When — and not if — ESPN goes direct-to-consumer, subscribers to the pay TV bundle will still have access to its programming, The Walt Disney Co. CEO Bob Iger said.

Speaking on Disney’s earnings call Wednesday, Iger continued to be certain that ESPN would become a streaming service, but didn’t say when. 

“Our plan when we bring ESPN direct to the consumer — which is inevitable, it’s going to happen, we're planning for it — is to try what I'll call a soft landing,“ he said.

That means that Disney would continue to make ESPN available a part of the bundle, while also releasing a version of the network “on a true a la carte basis in DTC form,” he said.

“It is our hope that it will serve basically the consumer in two ways, in the traditional way and in a new way and we'll obviously see in terms of where we end up the blend of basically consumers that stay in the bundle and those that leave,” Iger said. 

Over the longer term, “as we model basically ESPN into the future, we see that in some cases it will continue to be sold as part of the bundle.”

Iger added that Disney has been talking with a number of entities that could strengthen an ESPN DTC service.

“I can say that there's significant interest out there,“ Iger said. ”There are obviously complexities to it, but not hurdles that are so high that we can't jump over them. And we're going to continue to explore it. And I would imagine we'll have more to say about this in the coming months.” 

Such entities could provide technology, marketing support or content, Iger said. 

On the call, Disney noted that despite worries about falling subscribers, ESPN’s revenue and operating income have grown in each of the past two years.

“We feel we have an excellent hand, by the way, and could do it [shift to streaming] without that,“ Iger said. “But why not explore strengthening our hand?”

Monumental Sports Network, owned by Ted Leonsis, said it launched a direct-to-consumer subscription service that will let fans who aren’t pay TV subscribers watch the games of Washington, D.C.’s basketball and hockey teams for $19.99 a month.

Viewers can also pay $199.99 a year to watch the Capitals, Wizards and Mystics play via the Monumental Sports Network app, which is available on iOS, Android, Apple TV and Roku. Subscribers can also use the app on Amazon Fire TV, Monumental said.

With pay TV and regional sports networks losing subscribers to cord-cutting, Monumental becomes the latest sports rights holder to make games available via streaming.

“We are delighted to make our network more accessible to fans without a Pay TV subscription by launching direct-to-consumer memberships,” Zach Leonsis, president of Media & New Enterprises at Monumental Sports & Entertainment, said. “Distributing our programming in new and additional ways is critical to our strategy of building the best local media platform in sports.” 

Viewers who currently access Monumental Sports Network through a pay TV provider will continue to be able to watch the channel and can use the digital platform with no additional fees.

The app — created with ViewLift, another Leonsis backed company — fans with new and enhanced video functionality for live streaming of games, on-demand viewing of original programming and game replays and exclusive behind-the-scenes content.

Users who already had the previous Monumental Sports Network app downloaded on their digital devices will receive a new version of the app via a standard app update. 

Monumental said the first 10,000 subscribers to the network’s new Annual Membership will receive an exclusive, limited-edition bobblehead set of three featuring Alex Ovechkin, Kyle Kuzma, and Elena Delle Donne. Each bobblehead includes a built-in audio feature that plays signature game calls from Monumental play-by-play announcers.

“We are excited to have built the Monumental Sports Network apps to enable fans of the Capitals, Wizards, and Mystics to watch all the live action and VOD content on desktop, mobile, tablet, and both Apple TV and Fire TV — with more platforms to come,” ViewLift CEO Rick Allen said. “Sports fans in the D.C. region are some of the most technologically sophisticated anywhere, and these Monumental streaming services continue the company's leadership in super-serving that fanbase. We've been Monumental's streaming partner for eight years and are particularly proud of this latest version of the Monumental Sports Network.”

The Walt Disney Co. and Charter Communications ended the network carriage dispute that resulted in a blackout with a unique deal that involved the media company’s streaming properties as well as its traditional television networks.

Disney agreed to provide Charter with the streaming services that the cable operator argued had programming that its subscribers already paid for, while Charter got flexibility to drop some of Disney’s lower-rated, “long-tail” cable networks.

Net-net, Charter will be paying more to Disney, with the increase in wholesale fees for streaming exceeding cuts in payments for cable networks that are being dropped, most analysts have concluded.

MoffettNathanson analyst Robert Fishman looked at the Charter deal and has tried to game out how a similar deal would work out for other media companies.

Bottom line: the deal probably benefits Disney, but will be a tougher pill to swallow for its rivals.

The Charter deal would lead to several long-tail networks vanishing. S&P Global Intelligence listed some of those networks, and estimated when they would face the axe, based on when deals were up for renewal.

Fishman looked at the revenue those networks generate and how much that revenue means to their parent companies. He also weighed that loss against the upside of increased carriage of those media companies’ direct-to-consumer services.

“The most obvious risk to all media companies following the Charter renewal is exposure to longer-tail networks that could be dropped in future renewals,” Fishman says in his report.

Fishman estimates that U.S. affiliate fees for Disney account for about 17% of the company’s revenue. By comparison, affiliate fees represent 48% of Fox’s revenue, 22% of Comcast NBCUniversal’s revenue and 21% for both Warner Bros. Discovery and Paramount.

For Disney, those long-tail networks — Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild and Nat Geo Mundo — represent 8% of affiliate fees. 

For NBCU, networks like Universal Kids, Oxygen, Syfy and E! Account for 17% of affiliate fees. Paramount networks MTV2, TeenNick, Nicktoons, VH1 and Nick Jr. account for 16% of affiliate fee revenue. Similarly at WBD, Discovery Family, Discovery Life, American Heroes, Travel, Destination America, Cooking Channel, Motor Trend, Science, truTV and Boomerang represent 15% of affiliate fees.

Fishman doesn’t see any of Fox’s cable networks at risk of being dropped.

Losing carriage of the long-tail networks would also cost media companies advertising revenue. For WBD, this would impact 10% of ad sales; for Disney, 9%; for Paramount, 7%; and for NBCU, 5%.

Adding affiliate fee and ad sales for those long-tail networks, Fishman figured 13% of WBD’s linear business revenue is at risk. That’s more than the 12% for NBCU, 11% for Paramount and 8% for Disney.

While distributors like Charter are saving money by dropping long-tail networks, Fishman argued, they will be paying single-digit percentage increases in how much they pay for the cable networks they continue to carry.

He estimated that would leave Disney’s affiliate revenues down 1% to 15.4 billion. The drops would be bigger elsewhere, with NBCU down 17% to $7.5 billion; Paramount down 16% to $5.4 billion; and WBC down 12% to $7.9 billion. Fox’s affiliate revenues would grow 8% to 7.7 billion.

What happens to streaming revenue as DTC services become part of a cable subscription is a bit more complicated. Fishman assumes that future deals will give the 60% of cable customers who don’t currently subscribe to the various streaming services and that viewers who already have the ad-supported versions of streaming services independently will drop them, rather than pay twice.

Fishman sees Disney Plus subscriber revenue rising 5% in the Charter deal, even at wholesale price levels. But other services would see less of a gain because distributors would argue that more of their programming is already including in the cable bundle, notably NFL football now on Paramount Plus and Peacock.

Fishman estimates that under this scenario, WBD subscription revenue would be flat at $3.9 billion, Paramount Plus would drop 6% to $2.8 billion and Peacock would fell 13% to $1.3 billion.

(AMC would get a big boost on a small base — up 33% to $700 million — with the added distribution cable operators could provide to AMC Plus, Fishman noted.)

All in, looking at traditional TV affiliate-fee and ad revenue and streaming subscription revenue, Disney is the only winner, while WBD sees revenues dropping 8%, Paramount down 13% and NBCU 17% lower.

Fishman notes that affiliate fees are high-margin revenue. “On the flip side, a reduction to DTC subscription revenues could have a bigger long-term impact to streaming profitability with the need to reassess associated content spending to drive subscriber growth,“ he said. “Although, this would be at least partially offset as including streaming services within the Pay TV bundle offering would help substantially reduce churn.” 

In terms of earnings, Fishman is cutting his estimate for WBD by 4% for 2023, 2% in 2024 and 2% in 2025.

Ar Paramount, the earnings forecast is 1% lower for 2023, 2% in 2024 and 5% for 2025.

“At Fox, we are decreasing our FY 2024 by 2% estimates to better incorporate weaker ad trends at cable networks and higher corporate costs, but we leave our affiliate and retrains forecasts unchanged as the company stands to take an increasing share of the overall pie as distribution partners tighten the screws with their other content partners,” Fishman said.

Mofftet Nathanson is maintaining its “buy” ratings on Disney and Fox, its “neutral” ratings on WBD, AMC and Netflix and its “sell” rating on Paramount, but it is lowering its target prices for Fox, AMC and Paramount.

The once skyrocketing streaming business is slowing down, according to an analysis by Steven Cahall of Wells Fargo.

Subscriber growth rates were down in the fourth quarter and will continue to drop through 2025. Similarly revenue increases dampened–a trend that will go forward through 2004, the analyst says.

Looking at subscribers, Cahall says the 12 direct-to-consumer services he tracks added 23 million subscribers in the fourth quarter, a 4% increase. They added 103 million compared to a  year ago, a 19% gain. Those increases are smaller than 4% quarter to quarter increase and 25% jumps registered in the third quarter.

During 2021, the streaming services averaged added 38 million subs per quarter.

“This is the second consecutive year of decelerating growth and the lowest level of year-over-year net adds since 2018, when there were fewer streaming platforms,” Cahall says. “We don’t think it’s a surprise to investors that streaming sub growth is slowing as penetration increases.”

Among the individual Disney Plus (including Hotstar) and Starz lost subscribers in the fourth quarter. 

Peacock was the fastest growing service in the fourth quarter, up 33% from the prior quarter and 122% from the year before. Paramount Plus was up 21.5% from the third quarter. 

Naturally Netflix had the largest market share at 36%, flat from the third quarter but down from a 41% share a year ago. Put together, all of the elements of the Disney bundle also had a 36% share in the fourth quarter. “We think the Disney Plus bundle is delivering solid sub growth for the service and also driving down churn.” he said.

Looking head, Cahall forecasts that streaming subscribers will increase 8.1% in 2024 and 10% in 2025, when there will be 828 million total streaming subscribers. That’s down from Cahall’s previous estimate of 910 million subs in 2025.

From a revenue perspective, DTC services generated $15.2 billion between subscriptions and advertising in the fourth quarter, up 3% from the third quarter and 13% from the previous year. 

Netflix accounted for 51% of the revenue generated by DTC services. 

For 2022 the DTC business generated $8.8 billion in revenue up 20.5% from 2021.

Cahall expects industry revenue to grow to $68.7 billion in 2023 and $79.3 billion in 2024. ■

Sinclair Broadcast Group’s long-awaited direct-to-consumer regional sports streaming service will emerge from the dugout on June 23.

Bally Sports Plus will initially be available in five markets where the company’s Diamond Sports Group’s regional Bally Sports networks carry Major League Baseball’s Kansas City Royals, Detroit Tigers, Miami Marlins, Milwaukee Brewers and Tampa Bay Rays.

The app will cost $19.99 a month, or $189.99 a year, and enable fans to watch games without subscribing to a multichannel pay TV cable, satellite or streaming service. 

Rob Weisbord, Sinclair’s chief operating officer and president of broadcast, told Broadcasting+Cable that Bally Sports Plus would have a soft rollout at first, with additional marketing support coming after Major League Baseball’s All-Star break (July 18-21). 

The direct-to-consumer service will be introduced in the other markets where the company has RSNs during the third quarter.

Bally Sports Plus is designed to reach the growing number of viewers who have dropped traditional pay TV or chosen less-expensive bundles that don’t include regional sports networks. The cord-cutting trend has threatened the revenue streams for the 19 regional sports networks Sinclair borrowed about $9 billion to buy in 2019.

“We still think our distribution partners are very, very important to us,” Weisbord said. “But what the leagues and we have to solve for is the next-gen viewer and be able to give them the apps and allow them to subscribe on the platform they want to watch. We’re looking at DTC to bridge the gap.”

Initially, the app will be available for mobile devices and is expected to show up on Roku around baseball‘s All-Star Game.

“The first thing we’re focused on is the quality of the video,” Weisbord said. “The games themselves are our tent poles so there’s a heightened level of scrutiny. We have to be on par with the Netflixes and the Disney Pluses.”

Eventually, the app users will be able to play fantasy and predictive games for prizes, get advanced statistics and buy tickets and merchandise.

“We want to entice the Xbox generation,” Weisbord said. “That’s who we envision as being the heavy app user and they’re used to interactivity. If we build up the interactivity, they’ll stay with the games longer, even if it’s a blowout.”

There will be virtual prizes, real prizes and, in some cases, cash prizes. “We want them to stay with the games and give them a component that makes them lean forward," he said.

Each added feature must be approved by the teams and leagues, so it might take some time to get them all activated.

The app will not have betting, but when activated it will be pretty easy for users to shift to the interactive Bally’s Sportsbook app wherever gambling is legal and the team approves.

Sinclair declared that it would have its direct-to-consumer product available in the second quarter, but the product has faced questions. For a while, it wasn’t clear if Sinclair had the rights it needed to stream games. Last year MLB commissioner Rob Manfred said Sinclair didn’t have enough digital rights to stream games and there were reports that MLB, along with other leagues, were considering launching their own streaming service.

Sinclair and the Bally Sports Plus app should just barely beat the deadline, satisfying Wall Street, but Weisbord said it was more important to make sure that the product worked well coming out of the gate. 

Second Player in the Game

As it turned out, NESN beat Sinclair to market with its NESN 360 DTC app, which launched June 1 and carries Boston Red Sox games. NESN 360 costs $29.99 a month, making Bally Sports Plus look like a bargain.

Earlier users of NESN gave it mixed reviews, complaining about its price, its lack of connectivity with some devices and the inability to watch outside of the Boston area.

Weisbord said he expects Bally Sports Plus to improve as it iterates and adds features. “If our 1.0 is the best that we could do, we’ll be in big trouble,” he said. “It’s similar to a restaurant opening. Each month we expect to get more refined as we move along.” 

To develop the app, Sinclair worked with tech company Deltatre. Bally Sports’ development team was headed by Mike Allen, who was with the NBA’s product team before being hired away by the broadcaster a year ago. 

The Bally Sports app will enable pay TV subscribers to authenticate and watch games, and allow non-pay TV subscribers to join the direct-to-consumer service. 

Advertising will be the same on the broadcasts and the apps. Weisbord is counting on that generating bigger audiences and more reach for advertisers.

Going into the direct-to-consumer product business, Sinclair is setting up an 800 number and a fully-staffed customer service team to help subscribers with any struggles they might have with the app, Weisbord said.

Weisbord declined to say how much Sinclair paid to develop the direct-to-consumer service, but when Diamond Sports got $600 million in new financing earlier this year, Sinclair laid out its projections for the service in a Securities and Exchange Commission filing.

The filing laid out worst-case, middle-case and best-case projections for the DTC. In the best case, Bally Sports Plus would grow from 6.7 million free subscribers in 2022 to 9.6 million in 2027. By 2027 EBITDA could reach $1.03 billion, according to the filing.

Weisbord said Sinclair expected the DTC product to break even in year three.

Many observers have warned that sports moving to streaming would be strike three for the traditional pay-TV bundle. Weisbord said he didn’t think Bally Sports Plus would induce cable subscribers to cut the cord.

Striving for ‘Viewer Optionality’

“I think those people [pay TV subscribers] are comfortable and most people hate change,“ he said. ”The people that have consciously cut the cord or shaved it, that’s really the target market. And I think there’s certain demographics that cut the core and certain demographics that will never cut the cord. Our whole focus is viewer optionality.”

Weisbord declined to say whether Sinclair’s cable and satellite distributors would get a payment for customers who sign up for Bally Sports Plus.

Sinclairis tipping off Bally Sports Plus during Major League Baseball season, when there are plenty of live games to air over a 162-game campaign. Fans get fewer games to watch when they root for their teams during basketball and hockey season. Weisbord think the app will be attractive year-round.

“Our thesis is this will have 12 months of sports on a contiguous basis,“ he said. “There’s that potential that if one team falls out of the race early, you might have some churn. But the value proposition at $19.99 a month, we think, is attractive, especially with how 4K HDR is coming about to really enhance viewers‘ enjoyment of the game. … We think where we have a three-team offering, it buffers that churn.”

When Sinclair starts marketing Bally Sports Plus, the advertising will be aimed at those cord-cutters and cord-shavers. Sinclair is in the process of hiring an ad agency that specializes in DTC products. “The focus will be on those that are unable to get the games,” he said. There might be some chatter about the app during the game broadcasts, but not many ads for it.

“The people getting the RSNs have traditional distribution, so that’s not really going to reach the audience that we’re looking to get to subscribe,” Weisbord said.

Sports is just the first area in which Sinclair is considering going direct to consumers. “You have to have unique content,“ Weisbord said. “And so today, you cannot go with hard news because it is kind of ubiquitous. But we’re always exploring. We believe the subscription business long term is a healthy business for us to be in, and our goal is to be in the e-commerce business.” ■

Sinclair Broadcasting Group’s Diamond Sports Group (home of its regional sports networks) dodged a big bullet last week by hammering out a carriage deal with the National Basketball Association for its upcoming direct-to-consumer streaming service and negotiating $600 million in additional financing that secures its survival for at least another year. But the sports giant still faces pressure in the next few months to reach deals with Major League Baseball and Charter Communications. 

Sinclair reached a deal with the NBA on January 13, about one month after securing a similar arrangement with the National Hockey League on December 3.   While both of those deals include rights for Sinclair to stream games via its direct-to-consumer service, slated for the second quarter, the content company still has to strike deals with Major League Baseball, which in the past has been critical of the company. 

