Tag: Hulu

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What Customers Want

Is Cord Cutting Accelerating?

The research firm eMarketer is predicting that cord cutting is accelerating this year at a pace faster than predicted by the industry. They’ve done surveys and studies and conclude that 187 million people will watch Pay TV this year (satellite or cable TV), a drop of 3.8% in viewership.

The drop in 2017 was 3.4%, but the big cable companies like Comcast and Charter hoped they could slow cord cutting this year by offering Netflix and other alternative programmers on their platforms. Perhaps that is working to a degree since cable companies are losing customers at a slower pace than satellite cable or the big telcos delivering cable on DSL, like AT&T.

eMarketer looks at the statistics in a different way than most others and predicts the people who will watch the various services – which is different than counting households. I suppose that some members of a household could stop watching traditional Pay TV while the home continues to pay for a subscription. They are predicting that the total number of people who will stop watching Pay TV will rise to 33 million by the end of 2018, up from 25 million just a year ago.

As you would expect, if Pay TV viewers are dropping, then viewers of online services ought to be increasing. They are predicting the number of viewers of the major OTT services as follows for 2018:  YouTube – 192 M; Netflix – 147.5 M; Amazon – 88.7 M; Hulu – 55 M; HBO Now – 17.1 M and Sling TV – 6.8 M. eMarketer says that in 2018 that 52% of homes now watch both Pay TV and an online service.

We know that Netflix’s growth has slowed and they added only 670,000 net customers in the US in the second quarter of this year and only 4.5 million worldwide. It appears, however, that the other online services are all growing at a faster pace as people are diversifying to watch more than just Netflix.

eMarketer credits a lot of the exodus of Pay TV subscribers to the proliferation of original content available. In 2010 there were 216 original TV series produced. That was 113 from the broadcast networks, 74 from cable-only networks, 25 from premium movie channels and 4 from online providers like Netflix. In 2017 that number has grown to an astonishing 487 original series. That’s 153 from the broadcast networks, 175 from cable-only networks, 42 from premium movie channels and 117 from online providers. A large percentage of the 487 series are now available online to somebody willing to track them down. These figures also ignore the proliferation of other content available online such as movies, documentaries, comedy specials, etc.

The proliferation of content from multiple sources is making it harder to rely on just one source of content these days. Somebody with a basic cable subscription is missing out on the 159 series produced by the premium movie channels and the online providers. Somebody cutting the cord and only using Netflix would be missing out on even more content. Some of the content generated by the broadcast and cable networks is available for free online, with commercials from places like Hulu. If a cord cutter wants to have access to a lot of the available content they’ll have to subscribe to multiple services – perhaps Netflix plus something like Hulu or Sling TV.

The eMarketer survey didn’t ask about the affordability of traditional cable – a factor that is at the top of the list in other surveys that have studied cord cutting. This particular survey concentrated on what people are watching without delving into the issues that drive somebody to cut the cord.

I don’t know about my readers, but I’m a cord cutter and I’ve already reached the point of content saturation. I probably have fifty items on my Netflix watchlist, and it would take more than a year to watch it all, even if I never add anything new. I have a similar list on Amazon Prime and a smaller list on Hulu. I never sit down to watch content without more options than I know what to do with. I have the luxury these days of watching content that fits my mood and available time – a real luxury compared to even a decade ago.

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The Industry What Customers Want

Stats on OTT Viewing

A recent study by comScore examined OTT usage in detail across the country. They studied the OTT viewing habits in 12,500 homes over time across all devices. They looked at 52 OTT services, which collectively account for virtually all of the OTT content available. Their study is the most comprehensive study of OTT that I’ve seen to date.

Not surprisingly Netflix is the largest OTT provider and accounted for 40% of all viewing hours of OTT content. I must admit with all of the hype about Netflix that I thought they would be larger. They were followed by YouTube at 18%, Hulu at 14%, Amazon at 7% and all of the other OTT sources sharing 21%.

When it came to consumer engagement, measured by the amount of time that people watch a given service, the leader is Hulu with the average Hulu household watching over 2.9 hours of their content per day. This was followed by Netflix at 2.2 hours, YouTube at 2.1 hours and Amazon at 2.0 hours per day.

