This may come as a surprise to the many programming executives who insist that cable and satellite customers like pay TV’s pricing bundles that require them to pay for channels that they don’t watch. Research and consulting firm PwC heard a different message in June when it surveyed 1,008 people about their video consumption preferences. About 44% favor a la carte pricing, the company says in its new U.S. Video Content Consumption report, while 29% want a package that’s “more customized to my individual interest.” Another 8% said that they’d just like small collection of essential services, with 6% saying that they want to access individual shows instead of full channels. Just 14% said they’d prefer the “full package” that gives them the most options. Those who want something different say that it would provide “more control over the content that appears on their screens and allows their viewing time to be more enjoyable and well-spent,” according to PwC which followed its surveys by conducting focus groups. Some 65% of the people who want a change say that they’d be willing to access 10 or more channels, while 26% put the number between six and nine, with 9% between two and five. How much would they pay? About 16% would go to 99 cents a channel, 24% would go to $1.99, 22% would go to $2.99, and the remaining 37% would go higher. In other findings: …
A new study by Digital TV Research reports that there are currently 814 million pay-TV households in 97 countries worldwide. The jump to 1 billion homes by 2018 will be led by the booming Asia Pacific region which will rep 59% (587 million) of the global total. Still, the research indicates a slight slowdown in growth. From 2012 to 2013, 42 million pay-TV homes were added. The average yearly growth between 2013 and 2018 is pegged at about 37.2 million. China is forecast to be the biggest pay-TV market by the end of 2018 with 313 million households. India will be next with 158 million and the U.S. will round out the top three at 107 million. Russia, Brazil, Japan, Germany, Mexico, South Korea and the UK make up the remainder of the top ten. Overall penetration is expected to be 63.1% by 2018 with 86% of North America covered. But it’s the Netherlands which will have the deepest penetration at 99.5%.
Funny how the prices that Big Media companies charge for their pay TV channels rarely have much to do with the consideration that really matters: How many people actually watch? That’s what makes Verizon‘s new effort to link payments with audience levels, which The Wall Street Journal disclosed this morning, so intriguing — but also such a long-shot. The company’s FiOS TV unit wants to base the fees it pays channels on the number of households where someone tunes in for at least five minutes a month. That wouldn’t necessarily reduce subscribers’ bills, Verizon’s top programming negotiator Terry Denson tells the paper. It would simply help to “stabilize retail prices” by rewarding channels when they attract additional viewers. But Denson acknowledges that it will be hard to persuade programmers to abandon their business models which are built on the presumption that they should extract fees from all subscribers including those who never watch their channels. He says that his talks with owners of small and midsized networks are just “inching forward” and he hasn’t broached the idea with Big Media companies that dominate TV programming.
PwC says that television execs have a little time to relax before their lucrative business models implode. The consulting firm reached its conclusion after sponsoring a recent debate between the Marketing Association of the Columbia Business School and the Virginia Commonwealth University Brandcenter on the question: “Should advertisers, agencies and the media worry about cord-cutting?” PwC agrees with the Columbia team that with growing competition from Web video providers, and Internet-connected game consoles, “there’s no question that television viewership trends are dramatically changing.” But the firm sides with Virginia Commonwealth concluding that “the impact to the pay TV industry over at least the next five years will be minimal.” The reasons: “Traditional TV viewing is still popular, ubiquitous TV content-on-the-go-packages are becoming commonplace, TV advertising dollars continue to grow, and there are limitations such as content discovery issues with [Web-based] services that need improvement.” Tablets and smartphones, also known as second screens after TV, are becoming important. PwC says that’s no problem for conventional TV: Networks are “developing dynamic companion apps both at the network and show-specific levels to extend viewers’ experience.”
Lazard Capital Markets’ Barton Crockett seems to think so in a thought experiment this morning. Asked to envision a change that could reshape the long-term prospects for media — part of Lazard’s Imagine That collection of analyst essays — he says that it “could be good for content-owning conglomerates” if consumers began to use the Internet to just subscribe to the channels that they want. To be sure, the analyst doesn’t see things changing soon; he says that the current system of pay TV bundling is “resilient, and not crumbling.” Still, he challenges the conventional wisdom that media giants would find themselves on a toboggan ride to financial ruin if consumers escaped from a system that requires them to pay for channels that they don’t want. Crockett bases his conclusion on two assumptions: Consumers would continue to spend $78B a year on pay TV. And, in a post-bundle world, content creators could collect all of that instead of settling for the $32B in program fees that they currently receive from distributors. Actors or producers wouldn’t try to appeal directly to consumers, cutting out Big Media companies, because they need someone who will “write big checks, and take care of the administrative hassles of marketing and distribution,” he says. “Anyone can make a singing competition, but networks like Fox and NBC can make them popular by touting them to large audiences, and investing large sums for the highest profile judges and best production values.”