Sinclair said last year that it had rights deals with four teams -- and some have speculated those are the  Detroit Tigers, Milwaukee Brewers, Miami Marlins and Kansas City Royals -- for its DTC service. But the company still needs to secure DTC streaming rights for another 10 MLB teams. The regular season is expected to begin around April 1, although a possible lockout of players by team owners that need to renew a bargaining agreement with their union could push that date back days or months. In an interview with the Wall Street Journal  January 13, Sinclair CEO Chris Ripley said the DTC product would have a soft launch in the second quarter, rolling out more broadly in Q3. 

DTC service is critical, and so is the linear carriage deal with Charter, which is set to expire in Q1. Charter has about 15 million video subscribers in 41 states, including many where Sinclair has an RSN presence.  In a research blog earlier this month, LightShed Partners partner and media and telecommunications analyst Richard Greenfield predicted Charter would place the Sinclair RSNs on a separate tier, something RSNs across the board have resisted for years. Placing those channels on a tier could severely cut into their carriage revenue, as it is generally believed that about 30% of cable subscribers subscribe to tiered sports channels.   

Greenfield pointed to the prevailing wisdom that as DTC sports services launch, the need for a linear counterpart diminishes. Dish Network, which reached a retransmission consent deal for Sinclair’s TV stations in November, declined to reach a similar deal for its RSNs. The same could hold true for Charter.  

“Charter is not known for going to war on programming fees,” Greenfield wrote. “However, we expect Charter will demand RSN tiering vs. basic tier carriage, as minimum penetration requirements fall dramatically. If Sinclair balks at this demand, Charter will be forced to simply drop the RSNs altogether, as the content will be easily available to only the subs that want it via OTT.” 

According to the Sports Business Journal, talks between Sinclair and Charter have already started, but the two are still far from a deal. The paper said Charter is looking for “more flexibility” in how it offers the RSNs.   

That sounds like code for tiering, and if it is, it would be a problem for Sinclair. Because while everybody else is concentrating on the DTC service, Sinclair, like every other RSN, still relies on its linear TV deals to pay the bills. In an 8-K filing with the Securities and Exchange Commission, Sinclair mapped out three separate scenarios for the linear and DTC offerings. In every scenario, distribution revenue for the linear business remained relatively stable over the next five years -- $2.56 billion in 2022 dipping slightly to $2.39 billion in 2027. That 6.6% decline over five years comes as cable, telco TV and satellite TV businesses are experiencing a 6%-to-7% annual decline in subscribers. While traditional sports lovers are said to be stickier subscribers to the Pay TV bundle, it is unclear if the subscriber projections include Charter or not.    

Sports consultant Lee Berke, CEO of LHB Sports, Media & Entertainment, said it appears that Sinclair’s projections for their sports businesses are making some  interesting assumptions. 

“It assumes that there is no more churn, there is no more shrinkage in the pay TV universe,” Berke said. “It’s tough to see how that could be the case.”

In a research note earlier this month, MoffettNathanson senior analyst Craig Moffett estimated that the pay TV universe shrunk by about 5.2% in Q3, the latest figures available.  Cable operators shed 6.2% of their video customer base while satellite TV services providers like Dish Network and DirecTV lost 12% of their subscriber base. Even virtual MVPDs like YouTubeTV, Hulu Live TV and FuboTV are showing signs of a slowdown, adding under 1 million customers in the period, compared to 1.5 million in the prior year.

Sinclair has said in the past that its DTC service will be able to tap into a growing number of consumers who have no traditional pay TV relationship at all -- about 35 million homes at last count -- which could be a reason for the optimism. But it doesn’t explain the relative stability it seems to expect from the linear service, which relies on traditional TV distributors. According to the SEC filing, Sinclair doesn’t give estimates for linear subscribers, but it does project that EBITDA will drop from $396 million in 2022 to $150 million in 2027, so whatever customers remain will be less profitable. 

“It seems like a really solid piece of financial engineering,” Berke said. “But the marketplace is still the marketplace, and the trends are still happening in terms of churn and in terms of shrinkage of pay television and what people would pay.”

Also: Sinclair RSNs: Focus on the Dish Deal 

At the UBS Securities Global TMT conference on December 8, Rutledge didn’t specifically talk about tiering, but said that sports is one of the biggest components of high-priced cable bills.

“We’re trying to -- given the constraints in our own access to content -- create as many packages as we can for customers to meet their needs, recognizing that most people would love to have the fat bundle if it wasn’t so expensive,” Rutledge said at the December conference.   

Also: Ripley on RSNs: Believe It or Not 

According to the financial estimates in the SEC filing, if Diamond is projecting having about 309,000 subscribers to its DRC service in 2022, and generating about $75 million in revenue for the service, that works out to a charge of about $20 per month for the DTC service, below the $23 price point that some reports suggested in the past. The Sinclair revenue estimates also do not include possible revenue from gambling, which could be a huge profit center for the networks going forward. Ripley has said in the past that he expects the DTC service to be “lean-forward,” giving consumers a video game-like experience that allows them to play a game within a game.    

Also: Networks Get Ready for New York Mobile Sports Betting on Jan. 8

A lot of sports networks are looking to gambling as a huge potential cash cow on the advertising and sponsorship side. Several networks have forged marketing and other relationships with sportsbooks and casinos -- MSG Networks has marketing and sponsorship arrangements with Caesars Sportsbook and BetMGM; FanDuel and DraftKings has a long advertising relationship with Turner Sports and other channels have similar deals with other outlets. Sinclair has a deal with Bally Inc., where the casino giant paid $88 million over 10 years for naming rights for the channels. As Bally continues to roll out its BallyBet mobile app, currently in four states  it’s probably a good wager that it and the RSNs will have an even more symbiotic relationship. ■ 

Sinclair Broadcast Group‘s regional sports network unit Diamond Sports Group has signed a new deal with the National Basketball Association that gives its Bally Sports networks permission to offer streaming content including live games on an authenticated and direct-to-consumer basis.

The deal covers 16 NBA teams in their local territories.

Diamond Sports also said it made deals to raise $600 million in new capital from existing borrowers. The new funds are expected to be used to help build the DTC platform.

Sinclair has been looking to launch a direct-to-consumer service this year to bolster its RSN business, which has been under strain from cord-cutting and heavy debt.

Questions have surrounded Sinclair’s plan since Major League Baseball commissioner Rob Manfred suggested that Sinclair did not have sufficient rights to mount a DTC service.

Sinclair stock rose 2% Thursday morning after the NBA deal was announced.

Sinclair in December announced a renewal of its deal with the National Hockey League, that included direct-to-consumer streaming for 12 teams. 

“We are excited about our continued partnership with the NBA which allows us to bring the league’s in-demand and exciting basketball content to local fans across multiple platforms,” said Chris Ripley, Sinclair’s president and CEO. “Sinclair places the highest importance on connecting sports fans with live games and other sports content. We are looking forward to the launch of our DTC platform in 2022, ushering in a new era of local sports viewing with a more personalized and dynamic viewing experience.”

Also: Sinclair’s Bally Sports RSNs Set To Launch ‘The Rally’ on Jan. 24

Teams included in the agreement are the Atlanta Hawks, Charlotte Hornets, Cleveland Cavaliers, Dallas Mavericks, Detroit Pistons, Indiana Pacers, Los Angeles Clippers, Memphis Grizzlies, Miami Heat, Milwaukee Bucks, Minnesota Timberwolves, New Orleans Pelicans, Oklahoma City Thunder, Orlando Magic, Phoenix Suns and San Antonio Spurs. ■ 

Sinclair Broadcast Group CEO Chris Ripley said Tuesday that additional streaming rights deals for its upcoming direct-to-consumer RSN service could be coming soon, adding that he believes the company has enough content in hand now to launch the product successfully. 

Ripley, speaking at the Bank of America Leveraged Finance Virtual Conference on Nov. 30, said Sinclair is in “active and ongoing negotiations,” with the National Hockey League and the National Basketball Association for streaming rights, and that although it only has rights from four major league baseball teams, that could change.

“I do think there will be some news around some of these renewal negotiations shortly,” Ripley said at the conference.

Sinclair has been under fire ever since MLB commissioner Rob Manfred said in October that Sinclair hasn’t secured the necessary streaming rights for the direct-to-consumer service, hinting that teams may be reluctant to give away rights without a fight. The DTC service is considered to be crucial to the future health of the Sinclair RSNs, which have seen their subscriber rolls dwindle as traditional pay TV distributors have battled with cord cutting.

Sinclair has maintained that it will not waiver from its plan to launch the DTC service. Although the broadcaster has not said which MLB teams it has deals with, speculation has been that they are the Kansas City Royals, Milwaukee Brewers, Detroit Tigers and Miami Marlins, all of which -- with the exception of the Brewers, who were 95-67 this year -- posted losing records in 2021. The Tigers signed free agent shortstop Javier Baez earlier this week, which should boost interest in the club next season. 

That could be a moot point as the MLB Players Association’s collective bargaining agreement with the league expires at 11:59 p.m. Wednesday (Dec. 1) and many are speculating that there could be a lockout. Even Ripley acknowledged if that happens, it could be bad news for the RSNs. 

“I don't have any insight into the labor negotiations there, but if the season is delayed, we won't have key tentpole products to support both our linear channels and any new DTC,” Ripley said. “That definitely could have an impact on the start.”

Ripley also commented briefly on the recent carriage negotiation with Dish Network, where the broadcaster managed to secure a multi-year retransmission consent agreement, but could not reach a deal for the RSNs.

“We had a very lengthy, complex and difficult negotiation with Dish,” Ripley said at the conference, adding that he was happy there was no disruption in service to Dish customers. “The challenge with them is the RSNs have been off for two years and they have dropped every RSN from the portfolio that they could. So it was not going to be possible to get there.”

Ripley said it is “always a possibility” that Sinclair will return to the negotiating table with Dish for the RSNs, but added he is also pursuing other opportunities with distributors that don’t carry the channels. 

Regarding opportunities, Ripley is still excited about the prospect of sports gambling, and added that its relationship with casino owner Bally's will be a big plus as it moves to launch its first gambling-oriented product. 

Ripley said Sinclair is working with Bally’s on a “Watch and Play” offering centered on tennis, which he said is the second most bet-on sport in the world.

Also: Sinclair's Ripley on RSNs: Believe It or Not 

While still the most popular programming in terms of TV ratings, sports has hit a bit of a snag with younger viewers who don’t tend to devote the time to watch full games as much as older viewers do. Younger viewers tend to watch highlights, or snippets of games online, he said.

“The solution is to make it interactive. That’s the type of experience the younger generation is looking for,” Ripley said, adding that the idea is to offer younger viewers a lean-forward experience, with exciting graphics and rewards for watching in addition to the betting option. “Once we roll out a tennis ‘Watch and Play,’ we’ll move on to other major sports. We’re really excited about giving the consumer an integrated, exciting, interactive live betting experience. That’s probably one of the biggest things we’re working on with Bally's.” ■

Despite taking shots from the commissioners of Major League Baseball and the National Basketball Association, Sinclair Broadcast Group intends to go forward with its plans for a direct-to-consumer sports business connected to its debt-laden regional sports network business.

Speaking on Sinclair’s third-quarter earnings call Wednesday, CEO Chris Ripley provided more information on the streaming rights the company has — or expects to get — while insisting  that the company’s plan to launch its direct to consumer product in time for next year’s baseball season remain intact.

“We do think we have a critical mass in terms of rights to launch a product and that's what we intend to do,” Ripley said. 

Major League Baseball commissioner Rob Manfred last month stated that Sinclair does not have the rights to launch a streaming product. There were also reports that MLB was considering its own local streaming product, possibly working with the NBA and the National Hockey League.

Also read: Sinclair’s Ripley on RSNs: Believe It or Not

“What's important to note is that we have exclusive local rights for our teams and those rights cannot be infringed upon by any other party to launch a direct consumer product, without significant ramifications,” Ripley said.

Pressed by analysts, Ripley provided more details on the rights Sinclair has and is negotiating to get.

“For MLB, we have linear and authenticate streaming right for all teams,” he said. “And we have direct-to-consumer rights now for four teams, which are all the teams we’ve renewed” since acquiring the former Fox regional sports networks from The Walt Disney Co. Those RSNs now carry the Bally Sports brand. 

Ripley said that as Sinclair renewed its deal with the other 10 MLB teams whose game it televises, it will also accumulate their direct-to-consumer rights.

“For NHL and NBA, we have always had linear, authenticated streaming and D-to-C rights and those are under current renewal discussions as a part of a larger deal which includes market expansion, authenticated streaming and direct to consumer rights,” Ripley said. Completed NBA and NHL teams would put 30 teams on Sinclair’s roster.

Ripley said it was important to have scale and for a successful direct-to-consumer product to reach beyond any single league.

“That’s why a multi-sport offering makes a lot of sense,” he said. ”That’s why we’ve always said this direct-to-consumer is an extension, and what we’re planning on launching is just the start in terms of where we would go. We’re going to be a market leader in the U.S. in direct-to-consumer sports and thinking that you could do that with only one league, we think, that doesn’t make sense.”

Ripley also said that at some point in the future, Sinclair would consider bringing in other RSNs — those owned now by Comcast and AT&T specifically — into its DTC product. That could be accomplished through a transaction, partnerships, contract or consortiums, he said.

Ripley also said that talks about financing expansion into DTC were continuing, as were discussions with the creditors of Diamond Sports, the unit that owns Sinclair’s RSNs.

Sinclair Broadcast Group chief Chris Ripley denied reports that its planned direct-to-consumer RSN service would be priced at $23 per month, but declined to reveal how much the company will charge for the service, according to an interview the CEO had with the Baltimore Business Journal.

Baltimore Business Journal reporter Holden Wilen corralled Ripley briefly during a celebration for Sinclair’s entry into the Fortune 500 on June 21. Wilen asked Ripley about the $23 price point.

"That number is inaccurate and I can’t comment on what the ultimate pricing will be," Ripley said, according to the publication.

That denial also comes on the heels of Sinclair’s 8-K filing with the Securities and Exchange Commission that offered more details -- but no pricing information -- on the proposed DTC service.  

According to the Business Journal report, Ripley said Sinclair is conducting market research to determine a “fair price” for the DTC service, but his reluctance to offer any guidance as to the ultimate price of the service could speak volumes. Is he saying the reported price is too low or too high? 

Ripley and Sinclair have been keeping any information concerning the pricing of the service close to the vest. At the JP Morgan Telecom, Media & Communications conference in late May, Ripley would only say that there would be a “substantial difference” between pricing for the DTC service and  what the RSNs charge traditional distributors. 

According to Kagan, a unit of S&P Global Market Intelligence, the average RSN charges about $3.53 per subscriber per month. The Sinclair RSNs -- which are branded as Bally Sports Networks -- charge distributors between $7.52 and $2.42 per subscriber per month, Kagan said.

Earlier this month the New York Post reported that Sinclair was trying to raise $250 million for the DTC service, which would be launched in 2022 at a price of about $23 per month.  

Media outlets quickly spread the news, with some in markets like Minneapolis and Fort Worth, Texas, where Sinclair has an RSN presence, expressing varied opinions about the cost.

Also Read: Why Sinclair’s $250 Million Sports Streaming Swing Could Deliver a Walk-Off Defeat of Pay TV 

In a March podcast with the Minneapolis Star-Tribune, The Streamable co-founder Jason Gurwin estimated that Sinclair would have to charge as much as $40 per month for the standalone service, less if there is a heavy sports betting component. 

“So if they need to charge the consumer $40 a month in order to break even on rights fees, I could imagine a world where they're like 'Hey, if you are gambling $100 a month through our service, we'll give you the RSNs for free.' But obviously online sports betting is not legal yet in Minnesota," Gurwin said in the podcast.

Sinclair filed documents with the Securities and Exchange Commission on Tuesday that showed in part its plans for the DTC service. While it did not include pricing, it did say that the company expected to have about 4.4 million subscribers to the service within 5 years  that would generate about $1.025 billion in revenue. At that rate, ARPU for the service works out to be about $26 per month, but that could also include advertising revenue. 

Other sports pundits have estimated that Sinclair would have to charge between $25 and $30 per month for the standalone streaming service. And they have said that the company’s goal of attracting 4.4 million customers for the DTC service was surprisingly low.

Also Read: Ripley Says Bally Sports Net DTC Offering Will Be a Lean-Forward Experience 

Sinclair has estimated previously that the standalone service would tap into as many as 30 million homes within the networks’ service territory that don’t subscribe to a pay TV service. Add that to the 52 million subscribers to its traditional pay TV offering, and the potential universe for the DTC service looks large. 

Sinclair bought the RSNs in 2019 for about $9.6 billion from The Walt Disney Co., placing the networks in a separate subsidiary called Diamond Sports Group. Diamond has been trying to restructure about $8 billion in debt associated with the purchase for months.  

Sports consultant Lee Berke, president and CEO of LHB Sports, Entertainment & Media, said RSNs across the country are grappling with ways to make up for the rapidly declining linear pay TV customer base, which is shrinking at a 6% to 7% annual clip as consumers increasingly cut the cord. Sinclair is faced with the added obstacle of restructuring its debt, meaning it has yet another party to sign off on its plans -- its bondholders. 

“You need viewers, you need distributors and you need the bondholders to all enthusiastically support this,” Berke said. “So far it seems like there is limited support from all three.”

According to the SEC filing, Sinclair has proposed restructuring Diamond Sports Group’s $8 billion in debt by asking for an additional $1.1 billion in cash from bondholders in exchange for higher interest rates, but that it had not been able to reach an agreement. News of that failure sent the DSG bonds below 66 cents on the dollar for the first time since November, according to The Wall Street Journal. 

