What Will Carriage Wars Look Like In An OTT World?

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January 8, 2012 – 6:00 am

The Over-The-Top FutureAfter two years of fighting (er, negotiating?), Time Warner Cable subscribers in the New York area hoping to see the New York Knicks and The Rangers the past week on the MSG Network were disappointed to see that channel blacked out due to a contract dispute. Over the past few years, MSOs and cable networks have increasingly gone past the brink when it comes to transmission fee agreements. As a result, channels have gone dark and cable subscribers have had little choice but to vent frustration and wait until the two sides sort it out over.

But viewers have been increasingly offered other avenues for watching TV programs through a variety of broadband-based systems, from Netflix's streaming of TV show seasons, to devices made by Boxee and Roku, that offer a wide array of streaming programming right on their TV. While the notion of cable subscribers cutting the cord has not gained mainstream acceptance, as video-on-demand becomes more of a common part of viewers’ experience.

Can Over-The-Top (OTT) offer a credible option for subscribers, especially with more cable network blackouts expected over the next few years? We asked several industry insiders for their thoughts on whether OTT will have any impact on the cable carriage wars and they provided a range of opinion on how things are likely to play out in the near-future.

Click below or scroll down for more to read the answers:

Jon Mandel, chairman Dogsled Enterprises, Proximic; formerly CEO of NielsenConnect and MediaCom

"I think the carriage disputes don’t necessarily mean much for the OTT world. Although over time it could be marginally good for OTT and also bad for OTT.

The bigger issue is with the MSO's fighting. (...) The dumb thing here is that eventually it is going to force a situation where cable becomes a la carte. That is something the cable industry on all sides has fought (and I also testified at FCC that this is a bad thing). The reason it is bad is that small networks will die without the per home fees they get now.

One could argue that this is good for OTT because it will cause that programming to migrate to online/OTT. But the math doesn’t work unless somebody is willing to lose hundreds of millions upfront on content for very little pay off down the road. Financially, people will invest in other things (not necessarily program content…other industries) instead because the returns won’t be there versus the amount of money invested. It will also hurt OTT because it will make the big guys bigger and stronger. That will make the noise level that little guys have to break through in order to be heard/discovered/watched that much louder and more difficult.

One of the things that always amazes me being in a world that goes across all media as opposed to specializing and making my bones in just one is that folks get so locked into their perspectives they forget that in the bigger world there are bigger issues which makes their perspective at best cloudy.

For instance, people forget that 30 million views over a month in online is HUGE where in TV which is measured on average minute even a small show on PBS does more in a month. I am not saying 30 million is small, but when one takes the math and multiplies out the dollars available for each viewer times that 30 million it isn't a big enough number. They also ignore that TV is used for IMMEDIATE, BROAD impact, which is why it gets a premium. If this whole thing makes the big bigger, they will only be able to extract bigger premiums which will leave even fewer crumbs for the smaller guys to fight over.

I also think this whole OTT etc thing is going to create more long term, multi device, multi environment deals like Comcast/Disney. Now one could argue Comcast did it because they are in the same boat as Disney given their content businesses. But I think they both were right in it. Disney and other content people would rather have the Comcasts of the world collecting the money and managing the distribution…cleaner, more efficient, and it isn’t Apple or Google or whatever enemy or an army of unknown little guys. Further, that will allow the content guys to keep control of their product. For the Comcasts, it is a way to lock out the OTT."

Brian Weiser, Sr. Research Analyst at Pivotal Research Group, former CMO, Simulmedia; EVP, Global Director of Forecasting at MAGNA Global

"There are not as yet any subscription revenues flowing through to cable programmers for carriage of live programming from any over-the-top provider of video services.  Only if a consumer has eliminated their core (facilities-based) video service in favor of a new (non-facilities based) over-the-top service might it matter, but it would be akin to a carriage dispute with a small cable operator.

In other words, it’s a non-factor / non-material until such services are much, much bigger."

Ashley Swartz, SVP/i2TV Practice Lead, Digitas

"In the world of IPTV and OTT (over-the-top) devices, it is anyone's game right now. Digitas believes that as we have seen in other channels, like music, rights holders (in this case networks or leagues) will provide their content to the highest bidder. So, if someone writes a check big enough to make it interesting, we will absolutely see, starting with live events, content delivered outside of linear broadcast. In fact we are already seeing it. I experienced the Tour de France entirely through my computer and tablet this summer. There will be a check, at some point, big enough to be a disruption and begin to flip the traditional linear model on its head.

The bigger, long tail issue with IPTV that does not have an immediate solution is the cost to serve. Each MB of data costs, compared to a world of cable where the incremental cost to serve another customer or more content is negligible. This creates a challenge to scale for IPTV, and today, because consumers are still living large in the all you can eat broadband/DSL data tariffs. WE will be watching the business models of MSOs (Multi System Operators) morph as the consumption of data increases exponentially due to the growing availability of content online.

Historically, in every emerging media channel, the consumer always outsmarts the oligopolistic, former utility companies. This will happen with TV, and may happen a little faster than we all expected it to with a little help from our tech friends with deep pockets that stand to gain more than the MSOs stand to lose."

Mitch Oscar, EVP, Televisual Applications at MPG

"There are too many boxes and too much confusion for over-the-top to really take off. It’s just complicated, particularly when you have 100 million pay TV customers right now and they’re doing double- and triple-play options [with phone and internet access]."

Do you think that will merely be OTT a niche thing, aimed at technophiles and young people?