Here are some other interesting statistics generated by the survey:

  • 51 million homes in the US watched OTT content this past April. That is 41% of all homes.
  • The growth of OTT watching is exploding and only 44 million homes watched OTT in October 2016.
  • As you would expect, there is a substantial number of cord-cutters that watch OTT. The types of OTT viewers include 44% that also have a landline cable subscription, 22% that also have a satellite TV subscription, 18% that are pure cord-cutters, and 16% that mix OTT content with free content received through rabbit ears.
  • The average home watched OTT content 49 hours in a month. That viewing was spread on average across 15 viewing days – meaning that most homes don’t watch OTT content every day.
  • As you would expect, cord-cutters households watch OTT for more hours monthly than other households. For example, cord cutters watched Hulu 37 hours per month while other households watched 29. Cord cutters watched Netflix for 36 hours per month compared to 27 hours for other households.
  • OTT viewing largely matches regular TV viewing in that there is a big spike of viewing in the evening prime time hours.
  • However, OTT viewing differs from traditional cable with big spikes on weekends, largely due to binge-watching.
  • The survey shows that 10.1 million households use network TV apps (apps from a programmer such as HBO or ESPN).
  • There is an interesting correlation between the size of a household, the amount of OTT viewing, and whether a family has cut the cord. For cord cutting families, the smaller the size of the household the greater the amount of OTT viewing. But for families that still have a paid-cable subscription it’s reverse.
  • Single-member households are almost 50% more likely than average to be a cord cutter and 24% more likely than average to be a cord-never.
  • Cost of cable subscriptions have always been shown in other surveys as a factor in cord cutting. This survey shows a strong correlation between income and cord-cutting. The survey shows that hourseholds making less than $40,000 per year are cutting the cord at 19% more than average while households making between $75,000 and $100,000 are at 87% of average.
  • Their survey also was able to detail the devices used to watch OTT content on television screens. Of the 51 million homes that watched OTT in April, 38 million homes used a streaming stick / box like Roku, and 28 million homes used a smart TV.
  • The study also detailed penetration rates of streaming boxes / sticks for homes using WiFI: 16% own a Roku, 14% have Amazon Fire; 8% own Google hrome and 6% have AppleTV.
  • Samsung and Vizio are the big players in the smart TV market with shares in WiFi-connected homes of 33% and 30%. LG and Sony were next with 10% and 7% penetration with all other manufactures sharing the remaining 20% of the market.

The survey also analyzed Skinny bundles. They show that 3.1 million homes now have a skinny bundle. 2 million of those homes have SlingTV, with DirecTV Now and PlayStation Vue having most of the other customers. The survey shows that homes with one of these services watch the skinny bundle an average of 5.3 hours per day.

The main takeaway from this survey is a demonstration that OTT viewing has become mainstream behavior.  OTT viewing is now part of the viewing habits of a little over half the of homes in the nation that have an in-home WiFi connection.

 

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The Industry

The Myth of OTT Savings

One of the reasons touted in the press for the recent popularity of cord cutting is the desire of people to save money over a traditional cable TV subscription. But as I look at what’s popular on the web I wonder if the savings are really going to be there for people who like to watch a variety of the best content.

There has been an explosion of companies that are pursuing unique video content, and this means that great content can now be found at many different places on the web. Interestingly, most of this great content is not available on traditional TV, other than the content provided by the premium movie channels. But considering the following web platforms that are creating unique content:

  • Netflix. They are the obvious king of unique content and release new shows, specials, movies and documentaries seemingly weekly. And they seem to have a wide variety of content aimed at all demographics.
  • Hulu. They are a bit late to the game. But the newly released The Handmaid’s Tale is getting critical acclaim and will be part of a quickly growing portfolio of unique content.
  • HBO. HBO has always had a few highly popular series with Game of Thrones still drawing huge audiences.
  • CBS All-Access. CBS has made a bold move by offering the new series Star Trek: Discovery only online. It’s bound to draw a lot of customers to the online service.
  • Amazon Prime. The company says they are going to invest billions in unique programming and are aiming at overtaking Netflix. Their recent hit The Man in the High Castle is evidence of the quality programming they are pursuing.
  • Showtime. They have historically created limited amounts of unique content but are now also looking to create a lot more. Their new show Twin Peaks has come out with high reviews.
  • Starz. This network is also now chasing new content and has a hit series with American Gods.
  • Seeso. Even services that most people have never heard of, such as Seeso are creating popular content such as the comedy series My Brother, My Brother and Me.
  • YouTube Red. The industry leader of unique content is YouTube which has allowed anybody to create content. While most of this is still free, the platform is now putting a lot of great content such as the comedy Rhett and Link’s Buddy System behind a paywall.

Subscribing to the above online services with the minimum subscriptions costs $79 per month (and that’s without figuring in the annual cost of Amazon Prime, which most people buy because of the free shipping from Amazon). The above line-up doesn’t include any sports and you’d have to buy a $30 subscription from Sling TV to watch ESPN and a few other popular sports networks. ESPN recently announced that they still don’t have any plans to launch a standalone web product but are instead pursuing being included in the various skinny bundles.

Not considered, though, in the above list are numerous other less-known paid OTT subscriptions available on line. As listed in this recent blog there are dozens of other platforms for people who like specialized content like Japanese anime or British comedies.

Of course, one thing the above list shows is that there is a world of content these days that is not being created by the major networks or the traditional cable networks. There is likely more money pouring into the creation of content outside of the traditional networks.

So OTT doesn’t seem to save as much as hoped for people that wish to enjoy a variety of popular content across different providers.  But there are other benefits driving people to OTT programming.  One of the great benefits of OTT programming is the ability to subscribe and cancel services at will. I have been trying various OTT networks and it’s really tempting to subscribe to each for a month or two until you’ve seen what you want and then move on to something else. I’m starting to think that’s the way I will use these services as long as they continue to allow easy egress and exit.

And OTT programming allows for non-linear TV watching.  As long as somebody lives near to a metropolitan area a cord cutter can still view the traditional network channels using rabbit ears. But what a lot of cord cutters are finding is that they quickly lose their tolerance of linear programming. I know that when I travel and have TV available in the room that I only watch it if I want to catch a football or basketball game. I can no longer tolerate the commercial breaks or the inability to pause linear TV while I want to do something else. And that, perhaps more than anything, is what will bring down traditional cable TV. As much as cable companies tout TV Everywhere, their basic product is still showing content linearly at fixed times. There is such a huge volume of great OTT content available any time on any device that it’s not hard for somebody to walk away from the traditional networks and still always have something you want to watch.

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The Industry What Customers Want

OTT is Not Easy on the Consumer

This article compares the channel line-ups for Sling TV, DirecTV Now and Playstation Vue.  I think it provides the best demonstration I’ve seen yet of how confusing it’s going to be for consumers to choose an OTT option.

The process of choosing an OTT provider is only going to get harder in the future as additional OTT providers enter the market. In the coming year we are going to be seeing Google / YouTube with a similar on-line option. Hulu has announced that they will soon be launching a live-streaming alternative. There is a strong rumor that Amazon is considering an OTT option and has already announced they are pursuing live sports. And various articles I’ve read hint at a few more new OTT providers in 2017.

Comparing OTT channel line-ups is a lot more work than comparing the line-ups of your cable company vs. one of the satellite providers. While satellite providers aren’t required to maintain the same rigidly-defined line-ups as the cable companies, the two sets of line-ups are still reasonably comparable.

Cable company line-ups are defined by the FCC cable rules that require a basic and expanded basic line-up. Contracts between cable companies and programmers has led to uniformity and there are not major difference between cable companies. Cable companies are free to offer additional premium tiers and packages, but even those are largely the same between cable companies. The satellite providers know that their basic package is competing against the expanded basic line-up, so they include roughly the same channels in their 50 – 75 channel packages as the cable companies.