The bondholder proposal seems similar to one floated back in April that was outlined in greater detail by Wells Fargo media analyst Steven Cahall. 

“This is not just a Sinclair problem, it’s an NBC problem, it’s an AT&T problem, it’s everybody in the RSN marketplace,” Berke said. “But it sure seems like you’re going to have to come up with something that is more aggressive to get a buy-in from all three parties. The sort of buy-in you need to move things forward.”

Ripley said on Sinclair’s Q1 earnings conference call in May that it has “cleared the path” with distributors regarding the DTC offering, but a Sports Business Journal report claims that at least two major distributors say they have not held “meaningful contact” with the broadcaster and are “in the dark” concerning the direct-to-consumer plans for the RSNs. 

Those same distributors said they would consider dropping Sinclair’s RSNs from their pay TV lineups if they launched a standalone DTC version of the networks, encouraged by Dish Network, which dropped the linear RSNs in 2019. 

In the SEC filing, Sinclair estimated that the linear RSNs would generate about between $3.07 billion and $3.249 billion in revenue in 2021, but that appeared to include Dish subscribers. Dish is set to renew its retransmission-consent agreement with DSG parent Sinclair's broadcast TV stations in August, at which time the RSN agreement could also be renewed.

Sinclair Broadcast Group CEO Chris Ripley said that the gamification aspect of its planned over-the-top regional sports networks offering slated for next year will provide users with more of a lean-in, video game-like experience rather than just another vehicle to watch live games. 

Sinclair has said its Bally Sports Networks RSNs will launch a direct-to-consumer version in 2022 (Bally Sports Plus) for all 19 of its channels. While Ripley did not address reports that the company was trying to raise $250 million for the launch -- and that the DTC version would be priced at about $23 per month -- he did offer some slightly new insights to the product.

At S&P Global Market Intelligence’s virtual Kagan Media Summit Thursday, Ripley said that the DTC service will be more than just delivering games to subscribers. 

“This is really about giving people a whole metaverse around sports, for them to interact with fans that have self-selected teams they like, and giving them opportunities to engage in different types of content, like short form editorial to highlights and then gamification,” Ripley said in a pre-recorded conversation with Kagan senior research analyst Justin Nielson. “When you think about bringing a sport fan who would have historically watched on linear channels, bringing them into a digital environment where you know their name, you know their payment information, you know their preferences, it opens up a whole plethora of opportunities in which you can increase engagement and you can increase revenue opportunities.”

While there has been some speculation that the DTC version of Bally Sports could offer out-of-market games to subscribers, Ripley said that is not the case, at least for now. 

“The core rights that this enterprise will start with, those are limited to the regions the RSNs operate in,” Ripley said, adding that there is still a significant opportunity there. Sinclair has said within its existing footprint of 70 million homes there are about 35 million homes that don’t get live sports. 

“That means that over half of households are not getting their local sports product,” Ripley said. “We think that within that opportunity set there is a significant amount of fans who will  now be able to engage with us.” 

Gamification has been cited as potentially one of the more lucrative aspects of a DTC sports channel -- some research estimates it could be worth as much as $10 billion to $20 billion annually over the next several years. But Ripley said the goal on that end is to give users, particularly younger users, a more interactive experience. He added that Sinclair is working on a new experience with Bally that would allow viewers to watch and play at the same time.

“Currently it’s a passive experience,” Ripley said of watching sports. “In all of our research the younger generation is looking for that video game-like experience, a lean-forward experience, where they are able to interact, to play a game within the game. That’s the goal of the [Bally’s] partnership, to be that cornerstone at least as it relates to the for-money version of gamification, to build out a new sports viewing experience.”

The idea of a standalone streaming sports service on the surface seems like a no-brainer. If sports is often the most-watched programming on linear TV, why wouldn’t a DTC service be equally popular with consumers? But there are a mountain of factors that could affect a streaming RSN product, starting with pricing. While reports have said that Sinclair is targeting a $23 monthly price point for the service, others have said it will probably be closer to $30 per month. But even at the lower price, it’s still a difficult sell.  

Adding to the pressure is that while RSNs currently receive fees from pay TV distributors for all of their subscribers, regardless of whether they watch or want the programming, that won’t be the case with a DTC service. The prevailing wisdom is that about 30% of traditional pay TV subscribers watch sports, but it can be lower. Earlier this week, Altice USA chief financial officer Michael Grau said at the Credit Suisse virtual Communications Conference that about 15% of its nearly 3 million video customers "are reasonably or heavily engaged in watching regional sports networks.”  

Also Read: NBCU Eyes Peacock for RSN Future 

Sinclair is one of the largest TV station owners in the country with about 186 properties in 87 markets; and is the largest individual owner of RSNs, with 19 properties and minority interests in two more --YES Network and Marquee Sports Network. At the Kagan conference, Ripley said that he expects consolidation to continue in both industries and that Sinclair will be a participant.

“We’re always interested in figuring out a way to consolidate the marketplace, both on the TV side and the RSN side,” Ripley said. “The TV side is entirely too small in the world of big tech and big media and it’s really outdated regulations that keep it that way. Consolidating the industry is a commercial inevitability both on the broadcast side and then on the RSN side, it’s also a commercial inevitability there that consolidation will be effected. Being about half the industry there, we will play a major role in that.” 

With the ad-supported version of its HBO Max product only a few days old, HBO Max executive VP and general manager Andy Forssell told an industry audience that the product and others like it could open up a whole new market for streaming, and eventually help to push the TV universe past 100 million homes. 

WarnerMedia launched its ad-supported version of HBO Max on June 2, priced at $9.99 per month and geared toward more cost-conscious consumers.  At the Barclays virtual Future of Media conference Thursday, Forssell said that the potential for ad-supported streaming is huge.   

“You’re going to get to a larger market. The total addressable market is larger,” Forssell said. “Netflix is probably defining the ceiling on what full penetration in the U.S. market is and they’re riding that up and in some cases they are propelling that wave. I think with ad supported, you add 20% to that."

Currently there are about 85 million pay TV customers in the U.S., but Forssell predicted ad-supported streaming could help push that total higher. 

“We should get back to [the] 100 million-plus homes that we served during the heyday of cable,” he continued. “I think SVOD and some ad-supported SVOD versions should get back to that.”

HBO Max said that it will keep ad loads low on the service -- a maximum of 4 minutes per hour -- and Forssell said that won’t change. 

“Our hypothesis there is message recall, brand recall will be higher the fewer ads you have,” Forssell said. “They’ll be worth more and we'll get to monetize that, ad partners will agree that they are worth more. That’s the experiment we have to prove out in the next year and make it reality and not flip back into what many providers have done in maybe starting with a similar thesis, but saying let’s add another ad to this break because that's the easiest way to increase revenue.”  

Forssell also talked about sports rights, adding that the old way of selling sports rights -- offering what he called “odd little slices” of rights to cable networks -- probably won’t work in a streaming world. 

“I don’t think that [sports] rights landscape is going to be nearly as successful in SVOD,” he said. 

He pointed to Turner Networks’ agreement with the National Hockey League, which also has an HBO Max component.

“Hockey primarily was a vote of confidence and investment in the Turner Networks,” Forssell said. “To add a major sport there was a statement we wanted to make. Will we experiment with that on HBO Max? Sure.” 

But he added that sports brings new challenges to streaming, especially on how they are presented. Providers should also be thinking about things like shoulder programming around games, and whether talent connected with that content should be different in the digital and linear worlds. 

For news operations like CNN, he said the linear relationship will continue as the company looks for streaming complements. 

CNN is said to be readying a streaming service called CNN Plus, according to a report in the Wall Street Journal. 

“We will look at what you can do direct-to-consumer,” Forssell said. “We don’t think it’s just repurposing all of that and putting it online in some IP directed format. We think it’s going to change, some of the content needs to change. There is a lot of work going on as to what that will look like.”

Still, Forssell said he was optimistic about the fit between streaming news and entertainment. “They [have] different needs, but I’m optimistic," he said. “Sports, I’m not pessimistic, but it’s going to take some experimentation on what works in SVOD, because what works in cable doesn’t necessarily translate.” 

The threat of further direct-to-consumer content consolidation shouldn’t worry traditional pay TV distributors, Altice USA CEO Dexter Goei said at an industry conference Tuesday, because it will help MVPDs weed out what has been an albatross around the industry’s collective neck for years -- unprofitable video customers.  

Analysts expect that other content companies could follow Discovery and WarnerMedia’s attempt to create a streaming video behemoth, but Goei, speaking at the JP Morgan Technology, Media & Communications conference, said that could be an economic boon for traditional distributors. 

With pay TV subscriber rolls steadily eroding over the years, it is evident that consumers are already moving toward an over-the-top, direct-to-consumer model. As content providers look to get larger and gain more streaming scale, Goei said it could allow traditional MVPDs to focus more on highly profitable broadband service, and weed out low-margin video subscribers.

Also Read: Discovery/WarnerMedia Combo Could Have Biggest Initial Impact on Linear Nets 

“Larger players with a full package of offerings on the direct-to-consumer side is good for our business because it focuses our customers on --  instead of 6-7-8 different choices --  on something a lot smaller that in many respects replaces a video consumer that is less and less valuable to us,” Goei said. “And it allows us to focus primarily on our broadband product, allows us to be a partner for content on a direct-to-consumer basis as opposed to a partner on a linear basis and I think will dramatically improve the economic trends of our business from a cash flow standpoint.”

Goei added that the increased focus on DTC offerings could be an advantage for distributors come carriage renewal time, as the equation shifts toward the DTC model. He added that all of Altice USA’s programming partners have some kind of DTC offering.  

“For us, you want a consumer to be a long-term video subscriber that’s a profitable subscriber, [and] you don't want a video subscriber that’s under three years,” Goei said. “Those [under three-year subs] are the ones that are shifting toward the direct-to-consumer offerings and that's good for us. It’s beneficial to our economics. It makes our priorities very clear, in terms of where we focus our capital allocation and our efforts.”

And that means that distributors are going to look hard at DTC offerings when negotiating future carriage deals. 

“We are going to revisit every equation,” Goei said. “... I think we are going to go through, I would call the next two or three years where you will probably see a big transformation in the MVPD world as to how we partner with our content providers. Because it's not sustainable to continue to see price increases every year with viewership falling.”

Disney Media & Entertainment Distribution’s technology unit has added new executives and realigned under chief technology officer Aaron LaBerge.

The move comes with Disney diving deeper into streaming, direct-to-consumer businesses and advanced advertising.

The technology unit now has eight core groups: Advertising platforms, business operations, consumer experiences & platforms, content operations, content platforms, design, engineering services and media engineering.

The new execs are Oke Okaro, who joins from Verizon Communications as senior VP, business operations; Jen Schwarz from TicketNetwork, who will lead engineering services as senior VP; and Mike White, who moves from Disney Parks, Experiences & Products to lead a consumer experiences and products team as senior VP.

“This new alignment recognizes where our company is today, where it is going tomorrow, and positions us to continue Disney’s legacy of using technology to bring amazing stories and products to consumers everywhere, drive businesses and power innovation,” said LaBerge. “I’m energized to be welcoming new, talented colleagues to this incredible team as we ensure Disney remains at the forefront of the evolving future of media and technology.”

Also heading the core groups are Disney veterans Mike Andrews, senior VP, content platforms; Tagu Kato, senior VP, design; Chris Lawson, senior VP, content operations; Michael Pollard. Senior VP, media engineering; and Jeremy Helfand, who was made senior VP, ad platforms last year.

John Heerdt, previously senior VP, media engineering will move to an advisory position to LaBerge and Pollard until the end of 2021, when he will retire.

As video subscriber losses continue to rise across the board in the pay TV segment, Comcast Cable CEO Dave Watson and Charter Communications chairman and CEO Tom Rutledge told a virtual industry audience Wednesday that a new double play that ties wireless and broadband is beginning to emerge. 

Comcast lost about 491,000 video subscribers in the first quarter, up from the 409,000 it lost in the prior year and a trend that Watson said would likely continue. While the cable operator will continue to focus on high-end video subscribers who want a full package of video, at Wednesday’s MoffettNathanson Virtual Media & Communications Summit, Watson said the company is not ignoring the growth at its wireless unit.

Comcast launched Xfinity Mobile in 2017, part of its MVNO agreement with Verizon Communications, and has grown the business to about 3.1 million customers. The mobile unit had its best quarter ever in Q1, adding about 278,000 customers (its highest quarterly number) and becoming profitable for the first time.

Watson said the mobile product has “energized our sales channels,” including digital, call center agents and retail. 

“I think there’s definitely an opportunity to combine an elegant and seamless broadband- mobile offering. We’ve done it in a whole bunch of our go-to-market approaches and for the right segment, it's a great way to start the relationship,” Watson said. He added that tacking on the Xfinity Flex product to that double play could make it even more attractive. 

“That is a really unique proposition that we have that no one else has,” Watson continued.  “Over time, look for us to do more of that.”

Later on in the conference, Rutledge said that wireless is an integral part of the company’s connectivity strategy, adding that that ultimate goal is to converge wireless and broadband.

Charter, which also has an MVNO agreement with Verizon for its Spectrum Mobile service, added about 300,000 wireless customers in Q1. It ended the quarter with 2.7 million wireless customers. 

“I look at our opportunity to create customers that buy mobile services, and create those customers along with the capabilities that we have added through our broadband network, which are vast, and to converge the product itself into a single product,” Rutledge said. "If you look at the total prices that people pay for these products today, I think we could gain significant market share at much lower pieces than people are currently paying. I think mobile represents the opportunity for us to save people money and give them better products than they have today. .... The combination of the product is bigger than the component pieces.”  

Rutledge added that profitability for Spectrum Mobile isn’t that far off. 

“They [Comcast] reached a point that we will reach,” Rutledge said. “From a break even perspective, we said previously that about 2 million customers is all we needed to make the business profitable. That’s true and that proved out to be true. The difference between us and Comcast at the moment, I believe, is where we are in the cycle and how much new growth we have versus how much base.” 

Rutledge added that he expects mobile to be a real contributor to profitability going forward.

“To the extent  you create a customer that raises your ARPU but saves the customer money on their household spend and creates additional EBITDA per customer for you, that both allows your existing base to be more profitable and your incremental growth opportunities to be greater because you more valuable, that’s a really attractive model,” Rutledge said. “I think that’s what mobile does for us.”

On the flip side, some have complained that the emergence of streaming apps and the trend toward content companies shifting content -- like sports -- to their direct-to-consumer products, adds more pressure to carriage negotiations.   

“Obviously it changes the dynamic,” Rutledge said, adding that in the current climate, content distributors would be “much better off not blowing up the existing model just now," mainly because it generates much more revenue than its streaming counterpart. 

The dilemma, he continued, for content companies is in deciding whether to keep raising linear prices while premium content is available on streaming apps and risk being dropped by traditional distributors, or maintaining or lowering rates to preserve that distribution relationship. 

Rutledge guessed that content companies would choose the second route, which would mean less money “but it’s still better than the alternative.”  

And despite continued pay TV subscriber losses -- MoffettNathanson estimates that pay TV is losing about 7% of its video customer base per year -- Rutledge believes there is still some life left in the traditional linear video business.

“It’s hard for me to believe that there won't be linear TV at all in the near term,” Rutledge said. “I think the model is under pressure, it's been under pressure for a  long time. I don’t think it’s about to collapse, but I do think it's shrinking rapidly. I think the most likely scenario is that rate changes will moderate and you’ll still have a pretty expensive linear model. I don’t see it just collapsing.”  

Comcast said Wednesday that streaming video from apps like HBO Max, Paramount Plus and others accounted for 71% of all downstream traffic on its Xfinity X1,  Flex and Xfinity Stream platforms in 2020, an increase of 70% over the prior year.

In a blog post May 5, Comcast said streaming saw the largest viewing gains on Xfinity platforms in 2020, fueled by the launch of more than 70 streaming services during the year, including HBO Max, its own Peacock and CBS All Access/Paramount Plus. According to Comcast, OTT viewing rose 73% year-over-year on X1 and Flex. 

In addition, 78% of its X1 customers accessed OTT apps each month, up from 68% in the prior year. Of those subscribers, nearly 80% are using more than two apps each month. 

While Comcast is just one company, it is the largest multichannel video programming distributor (MVPD) in the country with 19.4 million video subscribers and 31 million broadband customers. As Comcast and other operators shift the focus of the business toward broadband, streaming and direct-to-consumer services have become increasingly important, evidenced by its own moves into the sector.

Comcast launched Peacock nationally on July 15, and has grown to about 42 million signups at last count. Others DTC services like Disney Plus and HBO Max and Paramount Plus, have 94.9 million, 44.2 million customers, respectively.  

Engagement is also growing. Comcast said that across its entire entertainment portfolio, including X1, Flex and Stream, customers are watching about three hours more per week than they were before the pandemic started. 

Also Read: The Less Discussed Data Points of TVs New Reality 

Viewing was split pretty evenly between ad-supported content and ad-free content, with ad-supported apps like Flex (free to broadband-only customers) and Peacock Premium (free to X1 subscribers). Comcast said that ad-supported content accounted for more than 50% of viewing on Flex, with Peacock, NBCUniversal's Xumo, ViacomCBS' Pluto and Fox's Tubi among the other most-viewed apps on the platform.  

Also Read: Time Spent Streaming Grew 44% in 4th Quarter: Conviva 

Still, Comcast insisted that doesn’t mean that linear TV is dead, especially for sports. Despite the spike in streaming viewing, Comcast said that it saw an increase in traditional linear TV viewing during the year. And they added that data is showing that streaming viewers “value the lean-back experience” of linear. As an example, Comcast pointed to the live guide on Flex, which brings in traditional channels from Peacock, Xumo and Pluto into an integrated guide, is the second most-viewed feature on Flex behind the home screen.