"It’s a lifestyle and an economic issue, the latter only for some. Even during depressions and recessions, entertainment is still something we pay for as we live and breath. For those people who want different content, and are not happy with just having broadband – and there are some 80 million broadband households out there – then, how do you want to receive your programming? You can have the smart TV as an example. Or you can by the OTT boxes. You’re probably buying smart TVs in the future anyway, but not necessarily for their smartness.

Half the households in the U.S. now have one or more of these sets – they’ve invested good money, whatever that means. A lot these DH sets are connected TVs. But most people don’t necessarily look to YouTube, Vudu and Netflix as their primary sources of TV entertainment. Those channels are still geared for the computer, tablet or phone. [With TV Everywhere] one of the big issues is how do people choose what to watch and where.

People don’t want to work too hard to watch TV shows. Over-the-top devices are nice, maybe, but more people are spending more time watching linear television than ever before. We don’t have the metrics right now to say, ‘Wow, everyone is watching something right now online.’ I think the over-the-top offerings have value, but they don’t have great value.

Everyone says, ‘Free programming for broadband,’ particularly younger people. But we as Americans will never do pay-per-play. We might do a pay-per-view movie occasionally, but for the most part, we like having vast choices and we are therefore trained and disposed to liking the subscription model. We don’t want to be limited. And OTT is likely to be limited for the foreseeable future, especially when it comes to sports or other valuable programming."

Chad Stoller, Managing Partner of the IPG Media Lab

"It’s always easy to talk about the extremes, because the extremists are the ones that are going to react most quickly and demonstrably. I could tell you that no kid watches programming on the network schedule anymore. They know what’s available on the web, whether its YouTube, Hulu or something else. Unless it has huge watercooler cache or some massive social media push behind it, any one who can is approaching it on-demand, watching what they want, whenever they want.

Sports is about the last area where people follow networks’ dictates.

And I’m pretty pissed off; I can’t watch the Knicks or the Rangers and both those teams are probably the most exciting that they have been in the past few years. I also watch the Mets, because I’m a masochist. But sports is the only reason I still have cable. But if SNY [SportsNet New York, a regional sports cable network] came to me directly and said, ‘If you pay $400 or $500 to get the Mets for a year, would you do it?’ I would take it in a heartbeat. The fact of the matter is, I already pay hundreds of dollars to see many other teams that I don’t that much about.

I think this spat will go on. But the longer it goes on, more and more people are going to rethink they’re relationship with the cable provider and consider over-the-top. They’ll be forced to discover the power of watching video on the web. [Union Square Ventures’] Fred Wilson, on his blog AVC titled #Screwcable, talked about how he turned to pirated online video streams of the Knicks game and threw it up on his living room TV.

Whenever you shut something off, people look for an alternative. I really don’t think that pirating cable is the answer – there’s a lot of friction in that. But it is going to start a conversation, where people ask themselves, ‘How much cable do I really watch?’ The answer may be that they only must watch three shows. Then they’ll start think, ‘Is there another way?’ And more people will decide all they need is the internet connection and a Boxee box or a Roku device or just Hulu and Netflix."

Looking at it from a media buying perspective, what’s the impact on advertising from this dispute?

"From an advertising standpoint, the large beer companies always have some place to spend their ad dollars. But local businesses who have time-sensitive products or services advertise on cable will have a tougher time. At the end of the day, they need those impressions. If there’s an advertising winner in this dispute, at least in the short term, it’s probably radio, as local advertisers move their money there."

Tim Hanlon, CEO/founder, The Vertere Group

"The fast-growing scale of Internet-connected devices - especially tablets, game consoles, and now the almighty video monitor (fka 'TV') - is finally awakening the legacy US cable, telco and DBS MVPD (multi-channel programming distributor) players, and pushing them into action after years of resistance to outside technological change and simmering consumer dissatisfaction.  

The cable industry's push towards authentication/tv everywhere is at least a recognition that consumers now approach 'TV' viewing as a wide range of activities far beyond the linear channel and timing conventions of yore.  but, while such subscription-fencing may help insulate MVPDs and programmers from video ARPU erosion in the near-term, it is clear that consumers are increasingly questioning 'all-or-nothing' tier bundles and the rising costs that come with them. 

The rising ubiquity of Internet-enabled video distribution is giving early adopters and some fast-followers a taste of a more personalized a la carte video experience, and it's just a matter of time before we start to see 'virtual' MSOs over the Internet and/or over-the-top, where consumers will, ostensibly, be able to tailor options to their particular viewing needs, and at more affordable subscription prices.  and programmers, in turn, will start to enjoy direct access and relationships with viewers without distribution middlemen getting in either's way.

Of course, today's content providers benefit tremendously from the cash cow that network operator subscription revenue generates, but it is clear that the cow is starting to run out of milk, and new forms of sustenance will be needed.  and enterprising consumers and tech innovators are already sowing the seeds."

Brad Adgate, SVP, director of Research for Horizon Media

"I think that these subscriber fees are becoming more important to content providers because of the uncertainty and at time volatility of the ad marketplace. Making streaming deals with Netflix, etc. is a one time boost to the earnings report of content providers but subscriber fees is something far more reliable. Hence these battles will become more frequent especially now that broadcasters are getting a piece of the action. With TV Everywhere initiative cable operators are trying to make sure content remains in the hands of distributors."

By David Kaplan

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January 8, 2012 – 6:00 am

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