The OTT companies have a different set of challenges. The programmers are not required to sell them any content, and so the OTT companies must negotiate with each programmer individually. These have to be interesting negotiations because the OTT providers want to put together the skinniest bundles they can get while still offering what consumers want. They are then free to bundle channels in any way that the programmer contracts will allow. Since each OTT providers negotiates a unique arrangement with programmers there are going to be major differences between the line-ups from different OTT providers.

The programmers, however, either want to sell multiple channels or else they want a revenue stream that insures them of some decent profits. Programmers understand the math, which is that they are losing money for every customer that moves from traditional TV to a smaller OTT offering. This puts them into an awkward position. It’s obvious that the cord cutting phenomenon is gaining momentum. But if the programmers help to create really attractive OTT packages they are then helping to accelerate cord cutting for consumers.

As I’ve written before, many of the programmers are able to tolerate the growth of OTT since they are selling a lot more new content overseas than they are losing to cord cutting. Many of them acknowledge that there are cable channels that only exist because of the monopoly the handful of programmers have over the industry. They know that the cord cutting phenomenon is going to mean the death of less popular cable networks.

But back to consumers. You can see in the comparison in the link I posted above that between the first three major OTT providers it’s not easy to even visualize what you get in the various packages. The options between the three providers are significantly different, and all of these options have some glaring holes from programmers that have not yet allowed their content into these OTT bundles. It’s hard to imagine how complex this comparison is going to be with 3 – 6 more options by the end of 2017. I think a lot of consumers are going to come to web sites like this and be intimidated by the choices and will delay cutting the cord.

It’s likely that over time the various OTT providers will find niches in the market. Certainly if they all end up with the identical sets of channels there won’t be a lot of difference between them. But I would expect the ones that will be successful in the long-run will find a demographic niche that will give them an advantage. But for now their line-ups are a messy hodgepodge since they are cobbling together line-ups from the channels that they are able to acquire. This is going to make for a number of confusing products for the first few years of this new industry until they all figure it out.

Categories
The Industry

Some OTT Statistics

As usual the quarterly Digitalsmiths and TiVo recent Video Trends Report contains a ton of interesting statistics about the industry. The following table shows the number of households that subscribed to the various OTT services during the third quarter of each of the last four years.

 

‘                                              Q3 2013          Q3 2014          Q3 2015          Q3 2016

Netflix                                     41.7%              46.4%              49.9%              51.8%

Amazon Prime                        12.9%              17.9%              19.9%              24.8%

Hulu                                          9.4%                9.6%              12.1%                9.9%

HBO Now                                                                                  4.3%                5.2%

YouTube Red                                                                                                      3.1%

Shomi                                                                                                                2.7%

CBS All Access                                                                           2.1%                2.1%

Sling TV                                                                                      1.0%                1.7%

Play Station Vue                                                                         1.3%                1.6%

Blockbuster                               1.8%                1.2%                 1.0%                1.0%

Other                                         1.5%                1.4%                 1.7%                1.8%

Nothing                                    51.8%              47.3%               43.7%              38.1%

Netflix has continued to dominate the industry and has grown to cover an additional 10% of all homes nationwide since 2013. Hulu increased market share in 2015 but is back down again. But expect Hulu to grow again since they are picking up a lot of new content from its owner programmers. In four years Amazon Prime has doubled, although there is a lot of debate about how many people actually watch the video service since it comes free with the Prime shipping program.

What springs out most from the chart is how the industry is diversifying. In just the last year YouTube Red and Shomi sprang to fifth and sixth place in the industry. And 2014 saw the introduction of Play Station Vue, SlingTV, CBS All Access, and HBO Now. It’s also striking to see the number of homes that don’t watch OTT content drop from 52% in 2013 to only 38% today.

You may be surprised to see Blockbuster still active on the list. While all their stores have closed, the Blockbuster brand is still being used to market OTT movies and is now integrated into SlingTV.

The ‘Other’ category is interesting. On last count there were over 100 different video pay services on the web, yet outside the major OTT players these services together are only seen in 1.8% of households.