Also Read: JD Power: New Streaming Services Chip Away at Netflix Dominance 

“As we look forward to the rest of 2021, we’re going to continue evolving these three important pillars of our entertainment platforms to meet our customers where they are with the content and features they desire,” Comcast said in the blog post.

Sinclair Broadcast Group plans to launch a direct-to-consumer streaming version of the Bally Sports regional sports networks in the first half of 2022. 

“We’ve already cleared the path with the distributors to launch direct-to-consumer,” Sinclair CEO Chris Ripley told investor analysts during the broadcast company’s first-quarter earnings call Wednesday. “We have direct-to-consumer rights for the vast majority of our teams, and we’re in discussions to enhances those rights to make the product even better.”

Ripley didn’t outline specifics of the service, such as price point or launch date. 

He did address some of the complexities--for example, while Major League Baseball lets its individual teams negotiate video rights, the NBA and NHL conduct these talks at the league level. Ripley said Sinclair is in talks with those leagues to enhance its DTC rights following the culmination of the current 2020-2021 pro basketball and hockey seasons. 

Sinclair entered into a joint venture with Byron Allen’s Entertainment Studios, branded Diamond Sports, to buy 19 Fox Sports Networks RSNs from Disney, taking a $4.23 billion write-down last year to complete the purchase. Through a branding deal with casino company Bally’s Corporation, the RSNs were rechristened Bally Sports Regional Networks in March. 

Also Read: One Month Later, Still No Streaming Deal For Sinclair RSNs 

The Bally-branded RSNs ended 2020 with 52 million subscribers. But with the 2021 Major League Baseball season well underway, the channels currently lack MVPD distribution on Dish Network, as well as virtual platforms Hulu + Live TV and YouTube TV. These services collectively accounted for more than 15 million U.S. pay TV homes as of the end of last year. 

“We don’t comment on the specific status of any distributor negotiation,” Ripley said. “Time will tell if any of these distributors return.”

As Sinclair and Diamond Sports grapple with an incomplete pay TV distribution portfolio, the launch of the Bally Sports-branded TV Everywhere app last month has been a success, the company said. 

The TVE app, an important precursor to a DTC launch, merely requires an update of the existing Fox Sports Net app that was already on millions of subscriber phones.  

“It was a big technical feat to convert over from Fox Sports Go,” Ripley said. “Now, it’s about improving and enhancing the features in the app.”

Besides improving Bally Sports’ distribution reach, a DTC app would allow Sinclair to exploit “adjacencies” such as sports betting, Ripley said.

The app, he explained, will eventually become “a platform for interaction and socialization for the fan.” And the TVE app is “a tremendous foundational piece.” 

Overall, Sinclair said its Q1 consolidated revenue dropped 6% year over year to $1.511 billion. 

“We’re adapting the expertise we have into a new customer experience” as AMC Networks plunges more deeply into streaming video projects, Joshua Reader, president, distribution and development at the company, explained in his opening remarks at the Digital Entertainment Group’s Direct-to-Consumer Expo. “We decided not to compete with subscription VOD,” he said, describing AMC’s plans to focus on some - but not all – of its program inventory. 

Reader’s outlook topped a wide-ranging session on the “Maturing D2C Landscape, which also included Deloitte’s latest data on the fast-churning audience attitude toward streaming channels along with the unveiling of DEG’s new “official” terminology for the growing roster of home viewing options, including PEST and PVOD services. The avalanche of information emerged during DEG’s streaming online Expo on Thursday (Feb. 25). 

Also Read: AMC Networks Touts Addressable Ad Capability Going into Upfront

Reader acknowledged that AMC’s “DNA is in B2B [business-to-business] delivery to cable operators.” But he quickly noted that its specialty networks such as Acorn and ALLBLK “give us the opportunity to offer D2C” services to specific audiences.

“We have those true consumer relationships plus the wholesale relationships,” Reader said, explaining the revised targeting strategy as AMC modifies its distribution arrangements. He said that the new AMC Plus service “lets us focus on how we’re going to market with partners.” Reader described the plans as including “more disciplined … marketing” without putting “immense funds into D2C.” He said the increased efforts help viewers “find other content on those platforms.”

“We are hyper-focused on serving those audiences,” Reader said, adding that, “We think there’s a robust future in offering fans an individual service and if they want something more, they will pay more for a bundle of programs such as AMC+.” He cited other AMC assets, such as Shudder and IFC Films, and emphasized his belief of the “good synergy” via D2C that will evolve if AMC exposes its viewers to shows they might “not have found on their own.” 

Also Read: Streamers Look Outside the Lines

Susan Agliata, director of business development and OTT partnerships at Samsung, echoed the expectation of more consolidation in the post-pandemic streaming world. 

She believes that viewers will remain fixated on linear TV, but she reminded webinar attendees that, “Our work has just begun to foster maturation of this industry.”

Churn and Consolidation Will Accelerate; Ad Acceptance Increasing, Deloitte Explains

Reader’s plans for AMC’s shift toward direct-to-consumer delivery offered an appropriate prelude to the research findings from Kevin Westcott, vice chairman, national Technology, Media & Telecommunications (TMT) Industry Leader of Deloitte. Using data from Deloitte’s latest consumer research survey, Westcott described how consumers bought more video subscriptions as the COVID-19 isolation continued, but that churn has increased during the pandemic’s later stages. He also predicted that consumers will accept more online advertising on streaming channels – depending on how it’s structured. 

“Consumers are telling us that they are overwhelmed by having multiple subscriptions,” Westcott said, noting that there are more than 300 streaming options. In the first six months of the pandemic, 46% of streaming video subscribers eliminated at least one streaming service. The Deloitte survey found that 28% of consumers intend to reduce the number of entertainment subscriptions they buy, which among millennials is an average of 17 services. 

By October, 28% of streaming customers said they were dropping a service because the free or discounted trial period had ended. 

For example, in May of 2020, only about 9% of streaming video customers were adding and cancelling streaming services, but by October 2020, about 24% of streaming viewers were churning like that – far more than the number who were merely adding or cancelling providers, according to Deloitte’s data. 

Westcott predicted that there will be a “reaggregation of content” with the largest platforms adding more options. He also pointed out that the reasons for cancellation are changing. The top reason (cited by 39% of subscribers) for dropping a service had been because viewers had “finished watching a show or series” that had caused them to sign up for the service. In addition, a basic “economic aspect” kicked in when “consumers recognized they were paying $60 or more per month, which was comparable to their old cable bills,” Westcott added.

Deloitte’s research showed that streaming viewers “are very willing to accept advertising, but they are deeply annoyed by constant repetition of the same commercials. It found that 43% of viewers during the COVID-19 era say they would like an ad-only format with no monthly fee and no more than 12 minutes per hour of advertising. About 35% would pay up to $12 a month for a service with no advertising, according to the Deloitte data. 

Nonetheless, Westcott’s study did not offer a specific roadmap into the D2C landscape. He said that “content is still king, but bundles [remain] the incentive to subscribe.” Citing the response to a question about “Why do you subscribe to a specific streaming service,” Westcott noted that the among the most recent responses, 55% of viewers said they want “to watch a broad range of shows and movies” (higher than in the pre-COVID-19 study) but that 43% said they signed up to see “new, original content not available anywhere else” (slightly lower than in the first months of the pandemic.)

PEST, PVOD Part of “Industry-Standard” Terms to Clarify VOD Variants

In addition to the executive perspectives and data about the move toward D2C services, DEG unveiled its new lexicon of the growing variety of on-demand services. 

Declaring that consumers – as well as some media companies and analysts who follow the video industry - are confused about the expanding viewing options, DEG’s D2C Alliance Steering Committee issued a list of “industry terminology.” 

In addition to defining familiar digital terms such as OTT (Over-The-Top), AVOD (Ad-supported Video-On-Demand) and new terms such as FAST (Free Ad-Supported Television, referring to Internet-delivered linear TV channels), the new lexicon seeks to specify neologisms. For example, PEST is “Premium Electronic Sell-Through,” described as a “one-time fee [for] a specific piece of digital content” available prior to its “traditional release window.” PVOD (“Premium Video-On-Demand) offers content for “limited-time access for a one-time fee.” TVOD (Transactional Video-On-Demand) services charge a one-time fee for viewing a specific piece of content for either a limited period (typically 24 or 48 hours) or an extended period.

DEG explains that some services may fall into more than one category, noting for example that Amazon Prime offers both TVOD and SVOD components and Peacock’s menu has both free AVOD to SVOD products.

“PEST and PVOD are generally offered through transactional services but may also be presented for added fees on subscription services, such as Disney+’s offering of Mulan,” according to the DEG nomenclature. 

“Establishing accepted industry terminology is an important early step in both industry relations and consumer outreach,” said Amy Jo Smith, DEG President and CEO. “This is an important milestone for the D2C Alliance as it moves forward with a strong base of support across platforms and services, device makers and content owners and distributors.”

DEG said the new terminology is “a first step in proactively addressing key issues” affecting future video distribution. 

Direct-to-consumer offerings are all the rage for U.S. cable networks that have watched cord-cutting and cord-shaving slowly erode affiliate fees from traditional pay TV distributors over the years. But for many — especially smaller, niche networks — the real money is to be made internationally.

Over the past 18 months, the TV industry has seen the launches of Disney Plus (November 2019), Peacock (April 2020), HBO Max (May 2020) and Discovery Plus (January 2021). On March 4 the latest entrant, Paramount Plus, will debut (see Cover Story, page 10). 

So far, The Walt Disney Co. has set the tone, with 94.9 million paid global subscribers to Disney Plus as of Jan. 2. But according to Disney, about 30% of those customers are through its Disney Plus Hotstar service in India — roughly 28.5 million. The entertainment giant continues to expand its streaming reach internationally, launching Disney Plus in Latin America in November. The company plans to expand Disney Plus into Singapore this month, followed by Eastern Europe, Hong Kong, South Korea and Japan later in the year.

ALSO READ: Cover Story: Parsing Paramount Plus 

Although Hotstar’s growth has been encouraging, it also seems to have driven down average revenue per unit (ARPU) for the Disney Plus service substantially. Disney said ARPU for the direct-to-consumer service was about $4.03 in fiscal Q1, about 28% below the prior year figure of $5.56. Hotstar wasn’t the only culprit for the decline. In a research note, Barclays media analyst Kannan Venkateshwar noted that differences in averaging methods, lower sports volume and Hotstar promo pricing could have been the reason. But he added that not including Hotstar’s subscriber gains, Disney Plus subscriber additions in the period (between 10 million and 11 million) were about the same as Netflix (8.5 million), despite it being the SVOD pioneer’s 14th year streaming, versus Disney Plus’s 14 months. 

“This is, of course, due to the footprint differences and the COVID-impaired content release calendar at Disney, in contrast to Netflix, but still speaks to the strength of Netflix’s business model, especially given ARPU differences,” Venkateshwar wrote. 

Disney Plus a Growth Engine

Still, the analyst estimated Disney Plus will continue to grow revenue substantially, even as it is expected to lose money for the next two years. Venkateshwar predicted direct-to-consumer revenue — including Disney Plus, Hulu and ESPN Plus — will grow to $42.8 billion by 2025 from $22.6 billion in 2021. Operating income will stay negative until 2023, when it reaches $733 million, rising to $3.45 billion in 2025, he predicted. 

MoffettNathanson media analyst Michael Nathanson believes that Disney’s DTC business is on pretty much the same path. He predicts revenue in the segment will grow to $41.6 billion in 2025 from about $17 billion in 2021, but profitability will take a little longer. In a research report, Nathanson estimated that earnings before interest and taxes (EBIT) would be negative through 2023, with the segment making a first profit in 2024 — $334 milion — rising to $1.6 billion in 2025. 

Peacock’s International Flight 

Peacock, which NBCUniversal launched in April, has about 33 million subscribers, most of them in the U.S. NBCUniversal CEO Jeff Shell has said publicly that Peacock will launch internationally in select markets, avoiding traditional TV hotspots like the U.K., Germany and Italy, as much of Peacock’s programming is also available through sister satellite service Sky.

HBO Max launched on May 27 amid much hoopla. And after some changes — in November it said it would release its entire 2021 theatrical slate on the streaming service — it has managed to grow subscribers to about 38 million. HBO Max plans to expand into 39 Latin American and Caribbean territories in late June, transitioning subscribers who now get HBO Go, the existing streaming product (which will be phased out), to HBO Max. Following the Latin American rollout, HBO said HBO-branded streaming services in Europe — the Nordics, Spain, Central Europe, and Portugal — are scheduled to be upgraded to HBO Max later this year. HBO International head Johannes Larcher said in a statement the Latin American offering would include parent WarnerMedia’s film and series catalogue as well as locally produced content.

While most of the emphasis has been on the domestic market, large and small DTC services could see their biggest windfalls internationally. According to Nathanson, Disney Plus is expected to have as many as 230 million international subs by 2025, up from about 55 million in 2020. Even Discovery Plus, launched domestically on Jan. 4 and internationally in late 2020, is expected to hit nearly 40 million international customers by 2025. 

At a Discovery Plus Investor Day presentation in December, the programmer estimated that the international opportunity dwarfs that of the U.S., particularly in nontraditional TV markets. Discovery identified about 1.4 billion households (not including China), of which about 400 million were in serviceable addressable markets, meaning they were avid TV watchers, they subscribed to OTT services and they had an affinity for Discovery brands. In the U.S., Discovery said of the 30 million broadband-only households and 80 million TV homes in the country, about 70 million would be serviceable to Discovery Plus.

Discovery stock has risen by about 60% since that Investor Day presentation, to $45.55 on Feb. 11 from $28.37 each on Dec. 2. Along the way, Nathanson upgraded his rating on the stock from “neutral” to “buy” on Jan. 15, emphasizing the international business. Since then, Discovery has already surpassed his 12-month price target of $45 per share. 

In his note, Nathanson wrote that he expects Discovery Plus to be a “true differentiator” given the company’s linear TV experience.

Discovery Leverages Scale

“We expect Discovery to leverage its scale outside of the U.S. to lead to nearly 40 million international subscribers and improve its ARPU, especially in markets that have been structurally more difficult to grow through the traditional pay TV ecosystem,” Nathanson wrote.

According to Nathanson, Discovery sees its biggest opportunities in a mixture of traditional fTV markets like the U.K. and Italy and non-traditional locations like Poland, Brazil, Mexico, Argentina and Asia Pacific countries.

Nathanson views Discovery Plus’s international expansion as more incremental. That’s because it is in a unique position with more than 1,000 hours of differentiated programming, can expand its reach beyond pay TV penetration and it sees a window to grow ARPU for its linear channels in markets where affiliate fees are less than $1 per subscriber per month.  

Nathanson sees Discovery targeting the streaming service internationally to consumers outside of the pay TV bundle who haven’t had the opportunity to watch its shows, especially mobile customers. He noted that although some large European mobile companies like Vodafone also have a hand in landline pay TV service — it has about 6 million pay TV subscribers — it has more than 100 million mobile customers, about half of whom Nathanson estimated are postpaid, non-business customers eligible for the Discovery Plus service. Venkateshwar of Barclays noted the allure of mobile-streaming partnerships, and pointed to Discovery’s deal to bundle Discovery Plus with Verizon, where the streamer is free to Verizon Unlimited Data customers for six months, as a prime example. Though mobile partnerships helped drive Disney Plus in the early days, he warned, there is a difference between video bundled with data and data bundled with video.  

“For wireline and wireless ISPs, bundling a service like Disney Plus or Discovery Plus is about the ability to extract more price for a relatively commoditized data service,” Venkateshwar wrote. “In this context, for a company like Verizon, the key over time is likely to be the upgrade rate to higher priced tiers and retention benefits of various services bundled with wireless. Bundled services that don’t move the needle on these metrics over time are likely to receive different terms vs. those that drive more material differences.”

Disney Plus apparently moved the needle for Verizon. Most customers who signed on for the Disney Plus promotion stayed with the service after the promo ended, the telco said. Verizon extended that deal, adding Disney streaming services ESPN Plus and Hulu to the mix. Verizon also has similar promotions with music services (Apple Music), and PlayStation subscriptions. In this sense, services like Discovery Plus may have to justify themselves relative to totally different services like music and gaming. 

“Therefore, while tie-ups with wholesale distributors during the launch phase is likely to be a positive, the cadence of this impact may vary over time as bundle structures evolve,” Venkateshwar wrote.  

At CuriosityStream, a fact-based streaming service that went public earlier last year, international markets are seen as the biggest growth opportunity. CuriosityStream currently has about 13 million subscribers, 70% of them in the U.S. That mix is expected to shift dramatically in the next few years. 

CuriosityStream’s managing director and head of international distribution Bakori Davis said for streaming services looking to break into foreign markets, targeting traditional areas and partners isn’t always the best idea. For CuriosityStream, created by Discovery founder John Hendricks, broadening the scope and reach of the service is the right path to growth.

Davis said CuriosityStream has traditional partners in Western Europe, the U.K., Germany and Latin America, but that there are also huge opportunities in Africa and Southeast Asia. The company has deals with distributors like MultiChoice in Africa, Tata Sky in India, Total Play in Mexico and StarHub in Singapore, but also is looking to expand into countries that have less of a pay TV legacy. 

CuriosityStream Looks Abroad

“Probably the biggest opportunity for us is these emerging markets who are now deploying 5G and are learning how to package up apps and OTT sites and don’t have as much of a traditional pay TV legacy,” Davis said. “Things are really moving fast and they are looking for new partners.”

