nScreenMedia OTT multiscreen media analysis

4 rules for standalone OTT TV without breaking the bundle

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The rush is on for traditional content providers to get OTT TV services launched online outside of the closeted, comfortable confines of the pay TV package. However, that doesn’t mean the influence of cable is fading. It still dominates the strategies of content providers, even online.

The list of television companies promising to provide their best content, shows formally only available with a pay TV subscription, in online services just keeps growing. HBO, CBS and now even Disney have announced their intentions to deliver standalone services online.

However, just because these cable stalwarts are launching online, don’t expect the cable influence to be very far away. The ground rules of these new services are starting to emerge, and those rules are more governed by the old world than the new. Here are 4 guiding principles that the old TV world is using to temper their entry into the wild world of the Internet.

Rule 1: Put not one cent of pay TV revenue at risk

Almost as soon as the announcement of a new standalone online service is made, in the next breath content providers use those magic words “working with our partners.” None of the top tier content providers will do anything to jeopardize the enormous amount of revenue they get from the pay television ecosystem. Disney chief Bob Iger couldn’t have been clearer when he said:

“We don’t feel a compelling need to take a product to market right now that is a challenge to (its current) multi-channel bundle. There’s no need to do it now that precipitates the downfall of that bundle.”

Expect online pricing to be set at a level that does not encourage pay TV customers to contemplate cutting the cord.

Rule 2: Go for incremental revenue

HBO growth inside the pay TV package is stalled. Pay TV subscribers that want HBO under the current terms have it. Further, the company has seen Netflix blow passed its 30M subscriber total in the last year, with no signs that things are going to slow down.

The company clearly needs to do something new to ignite growth. Mr. Plepler (HBO’s head) said:

“All in, there are 80 million homes that do not have HBO and we will use all means at our disposal to go after them.”

That sentiment was exactly echoed by Les Moonves, the head of CBS:

“There are 10 million homes that have broadband only. They don’t have cable, they don’t have satellite. But they do want CBS content.”

Perhaps pitching products online to hyper-connected consumers will be enough to grab some of them as new customers.

Rule 3: Be ready to “flip the switch”

While no one wants to rock the pay TV boat, it’s also becoming clear consumers are increasingly enamored with the web approach to media. If a large number of pay TV subscribers were to decide to disconnect pay TV, it just makes good sense to be ready to react. As Bob Iger said:

“We’re well-positioned to go direct to the consumer if the marketplace demands it, but we don’t feel a need to do that now.”

Rule 4: Look for new online opportunities

The web is already bringing disruption to some areas that have traditionally been pay TV strong holds. With disruption, comes opportunity. That is what Disney’s purchase of Maker Studios is all about, and what CBS is up to pitching CBSN into the volatile world of online news. Expect content providers to look for new ways to reach online customers.

Just by being present online with content that is traditionally only available in pay TV does increase the possibility that cord cutting could catch fire. However, what we are seeing is that traditional TV providers are willing to take the risk. And by sticking to the four rules outlined above they just might be able to have their cake and eat it, at least for now.

Why it matters

Mainstream media providers are rushing to launch dedicated OTT services.

There are fears that this may lead to a spurt of cord cutting.

However, these services are sticking by 4 strategic rules which should continue to protect the pay TV bundle.


One Comment

  1. I have been in this industry for over 30 years and have seen most of the trends that have happened – some to the benefit of the subscriber but mostly benefiting the MVPDs and Content providers. Not so very long ago, I did a small sampling of subscribers who were using NetFlix and other streaming services and/or were cutting the cord (supplementing streaming with OTA). This was the result – (a) From what is happening with NetFlix, i.e. enormous growth, it is clear that the subscribers of pay TV or those who have cut the cord are looking beyond the confines of “tied-selling” practised by the MVPDs., in other words the subscriber has gotten smarter. (b) Notwithstanding the brave face put up by the industry folks, the consumer has clearly moved on and is willing and taking their business where it is more on their terms (although not necessarily cheaper than what they were paying earlier to the MVPDs). (c) This trend is also beginning to manifest itself in a very minor way in sports viewership, which has been the biggest money spinner and bottleneck for the average subscriber. (d) The subscribers patience has been progressively tested and is wearing thin, and the tanking of the economy did not help in keeping the expensive pay TV options which come out of their discretionary income (which has shrunk considerably), forcing a lot of subs to cord shave if not cut the cord entirely. This is clearly manifested itself in declining pay TV viewership .

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