Warner to deliver broadband connectivity, and nothing more. This “cutting the cord” trend finally gained the recognition it deserved earlier this year when it was revealed that pay TV subscriptions went into decline for the first year ever.

Aereo, the disruptive “remote antenna” service that is rolling out nationwide and faces continued court challenges, charges about $10 to stream over-the-air broadcasts through the Internet to connected TVs, tablets, and phones, and is another approach to OTT delivery. Yesterday, the company petitioned the 2nd Circuit of the U.S. Court of Appeals for a Writ of Certiorari – in essence, forcing the issue to the Supreme Court for review.

If Aereo wins here – and it could – then the floodgates will surely open for other, competing OTT services that could cherry-pick channels and deliver them to the home in an attempt to lower monthly subscription costs. And even the cable companies are paying attention: Comcast announced in October a limited entry-level pay TV channel bundle that also includes fast Internet and HBO Go for about $60 – $70/month.

Even so, Netflix is still the largest pay TV service in the world, closing in on 30 million subscribers. And all you need to watch it is a fast Internet connection (if it’s fast enough, you might even be able to watch Netflix’ 4K movie service that is scheduled to roll out next year). In many markets, all you really need as a Roku or Apple TV box plus an antenna to get a nice selection of free and premium programming.

Granted, you won’t get as many sporting events, but studies have shown that only about 4% of pay TV subscribers watch sports channels on a regular basis to begin with. And many big-ticket events like NFL games, major league baseball, college football and basketball, and (of course) the Olympics are still available on broadcast TV channels.

While Martin’s study is interesting, it discounts the “free market” effect of consumers voting to save money and find other ways to access TV programming.  There are always winners and losers in a free market system, and the fact is; pay TV subscriptions continue to rise annually at rates above inflation. Consequently, consumers are making necessary economic decisions about the price paid versus the value received, which is why interest in OTT video is slowly growing.

Starting next year, Canada will require pay TV services to “unbundle” TV channel packages as a way to rein in expensive monthly bills. So we have the perfect test lab north of the border to see just how a la carte pay TV will work, or won’t work. Stay tuned!

Who Wins In The New Media Landscape?

The past few weeks have been mostly a blur for me, what with trips to and presentations at the annual Hollywood Post Alliance Technology Retreat the week of February 14, plus presentations to the Delaware Valley chapter of SCTE last Wednesday (my annual CES recap) and the New York City chapter of SMPTE last Thursday (plasma and OLEDs as candidates for reference monitor technologies).

Through it all, I’ve been staying on top of a blizzard of news stories and press releases pertaining to media distribution (over the top, or OTT), the continued decline in packaged media sales and rentals, a new streaming service from Redbox (presumably with Amazon) and a new 3D channel from Comcast.

If you’re not tracking this brave new world of media distribution and consumption on a daily basis, it’s almost impossible to keep up with the changes. At the Tech Retreat, we had an interesting breakfast roundtable discussion on 3D in the home, and whether it was a flop, partially successful, or had any real future.

That discussion also turned to the relative scarcity of 3D movies, which in turn brought up a comment from one of the participants (Ethan Schur of TDVision) as to why more studios didn’t remaster more of their older 3D movie titles into the Blu-ray format.

The reply, as worded by participant Wade Hannibal of NBC Universal, is that the cost to do those remasters probably wouldn’t be justified by Blu-ray disc sales, let alone rentals. Similar comments were offered after we watched a beautiful restoration of Stanley Kubrick’s 1965 masterpiece Dr. Strangelove on Thursday evening. Kudos to everyone involved, but how would Sony Pictures possibly recover its investment, instead of charging it off as goodwill against taxable income?

The fact is; Hollywood does not like streaming at all. At least, not the way Netflix practices it. The revenue stream isn’t substantial enough to replace the lost income from DVD and Blu-ray sales and rentals. But with Netflix now boasting in excess of 20 million subscribers (second only to Comcast) and Blockbuster in Chapter 11 – and possible Chapter 7 bankruptcy – the studios are rapidly losing all of the high-value outlets they once had for selling movies and TV shows.

Along with Jerry Pierce, I moderated a panel discussion at HPA on over-the-top (OTT) video. Panel participants included Dan Holden of Comcast, Jeff Cove of Panasonic, and Dani Grindlinger of TiVo, and the discussions were lively. Is OTT video a real threat to traditional pay TV channel subscriptions? Comcast’s Q4 2010 financial results, released during the conference, would seem to indicate ‘no’ as they only lost about 135,000 subscribers during that time period.

TiVo has made some nice gains with Charter Communications, who will offer their Premiere series of DVRs to customers for traditional pay TV service. But TiVo also supports Netflix, YouTube, and other Internet video channels that could compete with Charter’s bread-and-butter services. Is this tantamount to letting the fox into the chicken coop and hoping he’ll stay honest?

Panasonic, who was among the leaders in pushing 3D last year, now has a Viera tablet PC and their TVs offer a wide range of connected (OTT) services, including Netflix (who else?), Pandora, Skype, Facebook, Twitter, MLB.com and NHL.com. But they’ve also opted for a proprietary ‘apps’ platform, which means that app developers have yet another proprietary format to deal with.

The one company missing from our discussion was (of course) Netflix. Their business lately can best be described as “a house on fire,” and with their stock price in the mid-$200s per share, they don’t need to explain themselves to anyone.

But there will be pushback against the big red N. And that will come with higher rights fees in future licensing agreements from the likes of Sony Pictures, Warner Brothers, Disney, Fox, et al not to mention major TV networks. It’s been pretty much conceded that packaged media (for better or worse) is on the way out, and that digital downloads and streaming are what the marketplace wants.

So the big question is how to make any money from it. Believe me, studios are very concerned about future revenue streams, which is why some of them are also discussing a shorter exclusivity window with movie theaters before popular movie titles would be available on pay-per-view (probably for $29.95 or $39.95), a proposal that is being roundly criticized by the North American Theater Owners (NATO) group.

The so-called 28-day reserve period that protects Blockbuster against Netflix and Redbox may also have to go out the window. The latest news from ‘the Block” is that it may shed as many as 600 stores, and that even a move to a streaming model isn’t going to save their chestnuts as studios sue to get millions of dollars back in unsold DVDs and Blu-rays.

However all of this turns out, there will be casualties. Blockbuster looks to be cooked and I don’t see anyone else looking to get into the brick-and-mortar DVD rental/sale model. What DVD/BD sales there are will be handled by the likes of Target, Wal-Mart, Amazon, and even my local Acme market (which had a 3’ x 3’ bin full of $9 DVDs in the candy aisle last week, including recent titles like Kick-Ass).

Netflix will likely pass Comcast in total subscribers by June of this year; maybe sooner (they added 3 million subscribers in Q4 of 2010). Redbox should have its movie streaming service up and running by then, and they may soon be joined by none other than YouTube. What kinds of deals will Hollywood ink with these companies?

One of the great ironies of all this is that Blu-ray player sales are picking up speed as their prices continue to drop. But anecdotal evidence so far is that consumers are buying BD players mostly for Netflix streaming – it’s cheaper than buying a new TV to gain Internet connectivity, and you can always play the occasional DVD or Blu-ray disc if you need to. (And I know where you can find some really good deals on cheap Blu-ray discs, over by the detergent, paper towels, napkins, and household items aisle…)