Mobile companies looking to differentiate their phone and data services with content also present an opportunity, ranging from mega-carriers like Vodafone to smaller, regional players. 

Davis said that while larger mobile companies understand the content business and present the opportunity for more multi-layered partnerships that could include linear as well as streaming content, smaller players looking to differentiate themselves with streaming content also could mean big business. 

ALSO READ: Roku’s Tedd Cittadine: Gatekeeper to Streaming Success

“What we represent to them [smaller players] is an easy way to capture the entire category,” Davis said. 

And those smaller players aren’t that small. For example, MTN, the largest mobile carrier in Africa, has 232 million subscribers in 20 countries. India’s Airtel is the second largest mobile carrier in the world — behind China Mobile Communications with 946 million — and operates in 18 countries in South Asia and Africa with more than 457 million subscribers.   

With markets that large and diverse, there appears to be ample room for large and small streamers alike to compete effectively. 

“We certainly feel like the opportunity for us is as big as the other players you see now that have successfully grown globally,” Davis said, adding that the opportunity is most apparent in markets where 5G infrastructure is just being deployed. “Other players like Netflix and Amazon, they really are making the market for us. They are creating demand.”  

One analyst, who describes himself as bullish on Discovery, sees the company’s new streaming service, discovery plus, breaking even in 2023 and reaching 64 million global subscribers by 2025.

“While management did not provide subscriber/financial guidance, we found the pricing, go-to-market strategy, and breadth of programming as uniquely compelling, and have greater conviction in Discovery’s ability to adapt and succeed in an increasingly streaming video world,” Kutgun Maral of RBC Capital Markets said Monday in a research note.

(Discovery CEO David Zaslav was scheduled to speak at the UBS media conference for investors Monday morning, but it was scuttled by technical glitches at the investment bank.)

Maral called his projections for Disney Plus conservative, but raised his target price for Discovery stock to $35 a share from $26 on the company’s direct-to-consumer plans.

For 2021 Maral sees Discovery Plus generating 8 million subscribers in the U.S., with Verizon contributing 4.1 million of those. He sees discovery plus adding 6 million more subscribers in 2022 for a total of 14 million, with the service growing to 20 million U.S. subscribers by 2025.

He sees U.S. revenue from discovery plus  being $236 million in 2021, with $65 million coming from advertising and $172 million coming from subscribers. That will grow to $1.735 million in U.S. revenue by 2025, with $682 million coming from advertising and $1.054 from subscribers.

Discovery Plus will also have 12 million international subscribers in 2021. That will grow to 20 million in 2022 and reach 44 million in 2025. International revenue will be 289 million in 2021. That will rise to $576 million in 2022 and reach $1.44 billion in 2025.

Globally, he see Discovery Plus with 20 million subscribers in 2021 and 34 million in 2022, reaching 64 million by 2025. Revenue will be $525 million in 2021, $1.235 billion in 2022 and $3.175 billion in 2025, which it will be growing at a 16% clip.

Maral sees Discovery’s DTC business losing $750 million in 2021. Losses will drop to $434 million in 2021, before breaking even in 2023, when operating income before depreciation and amortization is $19 million. Operating income will grow to $281 million in 2024 and $500 million in 2025.

“Discovery now has the opportunity to credibly prove to investors its underappreciated value in the evolving streaming ecosystem, and we expect execution against subscriber and topline growth will drive a sustainable re-rating,” he said.

Comcast chairman and CEO Brian Roberts said Thursday what every other cable observer has been thinking for months: the pay TV video business is moving quickly toward a direct-to-consumer, app-based model driven largely by broadband adoption. And any operator who doesn’t see that ship rapidly approaching is liable to get overrun. 

Cable operators have been laying the groundwork for an app-based model for years.   But the rapid decline of pay TV video customers, especially during the pandemic, has increased the urgency to replace the old ways of providing programming.

On its Q3 earnings call with analysts, Roberts said Comcast is taking a three-pronged approach to the business -- providing fast broadband service, providing the content consumers want through aggregation and using its scale and platforms to excel in the streaming business. 

Arguably, that strategy has been going on behind the scenes for awhile. In a research note, Bernstein media analyst Peter Supino said the Comcast results reinforce what he calls the “losing to win” strategy, where cable operators trade heavy video losses for broadband gains, higher margins and better returns. 

Roberts even so much as admitted it, adding that Comcast began shifting its focus to broadband years ago. Other operators have done the same --  how many times have you heard a CEO say “Connectivity” in the past year?  -- and broadband subscribers passed video subscribers for the first time in the industry way back in 2015.  But as the pandemic has helped accelerate pay TV’s video decline, the shift is becoming more prominent.    

Comcast’s Q3 results show progress in all three segments -- broadband subscriber growth was the best ever at 633,000 additions; content continues to be available on a variety of platforms including X1, Flex and Peacock. Peacock, which had its broad launch in July, already has 22 million signups, well ahead of expectations. 

On the conference call with analysts, Roberts said that Comcast has seen the market shift away from traditional video packaging, adding that he doesn’t see all consumers evolving to an app-based model, but the insinuation is that he, like the rest of the industry, expects the majority of the business to head that way.

“We’ve seen this ship coming,” Roberts said on the call. “ I think Dave [Watson, Comcast Cable CEO] and his team have done an outstanding job of having a connectivity platform and thinking of it that way so that we’re ready for that ship. I don't think it will be all or nothing.”

But then Roberts voiced what most analysts and observers have expected was the truth for years, but that some top cable executives have been reluctant to come right out and say: They don’t care where you get your content from, as long as it travels over their broadband.

“We want to get ourselves to a position of indifference,” Roberts said, adding that in this new model, the consumer drives the experience, not the distributor. 

Comcast Cable CEO Dave Watson articulated that the video business has been evolving rapidly and the cable company has been working hard to find new ways to get them what they want. 

“From our perspective, we have invested in a broad video platform capability that gives us a lot of options and can give customers a lot of choice,” Watson said. “We want to deliver to the customer what they want in a video experience. So we segmented the marketplace, we break it down, we’ve been doing that for some time and as Brian said we anticipated a lot of these changes." 

Watson went on to talk about how every segment is addressed -- for people who want everything -- all the channels, VOD and DVR capability, there’s X1; for streamers there is Flex; and for D2C aficionados there is Peacock. But he added that part of the strategy on the broadband side isn’t just to offer faster and faster speeds. 

“We’re surrounding broadband with a lot of video capability,” Watson said. “And with streaming and  Peacock we're giving them the best of aggregation, great streaming options. So we’re going to break down the marketplace, continue to compete and deliver to customers what they want. I think that will continue. We feel this is a sustained competitive difference that we have. We’ll go to where the customer wants to go. In terms of whether it’s a  more profitable outcome for us, then we’ll be indifferent;  if they want streaming capability with Flex, we’re going to be right there to deliver that.”

At Comcast’s Sky unit, the shift is even more pronounced. On the conference call, Sky group chief executive Jeremy Darroch used the satellite TV service provider’s relationship with Disney, where it switched a traditional programming contract for the Disney Plus app, as an example. 

“We took a very high fixed-cost, long-term contract and effectively turned it into an app, taking that cost out of our P&L and then getting a margin by selling Disney Plus through Sky,” Darroch said, adding that the savings can then be reinvested in content or other areas, like Sky Studios, which improves the customer relationship. “...When you get to the consumer side, there is virtually no change to that experience.” 

 Some have said that the thing that killed the a la carte movement was that the programmers never wanted to give up the massive payday they were getting by selling fat bundles of networks to distributors at high prices. But with streaming, those pay TV rolls are declining rapidly -- Kagan, a unit of S&P Global Market Intelligence, predicts that 31.5 million traditional pay TV customers will be lost by 2024 -- and affiliate fees are eroding just as fast. Operators, who have chafed for years at high programming fees would probably like nothing more than to be the conduit, aggregating the various content apps and selling them alongside broadband. And as  streaming options grow and video subscribers shrink, it looks as if D2Cs’ ship is finally coming in. 

Verizon said that former AMC Networks executive Linda Pan has joined Verizon’s content team as director of strategy and business development.

Pan was senior VP of new digital business at AMC and helped launch its direct-to-consumer video business.

Pan will be part of the Verizon unit that oversees content strategy and acquisition for Verizon’s consumer platforms including Fios, broadband, wireless and 5G home. She  will lead a team focused on leveraging Verizon's scale and market leadership to develop new customer experiences around content, with emphasis on the growing OTT space. 

"Linda's knowledge of the direct-to-consumer video space, content strategy and product, as well as her expertise building winning consumer experiences, make her a valuable addition to Verizon, as we continue to develop new ways to better engage with our partners and customers," said Erin McPherson, head of content at Verizon.

Before AMC, Pan was with Hallmark Movies Now, Netflix and MRC Studios.

Discovery said it acquired the assets of AdSparx, a technology startup, that will help Discovery build its global direct-to-consumer product portfolio.

AdSparx uses cloud-based technology to provide server-side in-stream dynamic ad insertion across live and on-demand streaming and help deliver personalized and contextual ads to consumers.

Discovery also plans to utilize AdSparx’s DAI solution to deliver personalized virtual linear channels that are tailored to the needs of every viewer’s interest and background for an engaging and entertaining experience.

As part of the deal, Discovery will also onboard employees of Novix Media Technologies, Pune, India. The company’s engineers work with AdSparx on its DAI platform.

“This acquisition is part of a larger strategy to develop a robust portfolio of digital products, as we continue to scale-up our DTC proposition with locally relevant video experiences in key international markets,” said, Avi Saxena, CTO, Global Digital, for Discovery. “We are also delighted to expand our footprint in India with a strong technology organization and view the country as an emerging key development hub in the future for our global DTC portfolio.”

Discovery’s long-awaited direct to consumer product will be coming to market “very soon,” CEO David Zaslav told an investor conference Thursday morning.

“We will come to market with a global attack,” Zaslav said at the Goldman Sachs Communicopia conference. 

“I think this is probably the most important thing we’ll do as a company since I’ve been at Discovery. And we’ve been getting ready for it for years,” he said. "It’s one of the reasons we got into local sports. It’s the reason we did Scripps, because we own all of that content globally."

Zaslav noted that the growth in broadband gives Discovery a path to consumers at a time when cord-cutting is eroding the number of people who can watch the company’s cable channel.

“We really feel that we have a moment and it’s critically important that we reach everybody everywhere in the world and that’s where the industry is going,” he said.

He noted that one of Discovery’s challenges is that it is not available on every device. “We will be very soon and we will be in a way that’s aggressive," he said.

“One of the keys is getting partners to help. So we’ve been very quietly over the past year working aggressively in getting all of our stuff together and we’re quite close," he said. “When we come to market, which will be very soon, we just want to check all the boxes."

Zaslav said that the company owns all of its content it has already airs and has not been selling it, which means it will be available immediately when the DTC service launches. 

On top of that, Discovery has been producing and stockpiling additional original content in anticipation of a direct to consumer launch.

Zaslav said that because Discovery has focused on unscripted content, its DTC offering will be different than Netflix, Hulu, Disney Plus or HBO Max. It might even serve as a companion to any or all of them.

“The more and more we talk to consumers and we look at the research--there’s a lot of great product out there that’s scripted series and scripted movies--but we really have something different. And people want more than just more shows,” he said.

“When you look at us domestically, you look at the brands that we have, people look at Food and Home and Chip and Jo [Gaines] and Oprah. We’re the only player that has brands that people love that are really curation portals where all these super fans, Zaslav said.

Wells Fargo Securities media analyst Steven Cahall raised his outlook on ViacomCBS Thursday from “Underweight” to “Equal Weight” and increased his 12-month price target on the stock to $30 per share from $19 per share, citing the programmers aggressive moves in the streaming video space.

ViacomCBS stock has been down considerably this year -- it was up about 1% in late trading Aug. 27 to $28.27 each, but is down more than 30% since January -- as declining subscribers and a sluggish ad market have hurt all programmers. In a note to clients, Cahall said there is opportunity in ViacomCBS’ plans to focus more on direct-to-consumer (DTC) streaming services like its Pluto TV, CBS All Access and Showtime, and centers its business on a House of Brands strategy.  

“We’re not yet bullish on the stock but a more aggressive DTC strategy or merger activity would get us there,” Cahall wrote.

ViacomCBS CEO Bob Bakish unveiled the House of Brands initiative in February, vowing to expand its CBS All Access, Showtime and Pluto TV offerings by adding its own film and television assets via on-demand and live experiences, and would partner with traditional and new distributors both domestically and internationally. 

Cahall broke down each initiative in his report, adding that he believes rebundling into a House of Brands could reduce churn and be more aggressive on pricing. He estimated a House of Brands streaming product could retail for $10-to-$15 per month, adding that a sub-$10 price point would likely attract more customers. 

“...[I]f it’s closer to $15 then the launch may be less enticing for consumers,” Cahall wrote.

Adopting that strategy would mean ViacomCBS would have to forego content licensing revenue, which Cahall saw as a next step. 

“To take DTC to the next level, we want to see [ViacomCBS] cease licensing marquee Paramount and Showtime content to competitors and stop feeding services like Netflix with originals,” Cahall wrote. “Our upgrade contemplates [ViacomCBS] using divestiture cash to wean itself from licensing. 

But Cahall believes the focus on DTC could substantially boost revenue. He estimated DTC subscribers to CBS All Access, Showtime, Noggin and BET + would rise from 11.2 million in 2019 to 26.6 million by 2025. Total digital subscription revenue from those services would jump from $779 million in 2019 to $1.5 billion in 2025.  

Ad-supported Pluto TV would see advertising revenue increase from $660 million in 2019 to $2.2 billion by 2025, according to Cahall’s estimates.   

Cahall also believes that Viacom should investigate selling off some non-core assets, a move that some believe is more feasible after the death of its former chairman and largest shareholder Sumner Redstone.  ViacomCBS vice chair Shari Redstone, according to some analysts (Cahall included) is believed to be more open to selling off assets than her late father.

The analyst added a combination with Discovery Inc., “is a deal that both companies should be considering.”

With many consumers avoiding retail stores during the pandemic, direct-to-consumer brands were able get more ad impressions during the first half while spending less, according to an analysis by iSpot.tv.

In the first half, 146 DTC brands spent more than $1.2 billion on advertising, down 2.6% from a year ago, according to iSpot.tv. There were 23 new DTC brands in the half. They spent $18.8 million on TV.

Most DTC companies start marketing themselves online, then shift to TV to accelerate their growth. As they become new TV advertisers, networks and stations are eager to sell them commercials at a time when spending by their more traditional clients’ spending was flat at best, even before the virus infected the economy.

The top spender was Carvana at just under $76.6 million, followed by Wayfair, Grubhub, DoorDash and Peloton. The top 10 brands accounted for 43.5% of DTC spending.

Despite spending less, these advertisers got more with their ad dollars generating 162.8 billion impressions, up 13.7%. 

Five advertisers accounted for 25% of those impressions: Carvana, Wayfair, Grubhub, Peloton and Noom. A year ago, Caravan and Noom weren’t on the list of top advertisers.

Grubhub and other delivery services boomed with diners not eating out at restaurants. Delivery companies increased their first-half impressions by 34% from a year ago.

iSpot.TV found that DTC brands had more impressions during reality shows than any other programming genre during the first half. Reality’s share of DTC spending rose from 15.7 in March to 18.2 in May.

In its report, iSpot.TV noted that without tentpole events, the DTC advertisers bought ads on new networks and shows.

HGTV got about $90 million in spending by DTC companies, followed by CBS, ABC, NBC, CNN, ESPN, Fox News, Fox, Comedy Central and MTV.

Among DTC ads that were backed by more than $5 million in spending, iSpot.tv said Headspace’s Be Kind to Your Mind spot had the highest attention score. It was followed by Chewy.com’s We’re Here for You Spot and a commercial called Who Wants In from Peloton.

“DTC brands are a growing part of TV advertising, and also represent new arrivals to the medium. Even with spending cutbacks, the fact that DTC brands had more TV ad impressions year-over-year shows a roadmap for how TV advertisers of any experience level can find audiences even without tentpoles,” iSpot.tv said in the report.

Wall Street is going to have to wait a little longer for Discovery to provide details of its plans for a direct-to-consumer product offering the companies biggest brands and most compelling personalities.

Discovery’s stock price fell 4% on Wednesday despite a strong second-quarter earnings announcement Wednesday morning. The reason why seems to be what feels like a long delay in Discovery getting into the streaming game big time.

On the company’s earnings call, CEO David Zaslav said that if Disney Plus and other recent DTC plays by media companies were sports cars, Discovery would be rolling out an SUV.

“We’ll be coming to you very soon with more detail and exactly how we're going to roll it out. But our SUV is filled with large fresh content, a huge amount of original content,” said Zaslav. 

Zaslav said that while quarantining, consumers have been watching Netflix, Disney Plus and the other, picking at their programming offerings, trying to figure out what’s good, different and new. 

“And so we think we will launch with a differentiated service, this new SUV, which people will [find] useful every day, all the time. It'll be dependable all the time and your friends and all the characters that you love, which really differentiates us fit in this new product, this SUV,” he said.

In a research note, headlined “Discovery: Can the SUV Float,” analyst Michael Nathanson of MoffettNathanson noted that the market didn’t seem to care about Discovery’s affiliate renewals or event its stock buyback program. Seems all media investors want to know about is how companies are pivoting to streaming.

“Finally, management more than hinted that Discovery will be launching a new SUV, eh … DTC service that aggregates all of Discovery’s content in an all-in-one app targets for cord cutting,” Nathanson said.

Discovery has been teasing a DTC product for more than a year, but the announcement has been slowed, partly because Discovery has some big cable players on its board (in June the company said it was talking with distributors about DTC) and because the former Amazon executive charged with building Discovery’s dream car, Peter Faricy, left, also in June. 