This next chart shows what people pay for OTT content, comparing 2014 and today

Monthly Expense                  Q3 2014                      Q3 2016

$1 – $2                                     2.0%                            3.6%

$3 – $5                                     2.3%                            3.2%

$6 – $8                                    33.4%                          16.5%

$9 – $11                                  21.7%                          30.1%

$12 – $14                                  8.1%                           10.0%

$15 – $20                                 14.0%                          15.8%

$21+                                           6.8%                          10.7%

Use But Don’t Pay                    11.1%                          10.1%

In just two years the average bills have crept significantly upward. Currently over 2/3 of homes report paying more than $9 per month for OTT service, while in 2014 that was only 51%. Probably more interesting is that 26% of homes pay more than $15 per month for OTT content. My household is in this category and we have subscriptions to Netflix, Hulu, Amazon Prime (including Starz), and SlingTV.

The percentage of households who told an interviewer that they watch but don’t pay for OTT content dropped slightly, but represents about the same number of people from 2014 to 2016.

 

Categories
The Industry

OTT Latest – August 2016

The only way for cord cutting to become a true problem for the cable companies is for there to be so much content online that people feel comfortable walking away from the cable packages. If the last few months are any indication of where the OTT industry is heading, we soon ought to be seeing more people cut the cord. So far this year there has been an average of almost one new OTT roll-out every week and there are now over 130 subscription video services on the web. Here are just a few of the more interesting recent announcements in what is becoming a busy new industry:

Acorn TV. Priced at $4.99 per month (first month free) this service bundles the best shows from the UK, Ireland, Canada, Australia and New Zealand. The service is starting with 60 exclusive titles that include a lot of drama, police who-dunnits and dry British comedy.

Sling TV. The service has grown from very simple to having a wide range of options. They have added a ton of new programming such as Fox Sports and other Fox Shows, They brought in the NBC suite including the live NBC feed, USA, Bravo, SyFy and BBC America. They beefed up the sports offering with some regional sports networks. The NBC live feed will be the first place that local NFL games will be broadcast on the web. They have added E! and Oxygen to their Lifestyle package. And they’ve added BBC World News, CNBC and MSNBC to their World News Package. Overall this is starting to become as large and confusing as looking at cable packages!

Hulu. The company has confirmed it will soon be launching a skinny bundle. Much of the content is going to come from the owners of Hulu including a suite of packages from ABC / Disney including ESPN, a package from NBC Universal, and a package from 21st Century Fox. Plus Hulu is making a deal with CBS. This would make Hulu the first to offer all of the major networks’ feeds live online, with ABC, NBC, CBS, and Fox. The company has said that their base package will be around $35, and this makes it a true skinny bundle since it includes the networks plus other most-watched channels. As I was writing this blog Hulu announced they are ceasing all free / ad-based program and are now all-subscription.

Tubi TV. Tubi TV is taking a different approach from the other services and is free to customers and is ad-supported. The service carries a lot of content aimed at millennials, who supposedly are most interested in free content. The service includes Japanese anime 2-days after being aired in Japan as well as a lot of movies and various series of interest to millennials. The service has made deals with over 200 content provides including MGM, Lionsgate, Paramount Pictures and Starz!

Comcast brings in Netflix. In an attempt to keep viewers on their platform and under their channel guide Comcast has made a deal to bring Netflix into the fold. Netflix will appear in the lineup like any other network and customers can navigate using their remote control.

Speaking of remote controls, Comcast distributed a lot of new voice-controlled remotes in time for the Olympics in the hopes of keeping customers from cutting the cord. We’ll have to watch to see how customers like the new devices.

Networks go Directly Online. All of the major (and many not-so-major) networks are taking their content online, but with different business models. It will be interesting to see which of these approaches is the most popular.

Fox has announced that it is now online for customers using the Fox.com website or the Fox Now app. This is an authenticated service and customers have to be verified as a customer of a cable provider and already paying for the Fox programming.

ABC is re-launching its unauthenticated streaming service (free for anybody) and showing older series for free, supported with ads.

CBS has taken the premium subscription approach and is a monthly subscriptions for $5.99 it’s calling CBS All Access. The company is producing original content just for this platform including the next Star Trek Series.