Apparently so, according to writer Derek Thompson’s well researched and engagingly presented, but unfortunately misguided, article about pay TV pricing (“Prisoners of Cable“) in the latest issue of my favorite magazine, The Atlantic. He acknowledges that the seven largest Big Media companies — including News Corp, Viacom, Disney, and Time Warner — “use their oligopolistic power” to give cable and satellite customers a simple choice: either buy “a bloated offering of channels at an arrestingly high price” or go without. “Cable’s proposition to consumers is simple: if you want the new, good, TV shows, you need the bundle.” That’s unfair, right? Not to Thompson. The system that makes people pay for channels they don’t want also gives us classy fare including HBO’s Game Of Thrones and AMC’s Mad Men and Breaking Bad. “Indeed,” Thompson says, “it’s no accident that as pay-TV has proliferated, and costs have risen, we’ve also entered a golden age of television.” And even though “as a monthly fee, cable feels like a rip-off…as hourly entertainment, it’s not.” The proof: The bundle only costs 20 cents an hour for the average four-person home that watches as much as four hours a day. The kicker: “more than 100 million households still think the price is worth paying.”
That’s the critically important question that’s being debated across the industry and — finally! — head-on by two of the Street’s savviest analysts: Bernstein Research’s Todd Juenger and Craig Moffett. Juenger kicked things off in a note last week, and Moffett delivered his response today. The core issue is whether millions of consumers will cut the pay TV cord rather than accept ongoing price hikes driven by network owners including Time Warner, Viacom, News Corp, Disney, NBCUniversal, CBS, and Discovery. For competitive reasons, they want to pack more original shows and high-priced sports on to their schedules — and pass the rising costs along to cable and satellite providers. But the pay TV distributors say that they’d need to pass their higher costs on to consumers, and too many are so cash-strapped that they’ll simply cut the cord and watch shows from over-the-air broadcasts or low-priced Internet services such as Netflix. If things continue, the argument goes, then Big Media will have to abandon the lucrative and ubiquitous basic cable bundle that requires customers to pay for lots of channels that they never watch. If that happens, and channels are offered a la carte, no more than 10 would be profitable enough to survive, Needham & Co analyst Laura Martin estimates.
Here’s a synopsis of the arguments Junger makes in defense of programmers — and Moffett’s explanation why he thinks they’re headed off a cliff:
The conclusions are part of an intriguing study out this morning from Lazard Capital Markets analyst Barton Crocket. Like many Wall Street analysts, he’s eager to know which programmers have the most to gain, and lose, if the current pay TV ecosystem — which requires consumers to pay for channels that they don’t watch — collapses. And Disney is most at risk, Crockett figures based on the results an online survey of 2,240 consumers in May. The study sought to determine how loyal consumers are to different channels. As you might expect, the Big Four broadcasters, ESPN, Discovery Channel, History, USA Network, and TNT have the most dedicated followings. (At the bottom of the list: OWN, Fox Soccer Channel, CNBC, Oxygen, and CMT.) The problem for Disney is that its channels aren’t popular enough to continue to justify the nearly $8.4B a year they currently generate from program fees — about 26% of pay TV’s total programming outlays. Crockett figures Disney’s take could drop 65.2% to $2.9B a year. Other potential losers include Time Warner (not including HBO) which could see yearly
The country’s television regulators took a potentially big step in that direction on Friday — and it could reverberate in the U.S. where Big Media companies are determined to keep their lucrative pay TV packages intact. The Canadian Radio-Television and Telecommunications Commission said that Bell Media — the country’s largest owner of cable and satellite channels — has the right to unbundle its services: A household’s payments for each channel can be pegged to the number ordered. (For example, those who want just a few channels would pay more for each one than would someone else who orders lots of services.) The ruling doesn’t require pay TV distributors to break-apart their bundles, although that’s something the regulators clearly want. Bell Media President Kevin Crull acknowledged that the ruling could result in higher prices per channel. But he says the change — which would free consumers from having to pay for channels that they don’t want — will help Canada ”maintain its position as a world leader in providing consumers with both a wide array of programming choices as well as packaging flexibility, all at affordable rates.” All eyes will be on Canada’s experience: Programmers here vigorously oppose a la carte pricing. They say it could result in consumers paying more than they do now while potentially dozens of channels — especially those appealing to niche audiences — go out of business. A change also could trash the earnings of …
EXCLUSIVE: Fox International Channels has mixed news for pay TV network execs who wonder whether their channel names have any meaning overseas, especially in fast-growing developing countries. Just a handful of networks resonated with the 14,000 respondents to a recent online survey conducted by Millward Brown Optimor. The study included 12 markets: Mexico, Brazil, Portugal, UK, Italy, Spain, Poland, India, Malaysia, Japan, Taiwan, and Indonesia. Discovery was the best-known channel, with 85% of the respondents saying that they are familiar with it. As part of the most globally focused Big Media company News Corp, it’s not surprising that Fox-related services did especially well in the study. It has five of the seven most recognized channels with National Geographic (82%), Fox (61%), Foxlife (44%), FX (33%) and Star (26%). (The list also includes Sony’s AXN, familiar to 52% of respondents.) But the vast majority of channels are familiar to less than one in five people surveyed.