With analysts nearly panting, Zaslav gave a glimpse of what Discovery’s working on. 

“You should expect that we'll be offering our content in ways that are competitive in terms of whether they have commercials or don't have commercials, or how much commercials they have, we've thought that out carefully and we intend that our product will be very competitive and flexible. And we expect to have multiple partners and that's how we're going to be successful domestically and around the world,” he said.

But if Discovery has a DTC plan, now’s the time to share it.

“Discovery needs to build a big enough business quickly enough that can serve as a Life Boat (SUV?) to offset the long-term worries about the melting ice cube that is global Pay TV,” Nathanson said. “In fact, with each passing day, there are more and more examples of programmers deciding to launch DTC products that could potentially cannibalize the bundle and accelerate the downward trajectory of cord-cutters.” 

Time did not seem to be of the essence to Zaslav, who said the game is only in the fourth inning. 

On the earnings call, he said he thought that Netflix, Disney and the others have paved a lane to get people to buy and stream content.

“And we think we got a great lane, it's almost like that lane is ours. If you have Netflix, if you have Disney Plus, if you have Amazon, if you have any video product who wouldn't want what we have, it's what most women in America watching all the time,” he said.

“We think we have the right recipe and we'll take you through it very soon. And we think you're going to love it. We hope you like it. And we hope more importantly that when we get out to consumers in the U.S. and around the world, that they like our hand as much as we do, Zaslav said.

With the recent arrival of AT&T’s HBO Max and the nationwide rollout of NBCUniversal’s Peacock coming July 15, direct-to-consumer streaming video is no longer just a nice thing to have for most programmers. It is essential.

The question is, will streamers generate enough revenue to replace the pay TV dollars they are now being asked to supplement?

The list of direct-to-consumer streaming video offerings from major, established programmers grows almost monthly. The Walt Disney Co., AT&T, NBCUniversal, AMC Networks, Discovery, Fox, ViacomCBS and others all have either launched a direct-to-consumer service or are in the process of doing so. Given the rapid decline of traditional pay TV customers over the past several months, those who aren’t could regret that decision.

“I think it’s proving out that the shift is inevitable,” said Denise Denson, former Viacom programming chief and currently chief operating officer of Molten, a technology firm that specializes in helping content owners track digital rights. “Cord-cutting is higher than ever — it’s almost off a cliff — and everyone’s transitioning to their own direct-to-consumer models. It’s happening.”

While the decline in pay TV subscribers has been going on for more than a decade, Denson said, the erosion has accelerated, making it critical for programmers to at least have an idea of how they will sell and distribute content to consumers.

“I don’t know if many could have prepared sooner,” she said. “It’s all part of the evolution of the consumer as they watch content on-demand. Other than news, sports, live events, it is all on demand, on their time, on their platforms, on their devices. That’s been happening for 15 years, but now it is in full force. There’s no turnaround to such consumer habits.”

The loss of pay TV homes is a big problem for programmers, and the losses are accelerating. Pay TV distributors in 2019 shelled out $47.5 billion in fees to cable programmers, including regional sports networks, up about 2.6% from the year before, according to Kagan, a unit of S&P Global Market Intelligence. Those fees may have hit a plateau, though. By 2023 Kagan predicts a rise of just 0.2%, to $47.6 billion, as subscriber numbers erode and direct-to-consumer streaming offerings increase.

Last Line of Defense

According to Kagan, subscribers to traditional multichannel video programming distributors (MVPDs) will drop by 31.5 million households to 48.5 million households by 2024, while virtual MVPD households will rise by 6.8 million, to 16.1 million households; and OTT or multichannel substitute homes will grow by 22.9 million, to 41.5 million. Over-the-air households will rise by 7.1 million to 25.8 million by 2024, Kagan said.

MoffettNathanson principal and senior analyst Craig Moffett calculated that traditional pay TV subscribers fell by 1.8 million in the first three months of 2020. That’s a decline of about 7.6% year to year, nearly twice the 4.7% decline in the 2019 period. Factoring in vMVPDs, the decline was about 5.3%, another record.

What might be most troubling is that those lost subscribers didn’t just choose another platform. They left the pay TV ecosystem.

The pay TV industry has dealt with competition from new technologies before, with cable losing customers to upstart satellite-TV platforms, fiber “overbuilders” or, more recently, streaming “virtual” pay TV providers that use the internet to deliver programming. In the first quarter of 2020, amid a COVID-19 pandemic that kept most Americans confined to their homes, people didn’t defect to new platforms, they just dropped out.

The vMVPDs that had been picking up customers, partly by underpricing the cable competition, lost about 341,000 subscribers in Q1, in part because they have raised prices amid the economic pressures that crimp cable providers’ video profits.

The slowdown was apparent across the board, Moffett noted. AT&T TV Now and fuboTV both lost subscribers, while Hulu Plus Live TV gained around 100,000 customers in Q1 after adding between 200,000 and 500,000 subscribers in each of the previous eight quarters. Sony’s PlayStation Vue, with about 500,000 customers, closed down altogether in January. YouTube TV is the fastest growing vMVPD, but it did not see major gains after Sony’s departure.

“The pay TV network business’ last line of defense has been breached,” Moffett wrote. “The vMVPD category is unraveling.”

In the face of dwindling pay TV homes, programmers began to develop direct-to-consumer channels in 2016, hoping to diversify revenue streams amid the decline.

Subscription on-demand services, notably Netflix, have given consumers alternatives to the pay TV bundle of entertainment, news and sports channels. Now even the content companies whose channels are mainstays of pay TV bundles have piled on with direct-to-consumer (DTC) offerings of their own, Moffett noted. “The deceased is survived by Disney Plus and Peacock,” he wrote. “A shiva will be held over Zoom.”

DTC services like Disney Plus, HBO Max and Peacock may be “lifeboats” for programmers, Moffett said, but consumers who jump in are “leaving the (sinking) motherships behind. Notwithstanding the princely valuations being accorded SVOD platforms like Disney Plus, we doubt the DTC lifeboats will ever come close to matching the profitability of the business they are ostensibly designed to replace.”

It’s understandable, then, that programmers are loath to give up on the traditional model. The direct-to-consumer route is a way for them to hedge their bets, just in case the bottom falls out of the traditional distribution model sooner rather than later.

NBCUniversal’s Peacock launched to Comcast Xfinity cable customers in April and will be available nationwide on July 15. Peacock will be free to Comcast cable customers; to customers of NBCUniversal cable networks, through other distributors; and to Comcast’s Flex broadband-only subscribers. For the rest, the ad-supported Peacock will be available for $4.99 per month. An ad-free version will be priced at $9.99 per month.

“The way I look at it is, we have a business of making great content,” NBCUniversal chairman of content distribution Matt Bond told Multichannel News. “And it’s increasingly global as well. That business is the same as it was in 1950 for NBC, and we’re going to keep going. That’s why we’re launching Peacock. It’s another platform, it’s another way to engage customers with content and monetize content.”

The new service also protects NBCU should the shift to the streaming model happen faster than expected, Bond said.

“This product is designed to greatly enhance the value of NBC in the traditional linear business, but also it’s available outside of that,” Bond said. “Whichever direction and however this marketplace moves, we’re both respecting and improving the value of the existing product, but we’re also going to be available to people who are not subscribers to that package.”

At HBO Max, Tony Goncalves, CEO of AT&T’s Otter Media, also oversees development and general management of the streaming service. He sees HBO Max as another step in the evolution of pay TV. Goncalves has some experience on the distribution side of the house — he led strategy at and helped launch streaming service DirecTV Now (now AT&T TV Now) in 2016 and served in several executive roles at the satellite-TV unit — before joining the content side.

“For years, pay TV aggregated video content in a convenient way for consumers,” Goncalves said. “During my time at DirecTV I would point to the fact that we were aggregators and curators of great content. But we didn’t own any IP, which is ultimately what consumers connect with. WarnerMedia has the advantage of owning the content and we want to get in front of consumers in as many ways as possible.

“Over the past few years, we’ve seen an evolution as consumers seek more choice, and technology has enabled a shift from a broadcast to a ‘one to one’ world,” Goncalves added. “As consumers turn to more on-demand viewing, we expect consumers to ‘reaggregate’ multiple services and platforms into their bundle, and we believe HBO Max is well positioned to be an anchor in consumers’ lives year round.”

What’s a Network to Do?

While the traditional distribution model continues to show signs of drying up, programmers have begun to embrace the DTC model with mixed results. Disney set the bar high in November, launching Disney Plus to more than 10 million app downloads on its first day. As of May 4, Disney Plus had about 54.5 million global customers, and the Disney Plus app apparently enjoyed a download surge ahead of the July 3 premiere of the filmed version of the Broadway musical Hamilton.

Other DTC launches have had mixed results. Apple TV Plus launched on Nov. 1 and, according to Bloomberg, has about 10 million customers (others have said that number is around 30 million). HBO Max launched on May 27 amid a flurry of hype, but only managed to attract about 90,000 downloads on its first day, according to reports.

Numbers have been hard to come by for HBO Max, especially because it is automatically available to the 30 million or so existing subscribers to HBO’s linear pay TV service. Confusion around the launch has added to its problems. With four different services — HBO, HBO Now, HBO Go and HBO Max — some consumers weren’t sure of what they were getting. HBO parent AT&T has promised to clear up some of that confusion on its July 23 Q2 earnings call, and earlier last month said it would discontinue the HBO Go online service in favor of HBO Max by the end of July.

Goncalves acknowledged the confusion, adding that HBO Max started from a different place than its peers: it had a large existing base with the HBO linear service, which has evolved over the years to include a streaming version (HBO Now) and a complementary online offering (HBO Go). Because of that, he said, HBO Max was “unable to start from a clean slate and our plan had to ensure that customers were able to access HBO content across linear, on demand and digital platforms.”

But now, with most of its customers able to access all of HBO through the HBO Max app, the product can be streamlined to eliminate confusion.

“We intend for HBO Max to be the primary digital platform for customers to access HBO along with even more fantastic library, acquired and new content,” he said.

Nevertheless, content companies are clamoring to either release new DTC products or substantially beef up existing offerings.

In late June, ViacomCBS CEO Bob Bakish said the programmer would add substantially to its CBS All Access streaming service, currently offering CBS library and original content to consumers for $5.99 per month. At the Credit Suisse Virtual Media Conference June 16, Bakish said the plan is to add programming from ViacomCBS cable networks including MTV Networks, Nickelodeon, Smithsonian Network, Paramount Network and Comedy Central.

Bakish pledged to add another 15,000 hours of content to CBS All Access next year, transforming the streamer into a “super service” with more than 30,000 hours of programming.

"We have a good position in the older segment with the current All Access product, but this really brings a lot of young audience to the table,” Bakish said at the conference.

CBS All Access also will beef up its sports offerings, which include streams of Sunday-afternoon National Football League games broadcast on the CBS network, and will add PGA Tour Golf to the mix. ViacomCBS also has ad-supported streaming services Pluto TV (with around 24 million customers), news-focused CBSN, CBS Sports HQ and ET Live, as well as premium ad-free subscription services Showtime, BET Plus and Noggin.

Streaming revenue was up 60% in 2019, to $1.6 billion, and up 50% in the first quarter of 2020, according to Bakish — the company’s strongest quarter ever on that front.

“Q1 was our strongest streaming quarter ever, even though we didn’t have the Super Bowl and we had the COVID-driven cancellation of the NCAA [men’s basketball tournament],” Bakish said at the conference, adding that those trends were continuing in April and May. “So there is a lot of momentum there.”

Other broadcasters also are taking a hybrid approach. Fox sold most of its cable networks and studios to Disney last year for $71.3 billion to focus on live news and sports programming. It launched streaming offering Fox Nation and acquired Tubi TV.

Fox bought ad-supported Tubi TV in March for $440 million, which Fox chief financial officer John Nallen has said provides a foothold with younger viewers. Fox has said that it believes the future of TV lies in bundles more tailored to individual consumers.

“I’m not sure entertainment is as core to the bundle and the pay TV universe as it has been,” Nallen said at the Credit Suisse conference June 16. “I think what will happen is you’ll get distributors squeezing down to a core product, maybe led by a digital MVPD, and then people just bringing their own entertainment into their household. Just like the connectivity companies are more bring your own — bring your own video, bring
your own audio, bring your own security — there will be more ‘bring your owns.’ Certainly in entertainment, SVOD will be ‘bring your own.’ ”

A Less-Traditional Future

Signs continue to point to erosion of the pay TV backbone for programmers.

In late June, The Walt Disney Co. dropped its linear Disney kids’ networks in the United Kingdom, shifting content to Disney Plus after failing to reach a distribution deal with British satellite-TV giant Sky. In a research note, Barclays media analyst Kannan Venkateshwar said the change could have broader implications in the U.S.

Disney did not reply to requests for comment.

Venkateshwar said replacing the linear channels, which attract about $1.61 per subscriber per month in affiliate fees, for the $6.99-per-month Disney Plus service seems like a no-brainer, despite starting from a smaller subscriber base than heavily penetrated pay TV. The problem, though, is it could lead to a “long-term pivot away from pay TV even for its most premium networks, like ESPN.”

While most of the world’s focus has been on Disney Plus, Disney launched ESPN Plus in 2018, offering sports programming and games not part of the linear channels’ packages for $4.99 per month. In 2019, ESPN Plus became the exclusive outlet for UFC pay-per-view events, for an additional charge. As of this May, ESPN Plus had about 7.9 million subscribers, according to Disney.

With rights deals for the National Football League and Major League Baseball coming up in the next few years, and with broader changes in viewing habits brought about by COVID-19, Venkateshwar said in his note that “this could also provide an opportune moment for Disney to think about a more aggressive transition away from legacy pay TV.”

Transitioning to a fully direct-to-consumer streaming model wouldn’t be easy, Venkateshwar noted. By definition, its distribution structure would be more fragmented compared to riding on pay TV platforms, which enable nearly 100% household penetration. But streaming, especially sports streaming, gives networks like ESPN the ability “to slice the demand curve a lot more effectively resulting in much higher ARPUs than the ~$11/sub/month that the ESPN/SEC [Network] family at present seems to get,” Venkateshwar noted.

He used NFL Sunday regular season games as an example, with NFL Sunday Ticket, NFL Sunday afternoon broadcast games and NFL Red Zone all delivering the same contests for three different price points. Sunday Ticket customers pay the most ($295 for the season) for the most games, while local games are offered for “free” via broadcast and those wanting recaps of games throughout the league can pay around $10 per month for Red Zone.

But Venkateshwar said that NFL pie could be sliced further, by time (similar to NBA League Pass’s 10-Minute Pass) and interactivity (different camera angles, fantasy sports info and the ability to place bets), enabling even greater tiering of sports content. Following that model, Disney potentially could charge $30 per month for ESPN across 30 million homes instead of $10 per month across 100 million households.

“Such a model could also help change the cost structure from fixed to variable by allowing for partnerships with leagues and revenue-sharing models to ease the path to scaling the business over time,” Venkateswar wrote. “ESPN is also uniquely positioned to do this as of now given its strong brand association with sports. Unlike scripted content, where Disney was effectively the last media company to enter into streaming, 12 years after Netflix started streaming, in sports, the company could have a unique first-mover advantage.”

Walking the Line

In this transitional time, programmers are straddling the line between the traditional distributors that currently pay most of the bills and streaming offerings aimed at consumers directly.

For now, most networks are holding on tightly to the current model. Many DTC offerings are tied to traditional pay TV subscriptions, a la Peacock and HBO Max. Other programmers are offering a mix.

“At a very high level, it’s incontrovertible that the streaming universe is expanding,” AMC Networks president, distribution & development Josh Reader said in an interview. AMC Networks was one of the pioneers in DTC streaming: it launched the documentary-focused Doc Club app (now SundanceNow) in 2014 and its streaming lineup now includes Acorn TV, AMC Premier, Shudder, IFC Films, and UMC.

“We view the streaming space as an expansion of the universe,” Reader said. “There will always be that relationship with distributors, MVPDs. There is still a significant market for that product. Of course as subscriber numbers on the traditional pay TV pack decrease, you’ll have an increase in the market for streaming services. We always viewed it as a balance.”

In June, AMC said it would expand its streaming offerings, making AMC Plus and We TV Plus available to Comcast Xfinity and Flex customers for $4.99 per month each. The streaming service will be offered to other distributors.

“One of the things we strongly believe and are particularly excited about, we’ve always had really strong relationships with our distribution partners,” Reader said. “The things that are driving all the trends are happening because of changing customer behavior.”

Distributors also seem to be warming up to a streaming future, particularly through their offerings of broadband-only with attached free programming. Comcast’s Flex broadband-only product, for example, offers access to thousands of hours of programming via free streaming services like Pluto TV and Tubi TV, as well as Peacock Premium, a $4.99 value, for no additional monthly charge. AMC’s Reader also pointed to Altice USA’s Altice One platform and Verizon’s Flex-like broadband-only service called Stream TV that offer consumers access to Netflix, Hulu, Disney Plus and other programming apps.

“For us that is something that is very exciting because it allows us to stay true
to ourselves and those relationships. We think of it as an expansion of our business,” Reader said.

Reader said he believes that there will always be a place for traditional video distribution. Although cord-cutting is accelerating, he said, that could level off. The trick will then be how to balance traditional TV subscribers with those who want a more flexible relationship.