NBC has chosen to produce OTT content through its Seeso platform. This is going to consist of a number of different types of programming, with the comedy platform launched late last year. The comedy channel costs $3.99 per month. It includes older NBC comedy series as well as twenty new comedy series produced only for the Seeso platform.

Even smaller networks like CW now have an unauthenticated ad-supported platform called CW Seed that is showing older shows such as MadTV, Constantine and the O.C.

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The Industry

Cord Cutting is Getting Harder

SANYO DIGITAL CAMERA

One thing that cable operators might have going for them is that the OTT market is changing in ways that make it a little less attractive to cord cutters. It turns out that it’s getting harder to be a cord cutter, and certainly more expensive.

For a while it looked like Netflix and Hulu would offer a real alternative to cable TV, and for many people they still do. But the things we used to like about those two services are changing rapidly. Hulu is a great example. Around 2011 they made a deal with over 20 sources of content like NBC, ABC, USA, Syfy, Fox, and many others. But those were 5-year deals that are now coming to an end and Hulu is about to lose a lot of the content that attracted people.

Hulu is being hit from all sides. NBC is pulling most of its content and has launched its own OTT product that is hinging on the popularity of the new Star Trek to draw customers. BBC has pulled the very popular Doctor Who and other programming in favor of its own OTT product. Even CW is pulling shows like the Flash, Arrow, Vampire Diaries, and Jane the Virgin and has launched its own OTT service.

The same has happened to Netflix. Long-time subscribers complain that there is half the content on Netflix as there was years ago, and it’s true. Content providers have slowly been withdrawing content and making it harder for Netflix to obtain both TV shows and movies. Netflix makes up for this with original content, but that content isn’t for everybody.

With the plethora of OTT options, it’s getting expensive to be a cord cutter. A cord cutter probably can’t pick only Netflix and/or Hulu and be happy – or at least not as happy as they were a few years ago. To get a wide variety of OTT programming, a cord cutter is going to have to subscribe to multiple OTT products, and at the end of that process might easily be spending as much for programming as they did with the cable company.

Consider Sling TV as an example. Sling launched with a very simple set of options. They launched with a basic package of 15 channels for $20 per month – these were channels that people miss when they cut the cord – ESPN, the Travel Channel, the Food Network, TBS, and the Disney Channel. They had an add-on package for $5 to add more sports channels.

But Sling TV has morphed to become a lot more complicated and a lot more expensive. They now have two basic packages each priced at $25 per month. One called Sling Blue is sports-oriented including Fox Sports and NBC (for the Olympics). The original package has been renamed Sling Orange and has also been bumped to $25. Both together are $40, and there are now several $5 add-on packages such as news and sports. Sling is looking at adding more content, but in doing so, they are now at or above the price that this same content can be received on satellite. But with satellite cable you get a lot more channels than Sling. The new Sling TV prices are starting to feel like a programming alternative, not a cord cutting savings option.

Hulu also has more expensive options now. They will soon be offering a package that includes live network programming starting at $35 per month. For $50 per month customers can store up to 20 hours of Hulu content in cloud DVRs.

Cord cutters now have much harder choices than even just six months ago. If they cobble together a half dozen OTT sources they can easily be paying more than they were with cable. If they limit themselves to one or two sources of content like Netflix or Hulu they will see their content choices shrinking and their monthly fees increasing.  This all has to be good news to the cable companies – a lot of homes are going to like the OTT options less than they did a year ago.

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Current News

OTT Update May 2016

There is so much activity in the OTT space that I might need one of these updates every few months. It seems as soon as I publish one a new set of changes gets announced in the industry.

Hulu Announcement. The biggest OTT news is that Hulu just announced that they are putting together an OTT skinny bundle package. It’s not expected to launch until next year, but Hulu has already struck deals with Disney and Fox, which happen to be two of its corporate parents. The Hulu package is interesting because this really represents the major programmers taking a shot at stealing customers away from their cable company customers.

