At BroadbandTVcon in LA on Tuesday, Ronan Mizrahi of TVersity suggested the seeds of the pay TV industry’s demise may already be sown, and that operators are looking at the wrong metrics to see it.
Mr. Mizrahi described how Microsoft went from 40% mobile operating system share to 4% in just a few years. Essentially, Microsoft convinced itself that the iPhone would never gain share and wasted time chasing search, instead of responding to the iOS and Android threat. In other words, Microsoft was ignoring the signs foretelling its mobile OS demise. Mr. Mizrahi suggested pay TV is doing the same thing with the OTT threat.
Could this be true? Is the pay television industry focused on the wrong things and not seeing the bigger picture?
Certainly, the industry remains obsessed with cord-cutting, or the lack of it. The latest data shows that 125,000 subscribers left the fold in 2014. Hardly something to be ringing alarm bells.
However, perhaps cord-cutting is just the wrong thing to be looking at. Mr. Mizrahi said it was a trailing indicator of change. He suggested a leading indicator was traditional TV ratings. And the data suggests there is trouble there. In the 18-34 age group, TV viewing fell by almost 11% between September 2014 and January 2015. Why is this important if people are still subscribed to cable? There are two problems: when people use their cable subscription less they value it less, and TV channels make less money from advertising.
This last point is why some channel providers have begun to go direct to consumers online. The latest to announce an OTT subscription services is NBC, which said today it would deliver a comedy service in 2015 in the $2-$3 a month range. This is on top of similar announcements from CBS, Nickelodeon, HBO and more.
This doesn’t seem to be sounding alarm bells with pay TV operators either. I ask Andrew Goodman, Assistant VP Content and Programming at AT&T, about this issue on my TV 4.0 panel at BroadbandTVcon earlier in the day. He delivered a very eloquent analysis of the situation. He said when you add up the cost of all the different direct OTT offerings, and add in broadband, the average consumer would end up paying more than a pay TV subscription for less content. It is certainly hard to argue with this assessment.
However, is this the way consumers look at things? According to Pew Research almost half of Americans would find it very difficult to give up web access, while just 35% would find it hard to give up television. This suggest that for many a broadband connection is a sunk cost, quite separate to television. They simply don’t consider it part of their entertainment budget.
And individual content services give consumers much more flexibility to control how they spend their entertainment dollars. For example, consumers might subscribe to Nickelodeon’s Noggin while they have preschoolers and dump it for something else after the kids go to school. For an increasing number of people, this flexibility might override the simplicity of the one-price-for-all pay TV approach.
The reasons for Microsoft’s failure to address the threats to its mobile OS business seem crystal clear with the benefit of hindsight. In 10 years time, will we look back on 2015 and point at cable’s obsession with cord-cutting and failure to address the high-priced pay TV bundle as signs the industry just didn’t see the elephant in the room?
Why it matters
The Pay TV industry is reassuring itself that the threat from OTT delivery is still theoretical.
The lack of cord-cutting and the high aggregate cost of direct-to-consumer OTT content offerings reinforce this view.
However, this may be ignoring the underlying trends that may show the threat is very real.