Executive Trends: Linear pay TV may survive to the OTT attack

Most of the industry attention is nowadays focused on the launching of the various streaming services --by Disney, AT&T, Viacom, NBCUniversal, Apple and others-- that will compete against Netflix for the attention and budget of three types of potential customers:

• Cord “cutters” & “nevers”, those who abandoned or never had “cable TV”.
• People still subscribed to linear pay TV but uneasy about the subscription fee or other cable network shortcomings regarding programming and scheduling.
• Those with an Internet connection but not subscribed (willingly or unwillingly) because of linear TV service not being available in the their area.

(Private Advisor, May 2019) Netflix reports currently close to 140 million subscribers and has undisputed additional potential. Yet, there are several market segments (“unique audiences”), which may vary from country to country, that require content not delivered by Netflix, such as news and sports. Facebook and Twitter are trying to snatch there viewers, but it’s not an easy feat.

In addition, there’s a small percentage of Netflix subscribers not happy about seeing the algorithm choose and produce fare ‘for them’ based on what the majority likes; many of these ‘outsiders’ are retained because of the third-party programming added to the lineup in addition to ‘original production’.

How many households will be willing to subscribe to the new services? According to Ampere Analysis, the Average SVOD Subscriptions per SVOD Home Average, in the U.S., has remained flat in 3Q17-3Q18 at 2.8; it may be expected it will be higher in 3Q19 through the Disney+ launching in November, and in 2020 with the addition of other competitors, but this might fall short of a real boom.

Age bias
From a different viewpoint, there’s a pending question about how the so-called “millennials” --an imprecise definition by all means-- will mature and react accordingly, when reaching their fifties and sixties. Will they settle down and appreciate watching a video routine designed by smart third parties? This would add audience to broadcast and pay linear television, now stagnant.

Regarding post-millennials --Gen Z and the current teenagers--, their behavior and whims remain imprecise and appear to be not sustainable along time; this does not mean that they will at some moment necessarily sit down on a coach and watch a cooking contest, but existing data inserts a degree of doubt regarding the continuity of their current behavior modes.

Still a profitable business
All in all, despite having lost some of its luster, linear pay television remains a profitable business for most of those planning to compete against Netflix. They are making money not only from license fees paid by cable operators and DTH services, but also from advertisers that are increasingly migrating from broadcast television and print media to the digital environment; sponsored programming is on the rise, too. At this point, advertising seems to be hated by streaming fans, unless they are somehow “rewarded” for watching the commercial spots.

The current linear TV income --billions of dollars per year-- will be at risk if the major content producers stop funneling their top product into the linear television pipeline, diverting it to their own SVOD service or to aggregators that may aim at becoming substitutes to the current cable and DTH systems. Clearly, the new gigantic OTT’s expect they will make more money under the D2C (director to consumer) track than having the cable operator as a middleperson. But, again, probably less than half of them will achieve success with this.

Many streaming players plan to make their top content to be exclusive to their online service. This will move the cable and satellite operators to start bargaining a reduction in the fees they have been paying so far, based on the content being subtracted from their feeds. An impact on the programmers’ bottom line may be expected.

At this time, linear television is not a “dead man walking”. In Latin America, more than 60% of the business is controlled by telcos, people with clout. True, it has inherited many aspects from broadcasting (among them, 24 minute episodes within 30 minute time frames) but there’s nothing unsolvable. With a proper Electronic Programming Guide (EPG), viewers may get hold of data that will strongly improve their experience. This feature is being tested in some European countries; storing the content on the Cloud would allow the providers to emulate the “anytime/anywhere” mantra and level the playfield. The irony is that there are programming providers that request being paid in addition in order to make available this feature that could save their existing business.