The U.S. Court of Appeals in Pasadena would have turned pay TV upside down today if it had sided with consumers in a suit that took on virtually every major company in the business including NBCUniversal, Viacom, Disney, Fox, Time Warner, Comcast, and DirecTV. The plaintiffs alleged that the companies exploit subscribers by only selling programming in packages — forcing people to pay for services they don’t want in order to receive must-have channels including broadcast networks, USA, and ESPN. But the court rejected the argument, upholding a lower court decision, saying the key issue is whether pay TV companies thwart antitrust laws. Although the consumers argued that bundling reduces their choices, and increases prices, “these allegations show only that plaintiffs have been harmed as a result of the practices at issue, not that those practices are anticompetitive,” the justices said.
The conventions of mainstream journalism prevent The Wall Street Journal from saying in a report today what it really thinks about Intel’s new effort to compete with cable and satellite companies. The paper says that Intel is developing a full-fledged pay TV service to be distributed over the Internet. But you can pretty much tell the paper’s view by its use of the widely understood code to say that the idea is nuts. The Journal, reverting to the third person, says “it remains unclear” whether Intel can make its plan work. Good thing the paper added that caveat: There’s widespread scoffing in the media world today over Intel’s plans. According to the Journal, the chip maker wants to launch by year end, and has asked programmers for their “rate cards” for offering networks and shows. TiVo CEO Tom Rogers told investors at the Barclays Internet Connect Conference that “I did get a chuckle” out of that. What’s wrong with Intel’s plan? It isn’t a question about technology. “They’ve got the set top box concept down,” Bernstein Research analyst Todd Juenger says. “Now, all they need is… everything else.”
This is a fast-growing trend — and a worrisome one for many cable channels at risk of losing viewers, monthly payments from pay TV distributors, and advertising. But cable and satellite companies including Comcast and Time Warner Cable say they have to do something to keep cash-strapped customers from cutting the cord. Cox says that soon all of its markets will offer its TV Economy service tier for about $35 a month, far less than the conventional TV Essential expanded basic package that runs as much as $60. Although pricing and options will vary slightly by market, the discounted service typically will include a mix of standard definition and HD versions of local broadcasters, shopping channels, C-SPAN, and superstation WGN in addition to a lineup with AMC, Animal Planet, BET, Cartoon Network, CNN, Comedy Central, Discovery, Disney Channel, E!, Food, Fox News, FX, Galavision, History Channel, Lifetime, MSNBC, NatGeo, Nickelodeon, TBS, TV Guide, TruTV, The Weather Channel, TV Land, and USA. In order to keep costs down, it won’t have ABC Family, A&E, Bravo, CNBC, ESPN, ESPN2, HGTV, HLN, MTV, regional sports, SyFy, Speed, Spike, TNT, TLC, The Travel Channel, and VH1. Operators pay ESPN about $4.69 per subscriber each month, while TNT costs $1.16, and Disney Channel goes for 94 cents, according to SNL Kagan. Earlier this month Disney CFO Jay Rasulo told analysts that he isn’t concerned that lots of subscribers will accept the sports-less pay TV …
Needham & Co analyst Laura Martin is known for her smart and bold industry forecasts, and her latest is sure to draw a lot of interest. She says that TV Everywhere — where pay TV providers give subscribers the freedom to watch cable TV shows on mobile devices on demand — soon will generate more revenue than will Web-based platforms including YouTube and Hulu. Indeed, she says that it will be “one of the primary drivers of valuation growth for today’s TV ecosystem over the next five years.” About $10B of the additional dollars will come from advertisers and go to content owners led by Time Warner and Disney. Advertisers will pay for TV Everywhere viewers, she says, because people using mobile devices can’t zip past commercials as easily as they can at home with a DVR. Martin figures that sponsors would pay an additional $5.6B a year if just 10% of TV watching shifts from DVRs to TV Everywhere. On top of that, advertisers will