“There is still a substantial portion of the country out there that sees value in that expanded basic television package, or that price point,” Reader said. “You continue to serve those customers and then the question becomes, how do we grow with our distribution partners to serve their customers on the broadband-only side, who say, ‘Maybe expanded basic is not for me anymore, given the price of that package, everything that I’m getting isn’t worth it for me? I’m willing to do a little more work for my video, I’m willing to choose to spend the time making those choices and managing the subscriptions.’ ”

On its Q1 earnings call with analysts in May, AMC Networks CEO Josh Sapan said viewers to its streaming services were up substantially during the COVID-19 lockdown and the company expects to have 3.5 million to 4 million subscribers to those services by the end of 2020, a full two years ahead of schedule.

Chief financial officer Sean Sullivan said on the same call that AMC continues to believe “that the highest return for our capital is to invest in content and reposition our company for a more streaming-focused landscape.”

Reader said the trick is to not alienate the core business while going after the future. So far, in his view, AMC Networks is managing that tightrope walk effectively.

“At the end of the day we are a content company and we need to be able to keep producing great content, and we have a very strong track record of being successful in that space,” Reader said. “How do we continue to invest in that content and rationalize it across multiple platforms? The way we think about it is by evolving the way our distribution partners are evolving.”

Models, Models Everywhere

Although the consensus points to continual disintegration of the traditional pay TV model, the jury is still out concerning what replaces it. Content creators’ runs at the subscription model have been successful (Disney Plus) and not-quite-as-successful (pretty much everyone else). Some believe an ad-supported approach has the best chance of survival.

Peacock has embraced the ad-supported approach (it also has an ad-free version available to consumers for $9.99 per month). Bond told Multichannel News that he believes eventually every service will at least consider an ad-supported path.

Netflix and Disney Plus are ad-free, but Hulu has an ad-supported version of its subscription VOD service as well as a more expensive, ad-free option: More than two-thirds of subscribers opt for the version with ads, Hulu has said. HBO Max is expected to launch an ad-supported version of its service next year.

“I think this is an instance where the marketplace hasn't settled out and there may be different versions of this like in the way Hulu has done it,” Bond said, adding that customers will ultimately make the final decision.

“If you look around your world, there are commercials everywhere in just about everything you do,” he said. “So, it would surprise me if there is no commercial opportunity in the context of television.”

The decision to be or not to be ad-supported will depend on the offering and its target audience, Denson said. Young viewers have already shown a propensity to watch ads in return for lower monthly charges. Older viewers are more willing to pay for convenience.

Denson pointed to her earlier Viacom days and the initial launch of Hulu, which offered an ad-free version that was priced about $4 more per month than the ad-supported version, a price point that many felt would drive viewers towards commercials.

“Within 30 days, something like 3 or 4 million of their subscribers took the ad-free product,” Denson said. “We were shocked as a programmer on Hulu, but it really showed that there were audiences that will pay for their time.”

Analysts that have been a little skeptical concerning the ad-free nature of streaming have nearly universally come out in favor of the ad-supported model.

In a research note, Moody’s Investors Service senior VP Neil Begley said Peacock’s ad-supported focus will allow it to “throw its weight around in the streaming wars given the breadth and avidity of NBCU’s largely existing content. The ad-light nature of the service and innovative advertising formats may also resonate strongly with customers and drive engagement and advertiser returns.”

It’s All About That Base

While content companies seem intent on dismantling the existing TV model, distributors seem to be encouraging it as well, and not only the ones that own programming. Even Charter Communications, which in the past has defended the validity of the thicker cable video bundle, has said it won’t rue the day when the model has changed.

Perhaps the biggest factor in shifting that stance has been the exponential rise in the cost of programming over the years. On Charter’s Q1 earnings conference call in May, chairman and CEO Tom Rutledge said “the biggest driver of negativity in the cable business, I think, has been the price of video.”

It helps that cable has a broadband business to fall back on that is not only hugely profitable (with 80% to 90% profit margins) but is also essential for viewing any of the streaming services. Streaming content over the internet requires a fast, reliable broadband connection, and cable has that in spades.

The day when cable operators only worry about providing reliable access to apps and DTC services, instead of haggling with programmers over affiliate fees, looks appealing to most cable companies. Rutledge, who has held the cable video value banner high for years, sees a day when both can coexist.

“There is an opportunity in us marketing direct-to-consumer products in our relationship with programmers,” Rutledge said on Charter’s Q4 earnings call in January. “And those relationships, in many cases, are also operating under the old model, too, which is the bundled cable model. We can hold both thoughts in our head at the same time and sell bundled products, which I think we’ll be selling for years to come, but also selling direct-to-consumer products.”

Even distributors without a broadband service to fall back on see working with DTC products as inevitable. At satellite-TV service Orby TV, CEO Michael Thornton said in the not-too-distant future, distributors will be selling packages of apps and DTC services instead of individual channels. Orby TV offers about 44 channels of entertainment programming for $40 per month.

“I for sure see the industry moving in that direction,” Thornton said. “Obviously it’s a little more rational and sensible for someone like Comcast or a Charter that is selling broadband. I think the more things in a single place, the better. If you have that customer’s attention because you are able to resell other people’s products, that’s only a good thing.

“Is it something that we think about?” Thornton continued. “Not in the next three to six months, but for sure down the road being a reseller, and being able to package other folks' services with ours, would be an attractive thing.”

To some, all the talk about DTC products and apps and individual programmers bypassing distributors sounds like another way to say selling programming a la carte. But there are big differences, at least for now.

A la carte programming has been something consumers and cable companies have wanted the flexibility to buy and sell for years. But there are reasons why the channel bundle has held together. A big one is how much channels would cost if sold separately.

About 15 years ago, Bear Stearns analyst Ray Katz calculated that ESPN would cost upwards of $15 per month if sold a la carte — and that was when ESPN was getting a $3 per subscriber, per month affiliate fee; it gets about $9 for the single channel today. Replacing the cable bundle with channels sold on an individual per channel basis still seems out of reach, even with the launch of DTC services.

Linear Still Has Lots to Watch

While DTC offerings are robust — Disney Plus has 500 movies and more than 7,500 television episodes, while Peacock has 7,500 hours of programming via its free service and 15,000 hours for premium — that’s still less than what is offered on linear networks.

Bond is the first to say that Peacock does not have the same programming that is on NBCUniversal’s linear channels.

“There is a lot that is not on there,” he said, adding that Peacock is a general entertainment service comprising broadcast primetime TV and cable shows, library, original and third-party content. “It’s not 100% distinct from NBCU, but it is definitely distinct from those linear channels.”

Denson said replicating linear offerings would be a bad idea anyway. Consumers have shown that they are not like their grandparents. For them, less is more.

“I don't think cord-cutting was saving money; I think cord-cutting was buying what I want,” Denson said. “And I want Netflix and I want Hulu and I want Amazon and I want HBO Max. It’s not necessarily that I cut my budget, it’s that I got the products that were serving me the best.”

Winners and Losers

But if less is indeed more, that means there will be a winnowing of programming choices. Smaller networks that can’t afford to weather a period of high marketing costs, to get their brand in front of consumers’ minds, and lower revenue, will fall by the wayside.

“The marketing spend is going to be enormous, defining your brand, making sure you're driving customers to it, reinforcing why they want to pay you directly,” Denson said. “I don’t think many companies will be able to break through. We’re going to have six or seven, maybe no more than 10, that will be able to define themselves with the right marketing to be able to stand out. And then what happens to the others? I think it will be tough.”

Marketing spend isn’t the only big cost for going directly to consumers. Disney Plus and Peacock have committed $4 billion and $2 billion, respectively, to creating original content. Even at that level, they are dwarfed by the $17 billion Netflix and the $7 billion Amazon Prime Video is expected to spend this year on content.

Denson said the migration away from the traditional programming model could free up content producers and studios in that it would expand how and to whom they can sell their shows.

“The positive side is as you let go of that model, it opens up a lot of different ways to make money,” Denson said, adding that could mean more flexible windows that allow producers to sell shows to thousands of other platforms and providers. “And maybe that means a longer lifecycle for that content. And maybe the money will be greater over time because of that.”

In Search of Baby Yoda

But programming isn’t just a cost issue, either. Quality content, especially in an era where producing shows can be expensive, is critical. Analysts that have touted the success of Disney Plus have said its breakout hit The Mandalorian — which, according to reports, costs about $15 million an episode to produce — and the viral popularity of The Child (the character nicknamed Baby Yoda by fans) is as much the reason for the service’s overall success as its $6.99 monthly price point.

That kind of breakaway hit not only will separate a DTC service from the increasingly crowded pack, executives said, but is becoming necessary as the competition continues to pump money into shows.

“Not only do you need a Baby Yoda, you need the prospect of a Baby Yoda every month,” said Thornton, who was chief revenue officer at Starz before co-founding Orby TV in 2019. “If you look at Netflix, the amount of programming that Netflix releases week to week, month to month, dwarves Disney Plus or HBO Max. It’s great that they have these deep libraries and these brands, but people are looking for the shiniest new object.”

Goncalves said HBO Max is quite aware of the importance of content, adding that chief content officer Kevin Reilly is doling out a steady stream of compelling shows for every member of the house.

“Rather than leaning on just one property, we are enthusiastic about offering a regular pulse of new Max Originals alongside the entire HBO catalog as well as beloved franchises, titles past and present from Warner Bros., and international programming across all genres and formats for all demographics,” Goncalves said.

To that aim, HBO Max plans to have about 21 original series, four comedy specials, one animated special and four feature films by the end of August (it launched with six original series) and in 2021, that slate will expand to 60 original series, not counting 30 HBO originals.

“I personally am counting down for the Snyder Cut of the Justice League and the Friends Reunion Special and, from HBO, the House of the Dragon,” he said.

So, at least for now, programmers seem to be enthusiastically committing to the video industry’s latest shiny new object. Just how long it can keep its sheen will be anyone’s guess. 

Peter Faricy, who left Amazon to head up Discovery’s direct-to-consumer business, has resigned from the company, effective July 15.

Discovery has launched small direct-to-consumer businesses in the U.S., but has struggled to come up with an aggregated streaming video strategy at a time when other media companies have launched over-the-top businesses as traditional pay TV subscribers cut the cable cord.

Related: Discovery Talking With Distributors About DTC

Under Faricy, Discovery launched Food Network Kitchen, a joint venture with Amazon.

Discovery CEO David Zaslav said Faricy won’t be replaced and that Avi Saxena, Karen Leever and Lisa Holme who had been in charge of parts of Discovery’s U.S. DTC business would be reporting to him.

Saxena will be responsible for Food Network Kitchen and the product strategy for the upcoming Magnolia DTC business.

Leever will continue to head Discovery’s TV Everywhere and Go app business. She will lead the effort to create an aggregated app strategy in the U.S.

Holme, who recently joined Discovery from Hulu, will be responsible for content and programming strategies around the aggregated app.

JB Perrette, CEO of Discovery International, will oversee Dplay and Discovery’s sports DTC offerings and its MotorTrend business.

In a filing with the Securities and Exchange Commission, Discovery said it has agreed to treat Faricy’s departure as a termination not for cause under the terms of his employment agreement. Faricy’s compensation for 2019 was $7.3 million

Discovery is continuing its talks with distributors as it tries to determine its streaming strategy.

Discovery CEO David Zaslav boasts about the volume of content the company owns, its local programming and the direct-to-consumer offerings it has already launched or acquired, including the Eurosport Player in Europe and Food Network Kitchen in the U.S. 

But while The Walt Disney Co. has launched Disney Plus, NBCUnversal hatched Peacock and AT&T dialed up HBO Max, Discovery as yet hasn’t decided how to best monetize its content and reach non-cable subscribers.

“We’re working with our distributors. We’re in discussions with almost all the large distributors,” Zaslav said Tuesday at the 2020 Credit Suisse Virtual Communications Conference.

He noted that Discovery’s distributors have about 30 million broadband-only subscribers. “There’s a way for us to work with them to reach those broadband-only subscribers and those are the discussions that we’re having and they’re going pretty well.”

Programmers looking to go direct-to-consumer put their current distribution revenue at risk unless they can find a way to make the deal attractive for their current video partners. Discovery has a number of cable execs on its board of directors.

Discovery has also been doing research with consumers.

“We’ve been out in the market. Last Monday, I spent the whole day with focus groups of people that never had cable, cord cutters, under 40, over 40, people that have cable,” Zaslav said.

He said that while the other media companies compete to acquire and produce expensive scripted content, Discovery’s mostly unscripted content and the personalities that star in it have a different but strong appeal.

“We think there’s a lot of product out there, but we think great family content that’s differentiated and easy to navigate will be a real winner in direct-to-consumer around the world,” he said.

Zaslav declined to say when a decision would be made or when a DTC product might launch.

“We're  feeling good about it. We're doing a lot of work and you're going to hear from us on it. We think there's an open space for us,” he said.

Discovery is also feeling better about the ad market. On its last earnings call, Discovery predicted that ad revenue might be down 20% in the second quarter as COVID-19 disrupted businesses.

Ad revenue was down 18% in April, May is tracking “significantly better and June is tracking meaningfully better,” Zaslav said. 

“The scatter market is picking up. Cancellations in the third quarter were significantly better than we thought they were going to be. They’re more meaningful than what we’ve seen in the past, but they’re much better than we thought they were going to be,” he said.

Volume in the scatter market has been going up week by week, and advertisers that pulled money early in the pandemic are now coming back into the market, paying a higher price than they’d agreed to in last year’s upfront, he said.

This year’s upfront will take longer than expected, Zaslav said.

“Right now there’s a fight over price. I think everyone is looking at this environment and saying ‘shouldn’t I get something for cheaper,’ or ‘shouldn’t I get a deal.’ And I think the media side is saying no,” he said. “We think we should get higher pricing. The inventory to promote on television is going in the aggregate down and our share is going up. And so we think we should be more in volume and in price.”

Discovery said Thursday that former Hulu executive Lisa Holme has joined the programmer as group senior vice president, content and commercial strategy, direct-to-consumer. Holme is based at Discovery’s Los Angeles office and reports directly to Discovery’s CEO, global direct-to-consumer, Peter Faricy.

In this newly created role, Holme is responsible for setting the content strategy for Discovery’s DTC products in the US, including the curation, commissioning and acquisition of content. She will also manage commercial strategy, with a specific focus on distribution partners in alignment with Discovery’s ad sales teams.

“Lisa brings an impressive track record of success in content to Discovery and will be a key leader as we scale our direct-to-consumer businesses,” Faricy said in a press release. “Lisa’s leadership of our DTC content strategy and commercial partnerships will further bolster Discovery’s position as the leader in unscripted entertainment across all platforms.”

Prior to joining Discovery, Holme spent nearly ten years at Hulu, holding senior leadership positions including most recently, leading development of Hulu’s international expansion strategy and business plan. In her prior role as VP of content acquisition, she was responsible for Hulu’s content strategy and licensing. Prior to Hulu, she worked in production and development at Illumination Entertainment and as a consultant at McKinsey & Company.

“Discovery has excelled at delivering unique and entertaining content to a global fan-base of customers,” Holme said in a press release. “I’m thrilled to join the team at this exciting moment as the company expands its direct-to-consumer presence, building on its success with additional high-quality programming that will reach consumers in a range of compelling, new ways.”

The NBA and Turner Sports made a fast break to the direct-to-consumer consumer court Tuesday with the debut of NBA TV as a subscription-based streaming service.

NBA fans can now access the linear channel through NBA.com and the NBA app for $6.99 per month and $59.99 annually, according to Turner Sports executives. The service, which includes more than 100 exclusive live games, original programming and on-demand content, will continue to be available on an authenticated basis for fans who get NBA TV from a pay TV provider.

“Innovation has always been at the core of our NBA Digital partnership and the launch of this direct to consumer product, paired with new content initiatives, will provide NBA fans even greater opportunities to engage with NBA TV and our collective portfolio of brands,” said Tina Shah, executive vice president and general manager, Turner Sports in a statement. “As sports consumption continues to evolve, we will continue to develop new opportunities for fans to access and engage with premium NBA content.”

Along with its current lineup of content, NBA TV will also feature “Center Court,” a series of 20 live NBA games with enhanced viewing options including new camera angles, in-depth analytics and statistical graphics, and social media integration. Alternative streaming options for “Center Court” games including “Backcourt” streams featuring statistical overlays on the game feed, and “Frontcourt” streams incorporating alternative audio options with rotating groups of NBA influencers, according to the league.

“NBA TV is the ultimate destination for around-the-clock access to premium NBA games and programming,” said Chris Benyarko, NBA senior vice president, Direct to Consumer. “We are thrilled to offer more ways than ever to access NBA TV and provide a preview of the future live game viewing experience.”

Direct-to-consumer brands--digital-first marketers--have spent $2.3 billion on television advertising so far this year, according to a new report from iSpot.TV.

The DTC brands have become prime targets for network ad sales teams because many have become big buyers of TV time.

Most of these brands start up with social media and have extensive data about their consumers. In order to grow they’ve turned to TV and their data shows that TV gives sales a big boost--something TV networks have been using to demonstrate their strength as a marketing tool.

iSpot.TV included 186 brands in its study of DTC brands. Altogether, they bought more than two million spots that generated 234 billion impressions so far this year. Spending by DTC brands peaked in January at $332.7 million. In September, spending was $234.4 million.

The top five TV networks in terms of delivering the most impressions to DTC advertisers were Fox News Channel, HGTV, CNN, CBS and Hallmark Channel. The top shows were the 2019 NBA Finals, Friends, Law & Order: SVU, SportsCenter and the 2019 NCAA Basketball Tournament.

The most popular dayparts were prime time, day time, early fringe, weekend afternoon and early morning.

The top spender was travel site Booking.com, which spent $122.1 million, according to iSpot.TV.