Hulu’s history is pretty interesting in that their owners – Disney, Fox and NBC Universal (Comcast) – were very careful in the early days to not give Hulu great content that would upset the cable companies. But that seems to have changed. Hulu is now getting access to many more movies and other content and is making a major run at Netflix. Since it’s owned by programmers who themselves have a lot of content, Hulu certainly has a chance to eventually become the dominant OTT player. I’m seeing a lot of web articles talking about how Netflix is losing their sheen as their content choices dwindle.

YouTube Unplugged. After having this on the shelf for the last four years it looks like Google and YouTube are finally getting serious about launching a skinny bundle of their own. They are in talks with the major programmers and are talking about launching early next year.

YouTube already launched the YouTube Red subscription service last fall that bundles together the premium content found only on YouTube. It’s aimed at younger viewers who seem to prefer YouTube as a source of video content. The cable companies are going to have to start sweating with Hulu and YouTube both making a major play to attract people away from traditional cable packages.

CBS and Star Trek. CBS has announced that after it airs the first episode of its new Star Trek series on TV that all future episodes will be available only on the online CBS All Access Platform. This is a major play to sell more subscriptions to that service. Considering the strong draw of Star Trek it might work. But CBS is not going to dump the whole series on line at once for binge viewing but will feed a new episode each week.

FilmStruck. Criterion and Turner have announced the creation of a new online movie service they are calling FilmStruck. The service will have the largest catalog of older movies online and includes the whole MGM and RKO movie catalogs which Ted Turner bought in the 80s. This gives the service a significant share of the movies on most of the lists of all-time greatest movies. The catalogs also contain mountains of movies that have not been available for years. As part of this deal Criterion will be pulling about 500 old movies from Hulu.

Netflix Survey. A survey of Netflix customers showed that 76% of them believe that Netflix and other online content is going to eventually completely displace traditional cable TV. Of the 24% who didn’t think this was so, the primary reason they thought cable would survive is news programming. Interestingly, 68% of those surveyed did not think that Netflix would replace movie theaters.

Categories
The Industry

Programmers Have the Power

It was announced late last month that Time Warner is negotiating to buy a 25% share in Hulu. This would make them equal partners with Comcast, Disney, and Fox in ownership of the OTT service. I think this potential transaction highlights the very complicated dynamics in the industry between programmers and OTT companies.

It’s obvious that the programmers love Netflix, the largest OTT provider, but they also fear them to some extent. On the plus side, from the programmers’ perspective, the four companies (include Time Warner) currently get about $650 million per year just from Netflix to pay for selling rights to various programming, mostly older TV series, to Netflix. This is obviously a significant source of revenue.

But there is also a lot of unease in the industry since OTT providers, and Netflix in particular, are influencing people to demand alternate programming. And while the programmers have lost some money from cord cutters, the real threat to them is skinny bundles. While the revenue the programmers get from Netflix is good money, it is dwarfed by the revenues that come from traditional cable packages. I have never seen that exact number, but by looking at my clients I am going to guess that the average paid by cable companies per customer for programming is probably around $45 per month, not including premium movie channels. That would equate to more than $50 billion per year paid for programming.

The big threat from skinny bundles is that the cable companies will sell small packages of only the most popular programming. The owners of the most popular channels will do okay, but today the real money for a programmer comes from forcing cable companies to carry their entire large suite of channels. If skinny bundles get popular enough they are going to whack the revenue streams from the less popular channels in each programmer’s portfolio. And that means huge potential losses in revenue, far greater than what they will collect from OTT and skinny bundle providers.

There is talk in the industry that the major programmers might start withholding their best content from Netflix. Reed Hamilton from Netflix has voiced this concern many times and this is probably the reason that Netflix is spending so much money to create its own content.

The four programmers could instead funnel all of their own content to Hulu, and in effect pay themselves by hopefully drawing more paying customers to Hulu. The surveys I have seen have shown that a large percentage of viewers are becoming loyal to shows and not to networks, and so giving Hulu exclusive rights to content certainly sounds like a plausible strategy.

