The State of OTT 2014
It’s no wonder that consumers are protesting explicitly or implicitly. A growing number do so explicitly by cord cutting, ditching live-linear programming in favor of watching YouTube or Netflix content, but an equal number are figuring out ways to subvert their own MVPDs by refusing to take part in the advertising mating dance that’s pervaded even on-demand content offerings like Hulu.
Hopping Past the Traditional TV Revenue Stream
For traditional television viewers, the ability to skip through commercials has always been a hard-fought goal. As far back as ReplayTV, an entrant into DVRs and streaming back when few of us had even heard of streaming, the cat-and-mouse game between broadcasters and time-shifting viewers has often started with a technology revolution and ended with a litigated gagging of the technology’s use.
The most recent case comes in the shape of a kangaroo, or at least with the name of one, dubbed the Hopper by Dish Network.
Hopper acts as a central control unit for a number of smaller STBs throughout the viewer’s house, with these smaller units thoughtfully dubbed Joeys. Hopper allows advertising to be skipped with its TiVo-like live television DVR functionality, and it also provides the ability to stream content to a number of Joey units throughout the house. Did I mention this is partly possible due to the fact that Sling is part of the Dish Network’s ecosystem?
Dish Network’s Hopper and Joey ecosystem, which includes Sling, is giving consumers ad-skipping, multiple DVR functionality in the home.
In some ways, the Hopper/Joey combination falls more in line with the approach to DVR functionality advocated for years by activist groups like the Natural Resources Defense Council, than does the approach by traditional MVPDs. NRDC has been pushing MVPDs towards STB units that consume much lower power, but research shows that even EnergyStar compliant DVRs in use across the USA still consume power “equivalent to the annual output of nine average (500 MW) coal-fired power plants.”
The move by Dish to limit setups to one DVR per household, combined with additional streaming units to deliver the on-demand content to numerous other televisions, shaves overall power consumption. Yet it fails to pass muster with the MVPD solely because it threatens the status quo of advertising revenue that’s been with us almost since the advent of television itself.
“Together, Aereo and Dish represent a devastating potential one-two punch,” writes Forbes’ Jeff Bercovici, “with Aereo undermining the networks’ ability to charge distributions retransmission fees (worth an estimated $3 billion by 2015) and Hopper handicapping their efforts to sell advertising.”
Attracting the OTT Crowd to Traditional Television
If the traditional MVPD is fighting the battle to retain potential cord cutters, is there any hope of gaining new customers from the millennial crowd that’s been aptly dubbed, so far, the “cord never” generation?
In other words, is there a strategy that successfully entices the OTT crowd to try traditional live-linear television?
That question was front and center during a recent market analysis and strategy project that Transitions, Inc., a consulting firm I co-founded in 2003, provided for a broadcast-focused customer in late 2013.
It turns out the answer is “yes” but only if the “cord never” generation is given freedom to choose their own programming. Ideally this choice is on a program-by-program basis, with the fallback to a channel-by-channel choice. In other words, extreme unbundling.
The industry has had almost two decades to plan for the channel-by-channel option, but has never really wanted the general public to know about it, hiding the option behind both a bundling scheme and excessive per-channel prices.
Try calling your cable company or MVPD today, and make the request that you only want one channel of service. Pick any channel that’s considered premium, from ESPN to HBO. If your MVPD will even speak to you about this option—the 1996 Telecommunications Act requires it, but not every MVPD customer service representative has knowledge of it, even 22 years on—the price they will quote for a single channel of live linear programming will meet or exceed the cost of the 25-plus channels they sell you as part of a basic bundle.
The economics behind this aren’t even sound, as cord-cutting has siphoned off profits and a viewership drop at some MVPDs is accelerating based on the desire of many viewers to watch what they want when they want it. The whole concept of TV Everywhere is intriguing, but it still forces the potential MVPD customer to buy in bulk when they want to consume a targeted diet.
To put this into an analogy that both the cord-never demographic and the MVPD executives might understand, consider a bar scenario: If one goes into a bar and orders a glass of wine, that glass of wine may cost about 25% higher than the per-glass cost if one bought an entire bottle. That’s classic economy of scale, and accounts for wastage among other financial factors.
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