The State of Media and Entertainment 2017
For the pay TV companies, going after the 20 million U.S. households that don’t have cable or satellite is low-hanging fruit, but it’s not a long-term value proposition. The smarter move is to look at households paying $100 per month for TV currently and figure out a way to sell them a more robust experience with a generous amount of easily discoverable content.
Multichannel video programming distributors (MVPDs) need to emphasize experience and content selection to keep their audiences happy, while trying not to dilute the average revenue per user (ARPU) too much. Skinny bundle services that start from scratch, such as Sling TV, need a different focus: They should lead with differentiation and value, trying to outprice the competition. Once customers are brought in, they should then focus on additional revenue streams.
In 2017, the various companies offering skinny bundles will be competing for a small audience, Ireland believes, but at the same time, major players can’t afford to wait on the sidelines. Getting in late could mean finding that the audience has already gone with a competitor.
“I would hope that we would see in 2017 some of these other players bringing their plans to market simply to be able to get in before some established players capture share and then make the barriers to entry that much higher,” Ireland says.
Economic forces make it unlikely we’ll see a la carte offerings in 2017, Ireland believes, no matter how much consumers want them. In the pay TV ecosystem, all of the subscription channels are owned by a handful of major media companies. Those companies use the leverage of channel ownership to keep the current large bundle system in place. If a media company owns 10 channels where two are extremely popular, six are so-so, and two aren’t popular at all, the company will structure contracts to encourage or even require pay TV distributors to take both the popular and less-popular channels. Doing so provides the media company with a certain amount of viewers, opens the opportunity for licensing fees, and provides a source of ad revenue.
Even if media and pay TV companies were open to a la carte, Ireland doesn’t believe it would be a win for consumers, both in terms of value and choice.
“A la carte undermines the economics of what’s propelled this market forward to date,” Ireland says. “We as consumers have a lot of choice on our pay TV bundle. We have a choice of programming found on channels that in the a la carte world we wouldn’t subscribe to. For example, years ago Queer Eye for the Straight Guy became a big cultural phenomenon coming from Bravo. None of us would have subscribed to Bravo, probably. It was a lesser-known channel and it didn’t have a lot of well-known hit content. But because of channel bundling and lack of a la carte, it created the situation where some hot content could percolate up.”
For a look at the over-the-top market (OTT) in 2017, we turn to TDG’s Espelien. The industry saw a lot of experimentation in this area in 2016, with several niche and mainstream offerings debuting. OTT is a growth area, and it seemed that anyone with a content library put out their own service. Clearly that phase can’t last for long, and we’re bound to see some losers shake out of the market soon. Espelien thinks there’s still room for growth, but companies have to pick their area with care.
There are two ends of the streaming video spectrum, Espelien says, with major broadband pay TV services like DirecTV Now on one end and niche OTT services on the other. These are the two places to operate in 2017, and there’s a good reason they’re the sweet spots.
“I think we’ll see those two ends of the spectrum continue to evolve and multiply. In other words, neither end of that spectrum is really trying to compete head-on with Netflix,” Espelien says. “There are certain categories that I think are highly saturated, so you don’t want to go head-to-head with that stuff, but around the edges there’s tons of space.”
While many services started by offering access to movies, including Netflix, viewer attention has shifted to television, and that’s where the opportunities will be in 2017, especially for original series. We’ll also see growth in niche sports services
That doesn’t mean everything is rosy in OTT. Espelien sees dark days ahead for Sony PlayStation Vue, which missed its window and doesn’t have the ability to compete with DirecTV Now. The price and bundled channels are the same, but Vue isn’t supported on the same range of devices and lacks access to HBO. Some services will fall by the wayside, and 2017 could be the year that Vue goes down. That assumes DirecTV Now can pull itself together. It started the year with well-publicized outages and feature snafus. It can’t win out when its support lines are clogged with unhappy customers. CBS All Access could also run into trouble. Adding NFL games was a strong move, but it doesn’t seem to have the breadth of offerings for a compelling long-term service. The Millennial-oriented niche services could also see shakeups this year. With offerings like YouTube Red, go90, and Alpha, there are a lot of companies offering short-form online originals to young viewers.
“I’m about to do a new report on the U.S. Latino market, which I think is really going to be the kind of bright spot of the growth engine, but I think for generic Millennial webisode-type stuff we probably have more supply than there’s real demand [for],” Espelien says.
Virtual reality (VR) has been a big story in 2016, although there have been more people talking about VR than viewing it. But it’s an exploding market, with IDC projecting VR headset shipments growing to 61 million units by 2020. Espelien doesn’t think VR will go mainstream in 2017. Think a few years down the road, perhaps 2020. The big content studios have been green-lighting VR projects, and they’re willing to hold on until mainstream adoption comes. This year, VR will still be mostly about the gaming crowd. The biggest news in VR in 2017 could come from a company that hasn’t yet entered the market:
“I think maybe the big story to preview in 2017 will be at what point do we see a VR offering from Apple?” Espelien wonders. “That’s a huge blank to be filled in. I think it’s totally obvious that at some point it will do something in this space. It’s not going to ignore that screen permanently, but I think it typically likes to wait.”
Apple didn’t have the first music player on the market with the iPod, but it came out with a simple, easy-to-use device at just the right time. Could this year be when Apple takes on VR, just as the category expands beyond early adopters? That would make sense, and it could completely upset the market.
It’s going to be a competitive year, with new services and new features showing up. Some will be surprise hits, while others will drift away. Thankfully, all that competition and experimentation means consumers are going to be the big winners this year.
This article appears in the March 2017 issue of Streaming Media magazine.
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