The Industry

OTT Update – April 2016

television-sony-en-casa-de-mis-padresIt continues to be a very busy year in terms of companies launching or modifying online packages of programming.

DirecTV. Probably the biggest new announcement is that AT&T and DirecTV have announced a suite of online packages. This is not surprising after they have seen the success of Sling TV launched by Dish Networks. The two satellite companies have an edge over everybody else trying to launch OTT packages due to the apparent ability to use the content they buy for satellites onto the internet.

Pricing hasn’t been announced yet, but there are three packages being mentioned:

  • DirecTV Now is promising to replace online what you buy today from the satellite. So expect this to be packages with prices similar to the satellite packages. The biggest question will be how much local programming they are going to able to include in the package. This package is interesting in that there has always been a lot of homes that could not buy satellite due to the inability to see a satellite well or due to restrictions of some kind on using a dish.
  • DirecTV Mobile is a smaller set of programming to be aimed at smartphones, although anybody can watch it. DirecTV is promising this will be affordable.
  • DirecTV Preview will be a free service that is ad-sponsored. It will contain content from AT&T’s Audience Network and Otter Media. This seems similar to Verizon’s Go90 app.

Sling TV. Sling TV has continued to add packages of options to its base offering. But their big news is that they have made a deal with ABC to add ABC local content to the web. This is the first case I know of where a local network will be made available to anybody on line. This is being included by Sling TV as part of a Broadcast Extra package that adds additional channels for $5 per month.

One of the main draws for people on network TV is local programming – news, weather and sports. It will be interesting to see how Sling handles this. I know when I lived in the Virgin Islands that the only network TV available on the island carried news from New York City and I don’t think anybody there watched it.

Sony Vue TV. Sony has reconfigured their Vue TV from a $50 per month package down to a skinny bundle for $30. Sony didn’t have much luck with the $50 price tag and recently lowered it to $40.

The Sony offering is interesting in that it uses the Playstation 4 game console and the service comes with a built-in DVR. Rather than carry live network programming the new Vue offering provides next day access to a number of network TV series.

The biggest drawback of the offering is that there are not nearly as many homes with a Playstation 4 compared to other OTT packages that can be viewed on any device. Furthermore, the offering only supports one TV with one box.

Facebook. It was announced a month ago that both Facebook and Twitter were trying to obtain the rights to show Thursday night NFL football. But Facebook withdrew and the football is going to Twitter.

But this doesn’t mean that Facebook doesn’t have big aspirations as a video platform. They are putting a lot of effort into Facebook Live which they think can be a viable competitor to YouTube. It’s easy for my generation to forget that sites like YouTube has become a video powerhouse and Facebook wants to do something similar. Surveys have suggested that the platform that people adopt when young will influence how they watch video for life.

Facebook is also considering creating a skinny bundle that combines Facebook Live with some of their own content. With over a billion members on the platform they certainly have a good starting point.

The Industry What Customers Want

Web TV Not Hitting the Mark

I am sure that the day will come when there will be OTT web programming packages that will be legitimate competitors to cable. But that day is not here yet. We are starting to see the beginning of web TV, but nothing out there is yet a game changer.

And that is not surprising. We still live in a world where content is under the very tight grasp of the programmers and they are not about to release products that cannibalize the cash cow they have from the cable providers. The early web products are being touted as attempts to lure in the cord cutters and cord nevers who no longer buy traditional cable.

Here is what we’ve seen so far:

  • Sling TV is certainly priced right, starting at only $20 per month. That price includes ESPN as well as a few other popular channels like the Food Network and the Travel Channel. They have a growing list of add-on bundles priced at $5 each. And they are just now launching HBO. But there are problems with the service. As I covered in a blog a few weeks ago, watching some NCAA first round basketball games on Sling TV was the most painful sports watching experience I’ve ever had. And it’s been widespread that they botched the NCAA finals. But there are drawbacks other than the quality. For example, you can only watch it on one device at a time, making it family unfriendly.
  • Sony Vue has two major limitations. First, right now it is only available through a Sony Playstation which costs between $200 and $400. And it’s not cheap. They have three packages set at $49.99, $59.99, and $69.99. Without even considering cable bundle discounts, these can cost as much or more than normal cable.
  • Apple’s TV product is not even on the market yet. Their biggest limiting factor is that it’s going to require the use of a $99 Apple TV box. That unit has been far less popular than the Roku. Apple says they will have ‘skinny’ pricing similar to Sling TV.

There are several major factors that will work against web TV for the foreseeable future:

  • Incumbent Bundle Discounts. All of the major incumbent providers sell bundles of products and they charge a premium price to drop the bundle and go to standalone broadband. That is, if they will sell naked broadband at all. For instance, Comcast has no option for standalone broadband faster than 25 Mbps. When people do the math for canceling traditional cable many of them are going to see very little net savings from the change.
  • Issues with Live Streaming. People have become used to a certain quality level of web viewing due to Netflix and Amazon Prime. But those services cache their product to viewers, meaning that when you first start watching they send a burst of data and they then stay about five minutes ahead of where you view. This eliminates problems due to variance in the Internet connections, making the viewing experience smooth and predictable. But there is a far different challenge when streaming live content, meaning shows that are broadcast at set times. Such shows are largely not cached, and thus are vulnerable to every little hiccup in a viewer’s local network (of which there are many which becomes apparent when watching live sports on the web).
  • Programmer Bundles. Programmers make a ton of money by bundling their content to the ISPs. Comcast, Verizon, and everybody else are not able to pick and choose the content they want. There are seven major program owners that control a big majority of cable channels, and when you want any of their content they generally insist that you take almost all of it. This lets the programmers force ISPs to take programs that they would likely never otherwise buy. Web TV is trying to differentiate itself by offering smaller bundles. But I am sure that programmers are making the web providers pay a premium price for choosing to take only a subset of their channels.

The FCC is currently looking at the issue of web TV and they might make it easier for web companies to obtain content. If they do so, one would hope that they also make it easier for wireline cable providers to do the same. Nielsen released statistics late last year that show that the average household largely watches around eleven channels out of the hundreds that are sent to them. Consumers and cable providers would all benefit greatly if the programming that is being forced upon us better matched what we actually want to buy.

The web TV companies are trying to do just that and put together packages of just the most popular content. But I laugh every time I see them talking about going after the cord cutters, who at this point are largely younger households, because the content they are choosing for the web so far is popular with people fifty and older (sometimes much older). I can’t see too many younger households being attracted to these first web TV packages. If the rules can be changed so that different providers can try different packages, then we might someday soon see a few killer web packages that can give traditional cable a run for the money. And perhaps what we are already seeing will be the wave of the future. Perhaps there will be numerous web TV offerings, each attracting its own group of followers, meaning no one killer package but dozens of small packages each with their loyal fans.

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