It’s a big deal when an analyst as respected as Credit Suisse’s Stefan Anninger slashes his pay TV subscription forecast for 2012 to a 200,000 loss from a 250,000 gain, which is what he did this morning. But the rationale behind his decision is even more noteworthy: He cites a Credit Suisse-commissioned survey that found evidence of a youthful revolt against the pricey video packages. Lots of young adults aren’t cutting the cord; they never subscribe in the first place. Anninger says that while the evidence is still mostly anecdotal, “we are confident that a relationship exists” between high pay TV prices and declining subscriptions. And the growing group of “cord nevers” (as opposed to “cord cutters”) is “the biggest challenge pay TV will face over the next 10 years” after piracy and soaring programming costs — although “it does not feel like the industry is yet willing to admit that reality.” Execs still accept the conventional wisdom that the recent decline in pay TV subs is due to the weak economy. Once things improve, they believe, then young people will jump on the pay TV bandwagon — especially when they have kids. But Anninger says things could play out differently: These young adults and their children will have grown up “in a world in which the Internet (at least from a technological perspective) was capable of delivering a reasonably satisfying video experience” for free, or a lot less than a cable or satellite TV …
Some bad news today for the cable and satellite companies that have been pooh-poohing the possibility that millions of subscribers will cut the pay TV cord. Researchers at SNL Kagan — one of the most cable-friendly forecasting firms — say they expect 12.1 million homes in 2015 will receive TV shows and movies from Internet services such as Netflix instead of a traditional pay TV provider. That would represent 10% of all households and would be up dramatically from 2.5 million cord cutting homes at the end of 2010 and 4.5 million expected at the end of this year. Although cable and satellite companies still may add pay TV subscribers, SNL Kagan says that “the pace is not expected to keep up with occupied household formation.” About 86% of all homes subscribed to pay TV in 2009 and that dropped to 84.9% last year.
The pay-TV giant has struck an exclusive output deal to be the only place to watch HBO shows from now on. Boardwalk Empire, Martin Scorsese’s series about Atlantic City gangsters, will be the first show to air through the deal in the autumn. Future HBO shows airing exclusively will include Game of Thrones and Luck, executive produced by Michael Mann and starring Dustin Hoffman. The next series of HBO shows such as Entourage and Big Love will also air exclusively on the channel.
Sky is throwing huge amounts of money at programming. It wants to get away from the downmarket image it’s saddled with. Many early adopters lived on council estates – think housing projects – peppering the skyline with satellite dishes. Sky is pulling strenuously upmarket. It’s just announced that it’s taking over ITV’s prestigious arts programme The South Bank Show. And it’s pouring big money into original drama such as Terry Pratchett TV movies and adaptations of crime author Martina Cole.
This year, Sky will spend £1.7 billion ($2.7 billion) on content – most of it on movies and sports rights though. By contrast, ITV will spend £1 billion, Channel 4 £550 million and Channel Five £165 million.
Meanwhile, BSkyB has just announced its fourth-quarter results for the year ending …
2ND UPDATE: I’ve just learned that Relativity Media will be in the distribution business sooner rather than later as it attempts to become a mini-major. Hmm.
UPDATE: This exclusive deal with Netflix might be impressive if more of Relativity Media’s movies did better at the box office. So it’s not exactly earth-shattering that Ryan Kavanaugh just told me that, at 12:01 AM Tuesday, Netflix is sending out a news release about Relativity no longer delivering its movies to pay TV channels. Instead, Relativity’s pics will now be shown via Netflix’s online streaming service. Insiders are calling this the “largest pay TV deal ever” — if that’s what it is. This will include going forward up to 30 movies per year. The first movies to go through the deal are the Nic Cage starrer Season of The Witch, the Brothers Strauss’ Skyline and The Fighter starring Mark Wahlberg and Christian Bale. And maybe the Sundance-buzzed documentary Catfish and Wes Craven’s horror film My Soul To Take, among Relativity’s future movies. (How many underperforming Relativity films will be included as well?) Sorry, but it’s hilarious to think this deal will make HBO or Showtime or Starz or Epix shudder, especially as they continue to move away from showing movies and more towards original programming.