The above discussion makes me realize how much power the programmers still have in the industry. While these four programmers couldn’t destroy Netflix, they could probably hobble them. As Bill Gates said, content is king, and that certainly applies in this arm-wrestling match between programmers and service providers. Since there are only a handful of programmers, they collectively have the ability to pick winners and losers in the industry.

Since content is king one has to wonder how long a small group of programmers can keep their current power? Not only is Netflix creating popular content, but there other new content creators like YouTube and Amazon entering the fray and joining companies like HBO and AMC that are becoming mini-powerhouses on their own.

I find it unlikely that the programmers would just cut Netflix or anybody else dead from all of the content, which would seem to be an open invitation to an antitrust investigation. But they can withhold some content, raise the rates on other content and make it harder for companies like Netflix to continue to eat away at their revenue streams.

I have no idea where any of this is going to go. But my guess is that if we could look forward a decade from now that there will be major shifts in the industry. There are going to be some current programmers that wane and other new ones who will enter the market. But as a whole, no matter who the programmers are, they are still going to be in the driver’s seat.

Categories
The Industry What Customers Want

The Future of TV – The Viewer

The Twilight Saga (film series) (Photo credit: Wikipedia)

Probably the biggest change in the TV landscape is that viewers are changing, or at least their expectations for the viewing experience. For the first time in the history of the industry, the consumer is in the driver’s seat by their ability to collectively determine which content is popular. This must be driving the executives at cable companies and media production companies crazy.

For most of the history of the industry, the content providers were in charge. For most of the history of TV the studios or cable networks would choose the content and determine when it would be seen. And the process was a huge chess match trying to get the most eyes to product hits. New content that was scheduled opposite an existing hit show were dead on arrival.

Not all consumers fit well with the process of having to watch shows at pre-set times. I am an admitted space cadet and I have never been able to watch a TV show regularly at a pre-set time. And so, when TV shows started showing up on tape and then DVDs, I scrapped television and would just buy the series I was interested in to watch at my leisure. I saved money by not having cable TV, but buying DVDs for shows was expensive and so I would watch only a few old series per year. And I bought movies. Lots and lots of movies. But I was in the minority and I was an early cord cutter due to my personal spacey habits and my willingness to pay a premium price for alternate content.

But then along came new technologies that let people drop out of the treadmill of watching shows at pre-determined times. First came TIVO followed by video-on-demand that let people record and watch shows later. And more lately has come OTT programming on the web. So now, people have an immense amount of content that they can watch at any time. Both my wife and I are the kind of people who like to watch a whole TV series back-to-back and so OTT programming satisfies us for the most part.

And if that is all there was to the change in the industry the cable companies and content providers would not be worried. They would continue to monetize the ability for people to watch their content whenever they wanted to, and in the end their finances would not change too drastically.

But that is not the end game. If you want to see the end game, spend a few days watching how 14-year olds watch video. The way they watch content is the future:

  • They rarely watch just one thing at a time, at least for very long. They may watch something on a TV screen, but they will watch their tablet and smart phone at the same time.
  • They don’t have long attention spans, regardless of the content and getting them to watch a movie the whole way through is difficult.
  • They like to watch content made by themselves and their friends as much as they like professional content.
  • They don’t want to watch something end-to-end. They will not go back and watch a Twilight movie they have already seen. Instead they will watch compilations of their favorite scenes from the Twilight movies that they or somebody else has strung together on YouTube.
  • They love the 7-second clip content on Vine. No adult can handle Vine for more than a short time. Vine produces memes more than content, but kids find this entertaining.
  • They love watching together with other teenagers, be that live together or virtually together.
  • They don’t even need cable for the news. Take the example of the Boston marathon bombing. There were hundreds of people in the area going live on the web talking about what was going on there.
  • And they don’t want to pay for content. Not so much because they are 14, but because they believe that content ought to be free.

It is the 14-year old girls that are scaring the industry because they presage a new way of interacting with content. These kids are not going to grow up and buy traditional cable subscriptions. They are not even that likely to buy the alternates like Hulu or NetFlix. They are largely happy with free content or short clips of industry content. The cable companies are hoping to snag boys with ESPN and sports content, but they don’t know what in the hell to do with the girls.

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