The rest of the top 5 were HomeAdvisor at $113.4 million, Chewy at $113.1 million, Wayfair at $100.5 million and Carvana at $85.7 million.

iSpot said that among the DTC brands, Carvana’s Enjoy the New Way to Buy a Car generated the highest attention score, according to iSpot.TV. Other DTC brands whose spots drew the most attention from viewers were Noom, NerdWallet, Chewy and Touch of Modern.

As the Walt Disney Co. expands its direct-to-consumer business it named Brad Wilson as executive VP, performance marketing, for Disney+ and ESPN+.

Wilson had been chief marketing officer at Lending Tree. He will report to Michael Paull, president, Disney Streaming Services, part of the company’s Direct-to-Consumer and International group.

"Brad is a talented and accomplished marketing executive who shares our vision for data-driven marketing that will accelerate customer growth, engagement, and retention for ESPN+ and the upcoming Disney+ streaming service,” said Paull, "Brad’s wealth of experience gained from building and growing some of the most well-known online consumer brands will be invaluable to our team as we continue to drive growth for ESPN+ and prepare for the upcoming Disney+ launch.”

Before Lending Tree, Wilson as general manager of Travelocity for North America. Earlier he held marketing and brand management roles at Nutrisystem, Blockbuster Online and Match.com.

“The rapid growth of ESPN+ has been impressive to watch as a fan, and much like the millions of eagerly awaiting consumers, I’ve been counting down the days to the launch of Disney+,” Wilson said. “I’m thrilled to be joining the team and look forward to working with Michael and the talented team across The Walt Disney Company.”

NBC Sports Gold will add to its list of direct to consumer offerings with its Figure Skating Pass.

The $59.95 package launches next month and will feature access to major domestic and international figure skating competitions running from September 2019 to April 2020, said company officials. NBC Sports Gold currently offers 17 individual sports “passes” both domestically and internationally.

In total the service will offer more than 400 live, commercial-free hours of event coverage, including more than 300 hours of exclusive coverage, said network officials. Coverage begins with the U.S. International Classic in September and continue with live and on-demand coverage of the ISU Grand Prix of Figure Skating Series; U.S. Figure Skating Championships; ISU European Figure Skating Championships 2020; U.S. Synchronized Skating Championships; ISU Four Continents Championships; ISU World Figure Skating Championships; and the ISU World Synchronized Skating Championships, said the company. 

The Walt Disney Co., said subscribers to its streaming service ESPN+ have more than doubled to 2 million, encouraging news as it nears the launch of its ambitious direct-to-consumer entertainment service Disney + later this year.

ESPN +, which launched in April, added those subscribers in about five months, fueled primarily by its recent deal with combat sports giant UFC. The first fight of that deal -- December’s UFC Fight Night -- drew nearly 600,000 fans to sign up for the ESPN + service. 

On a conference call to discuss fiscal first quarter results, Disney chairman and CEO Bob Iger said the ESPN+ performance is encouraging and shows the marketing prowess of its linear ESPN service. It is also testament that the underlying technology for the steaming product -- basically Disney’s BAMTech unit -- is robust enough to meet the challenges of a popular streaming service. Iger said, at times before the UFC fight BAMTech was completing “just under” 15,000 transactions per minute.

“The stability of the platform is critical at times like that,” Iger said, adding that the ESPN brand also helped drive the streaming product’s success. “ESPN’s primary platforms are fantastic marketing tools. You can obviously expect that we will use Disney’s strong marketing platforms for the Disney+ service.”

Disney will offer more detailed information on its direct-to-consumer strategy at a planned Investor Day in April.

For the quarter, revenue was flat at $15.3 billion and segment income was down about 8% to $3.65 billion. It its Media Networks unit, revenue was up 7% to $5.9 billion and segment operating income rose another 7% to $1.3 billion. Cable network revenue was up 4% -- fueled by a 3% increase in ad sales at ESPN -- while broadcast revenue increased 12% in the period. Cable network operating income fell 6% in the quarter while it increased 40% at its broadcasting segment.

Studio entertainment took the biggest hit -- revenue was down 27% to $1.8 billion and segment operating income fell 63% to $309 million, due to poor theatrical comps -- the prior year saw the release of Star Wars: The Last Jedi and Thor: Ragnarok while the most recent quarter had Mary Poppins Returns and The Nutcracker and the Four Realms. 

Viacom is the latest programmer to take the direct-to-consumer distribution plunge, agreeing Tuesday to  purchase free streaming service Pluto TV for $340 million in cash.

Pluto, founded in 2013, streams more than 100 channels and thousands of hours of on-demand content in an ad-supported service with more than 12 million users. Pluto is accessed via devices from Roku, Amazon Fire TV, Android TV, Apple TV, Chromecast, and Sony PlayStation consoles, as well as built-in integrations on smart TVs from Samsung and Vizio, and mobile apps on Android and iOS. With Pluto, Viacom joins the ranks of larger programmers and distributors like The Walt Disney Co., NBC Universal and AT&T that have announced direct-to-consumer initiatives.

The purchase creates a scaled DTC offering for Viacom content  via Pluto TV's 12 million customers, as well as a marketing tool for the programmer's targeted subscription products, including Noggin and Comedy Central Now. The buy also provides an additional distribution outlet for Viacom Digital Studios’ content, beyond the existing AwesomenessTV channel on Pluto TV.

“Today marks an important step forward in Viacom’s evolution, as we work to move both our company and the industry forward,” Viacom CEo Bob Bakish said in a statement. “Pluto TV’s unique and market-leading product, combined with Viacom’s brands, content, advanced advertising capabilities and global scale, creates a great opportunity for consumers, partners and Viacom.

“As the video marketplace continues to segment, we see an opportunity to support the ecosystem in creating products at a broad range of price points, including free,” Bakish continued. “To that end, we see significant whitespace in the ad-supported streaming market and are excited to work with the talented Pluto TV team, and a broad range of Viacom partners, to accelerate its growth in the U.S. and all over the world.”

The Pluto acquisition will help Viacom move forward with several key initiatives, including expanding its presence across next-generation distribution platforms and growing its advanced advertising business, the company said. For Pluto, access to Viacom’s global reach, well-known brands and large programming library will help bolster its position in the free streaming video market in the U.S. and globally.

“Since our launch less than five years ago, and particularly over the past year, Pluto TV has enjoyed explosive growth and become the category leader in free streaming television," said Pluto TV CEO and Co-Founder Tom Ryan in a statement. "Viacom’s portfolio of global, iconic brands and IP, advanced advertising leadership and international reach will enable Pluto TV to grow even faster and become a major force in streaming TV worldwide. Viacom is the perfect partner to help us accomplish our mission of entertaining the planet.”

Ryan will continue to serve as CEO of Pluto TV, which will operate as an independent subsidiary of Viacom upon closing of the transaction, which is expected to occur in the first quarter of this year.

Paul Hastings, Covington & Burling and Shearman & Sterling served as legal counsel to Viacom. Gunderson Dettmer and Hogan Lovells served as legal counsel to Pluto TV, and LionTree Advisors served as financial advisor to Pluto TV.

With the launch of its latest direct-to-consumer offering -- Disney+ -- scheduled for later this year, The Walt Disney Co. recast three years of financial data to better reflect its new structure, and revealed that losses at its DTC and international channels more than doubled in fiscal 2018 to $738 million from $284 million in the prior year.

Disney said it will demonstrate Disney+ as well as preview some of the content that will be available on the service at a planned Investor Day meeting on April 11.

The recasting is not a restatement -- the numbers are the same that Disney had reported in its fiscal 2018 results. But it shows in some detail the losses the company has incurred from its streaming services, its stake in Hulu and its purchase of BAMTech, the technology company that serves as the foundation for those streaming services, in 2017. 

“Acquiring BAMTech enabled us to enter the DTC space quickly and effectively, as demonstrated by the success of ESPN+,” Disney chairman and CEO Bob Iger said in a statement. “The service surpassed one million subscribers in its first five months and continues to grow as it expands its content mix, all of which bodes well for our upcoming launch of Disney+. The ability to connect directly with millions of Disney, Pixar, Marvel, and Star Wars fans creates tremendous opportunities for growth. In addition to leveraging our existing IP in new ways, we’re making significant investments in original content exclusively for Disney+, creating an impressive pipeline of high-quality movies and series we believe will make the streaming service even more compelling for consumers.”

Disney launched its first DTC product in April -- ESPN+ -- and it has been a partner with Comcast, 21st Century Fox and WarnerMedia for years in streaming service Hulu. According to the SEC filing, Disney’s share of Hulu losses in fiscal 2018 were $580 million, compared to $421 million in 2017.

Disney is expected to emerge the majority owner of Hulu after its $71.3 billion purchase of certain Fox assets closes, anticipated by the end of the first quarter.

“Our top priority is fully leveraging our global brands and great content to create world-class direct-to-consumer entertainment,” Iger continued. “We have the structure and management in place to drive growth in our DTC business, and our acquisition of 21st Century Fox further enhances our ability to deliver significant value to consumers and shareholders.”

Liberty Media chief John Malone said the proliferation of direct-to-consumer offerings from programmers is likely to create opportunities for deals involving the smaller companies left behind.

Over the past few years, programmers have increasingly moved toward distributing their own content themselves, most recently with the Walt Disney Co., launching its direct-to-consumer sports offering -- ESPN + -- in April and plans to launch an entertainment focused offering -- Disney + -- in 2019.

That could mean that small, independent content companies, which Malone calls free radicals, may have to think fast to either start their own DTC offerings, or join forces with larger entities.

“Are there other free radicals around,” Malone said at Liberty’s annual Investor Day in New York. “Certainly on the video side. This change of the power of the direct-to-consumer distributors on a global basis is creating some orphans, Whether or not those orphans could be aggregated or at least have synergies in combination, I think is an important thing you will see over the next couple of years. Not everybody is going to be able to do a global direct-to-consumer platform. Many will be trying to move into that space as a supplier or a player, perhaps in some cases branded or in other cases as part of the food chain. There is no question going to be dislocation that will be offset by synergies of combination. I think you can expect a lot of transactions.”

Related: Inside the Curious Mind of John Malone

Malone used Discovery's purchase of Scripps Networks earlier this year as an example.

Discovery and Scripps, he said, are “two companies facing the same challenges but in the short term taking advantage of the synergies to create a stronger and more durable enterprise while they figure out what the long-term strategy is in a transitioning industry.”

Malone added that broadcasters could also be considered “free radicals.”

“Their retransmission extraction is really just the monetization of some large sports contracts,” Malone said. “Because without those large sports contracts they would not be receiving these fees from distributors. Their entertainment programming is being supplanted by the Netflixes of the world and they really don’t have the budgets to compete in the creation of this kind of content. And their advertising revenue is being eroded by the database-rich approaches of Google and Facebook. They’re in an awkward position. If they lose or see those sports contracts get much more expensive, they’re going to have a very difficult time.

“So the question is, ‘What do they do?’” Malone continued. “ Are they becoming free radicals, or can they be protected by the collective? The speculation is the best buyer for regional sports is going to be Fox itself, the previous owner. Why? Because they they have lot of market power they derive through the collective of Fox News, the broadcast network and therefore regional sports could be more valuable to them than to others.”

Related: The Curious Case of the RSNs

Malone had similar insights to TV and movie production studios, which he said initially saw Netflix as just another buyer of content.

“Initially it was, ‘Oh boy, Netflix needs a lot of content and they are going to lease it from us.’” Malone said. “Then it became ‘they are going to buy it from us but we can keep some rights.’ Then it became ‘they are going to buy it from us and we don’t get to keep any rights.’ Then it got to be ‘if we don’t deal with them, then they’ll go to our producers and talent and do it themselves.’ You get this disintermediation that takes place, and the traditional role of the studio starts to disintegrate, because of this changing monetization that Netflix started. The studios have got to figure out ‘do we get together and get bigger,’ which you saw Disney and Fox do. I think you see a lot of public vehicles right now that are or will become free radicals.” 

Walt Disney Co. chairman and CEO squashed any speculation that the entertainment powerhouse would run roughshod over its partners in Hulu once it gains control of the online video pioneer next year, telling analysts that the Mouse House will make any decisions with “an eye toward being fiscally responsible to the other shareholders.”

Disney will control 60% of Hulu once it closes its purchase of certain Fox assets by the end of the first half next year, but it will still have partners in Comcast-NBCUniversal (with 30%) and AT&T (with 10%). While speculation has been that Disney will try to buy the others out -- although some analysts hope Comcast will hold on to its stake just to tweak Disney’s nose -- Iger said the plan is to pump Hulu up with as much original programming as possible.

Iger said the intention is to increase investment in Hulu, particularly on the programming side.

“We aim to use the television production capabilities of the combined company to fuel Hulu with a lot more original programming,” Iger said on a conference call with analysts to discuss fiscal fourth quarter results.

Iger added that will also include ad-supported programming on the service. He noted that Hulu subscribers are generally 20 years younger than traditional network viewers, which he said is underappreciated but should be incredibly attractive to advertisers. He also added that with its high-quality content, there is an opportunity to increase pricing at some point.

Hulu will stick to general entertainment programming, Iger said, leaving more family oriented fare to its other direct-to-consumer offering, Disney +, which is expected to launch later in 2019. Iger gave some more details on the service besides its official name -- some analysts had taken to calling it Disneyflix, in deference to Netflix, the SVOD service many believe it is emulating -- adding that the service will be loaded with content from Disney, Pixar, National Geographic and the Marvel and Star Wars universes.

Disney reported one of its strongest quarters ever -- revenue was up 12%, operating income grew 17%, spurred mainly by huge gains in its Studio Entertainment division -- where revenue rose 50% and operating income nearly tripled. At its Media Networks, which includes cable and broadcasting networks, revenue increased 9% and operating income rose 4%. Broadcasting drove most of those gains with 21% revenue growth and a 6% hike in operating income. At the cable networks, revenue rose 5% and operating income declined 6%.

While Disney has focused intently on its direct-to-consumer offerings, Iger stressed that it is not abandoning its more traditional lines of distribution. But it also sees the handwriting on the wall.

Iger said Disney wont "de-prioritize" or "sacrifice" traditional distributors, but added, "We’re also realists. We see what’s going on in the marketplace. We see the growth of new platforms and program consumption versus channels consumption.”

Iger said it's too early to tell when that shift will happen, adding that if the company sees opportunities to move programming to DTC, it will do that.

“We can’t right now estimate in any way if that will happen,” Iger said.

Discovery said it has promoted former EVP and general manager of Digital Media Karen Leever to president, U.S. Digital Products and marketing, where she will oversee the programmer’s existing digital products as well as its U.S. direct-to-consumer efforts.

According to Discovery, Leever will continue to oversee its suite of 18 TV Everywhere GO apps and manage the design, development, engineering, analytics, operations and monetization of the company’s U.S digital businesses. Additionally, she will spearhead Discovery’s domestic direct-to-consumer endeavors. She will report to Discovery Global direct to consumer CEO Peter Faricy.

“Over the past three years, Karen has brought us where we are today with GO, building an incredibly successful, mobile-first TV everywhere business that our superfans love and helping to attract new, younger audiences to our brands and programs,” Discovery CEO David Zaslav said in a statement.

As EVP and GM of Digital Media at Discovery, Leever was responsible for extending the reach of Discovery’s digital brands and businesses in the U.S. She launched the company’s mobile-first suite of TV Everywhere GO apps, which now generate more than 40 million streams per month and include 40,000 titles of live and on-demand content. Leever also led strategy, design and development for the GO apps and was responsible for driving design and development of Discovery’s network websites. She implemented the company’s first full-service digital agency, focusing on acquisition and content strategy, product ideation and development, analytics and tech.

“It is terrific to join a company with such a great digital team already in place,” Faricy said in a statement. “A strong, experienced executive, Karen has been an integral part of Discovery’s pivot to a digitally focused company and is the perfect person to lead the charge as we move forward. I am excited to collaborate with her.”

Prior to Discovery, Leever spent 10 years at DirecTV, most recently as SVP Digital and Direct Sales, driving the satellite television company’s business. While at DirecTV, she also drove new subscription acquisition growth, digital product strategy and all cross-platform digital efforts. 

Before DirecTV, Leever led the planning, launch and operations for a revamped kmart.com as vice president of E-commerce and Marketing. Earlier, she spent more than a decade in electronic TV retailing both at HSN and QVC, overseeing website design, messaging, pricing and programing strategies.

“It has been wonderful to collaborate with Discovery’s iconic portfolio of networks to expand their reach and bring their world-class content to superfans on new platforms and devices anytime, anywhere,” Leever said in a statement. “I am honored to work with such an amazing team who has reimagined the way our viewers watch television and so look forward to being a part of the next chapter in Discovery’s story.”

The recent launch of new direct-to-consumer sports services is quickly changing the game, as professional leagues and other sports entities contemplate playing ball with industry rookies to increase greater awareness and sales opportunities.

Season-long, out-of-market live game packages from Major League Baseball (MLB.tv) and the National Hockey League (NHL Center Ice) have become part of the upstart ESPN+ direct-to-consumer service lineup, and the National Basketball Association’s NBA League Pass is taking its shots from inside Turner Sports’ Bleacher Report Live (B/R Live) DTC offering this fall. Against this backdrop, industry observers said the now wide-open field of standalone sports league and conference OTT offerings could be winnowed down to a handful of big, conglomerated DTC entities in the near future.

“These very elaborate, multi-sport [DTC] services aspire to be a Netflix of sports, and it certainly seems like they’re making substantial progress in doing so,” sports television consultant Lee Berke said.

Related: Sports Streaming Picks Up the Pace

The current roster of standalone subscription OTT sports services features a number of live out-of-market game packages ranging from the major pro sports leagues to college conferences such as the Atlantic 10 to smaller pro sports leagues such as the National Lacrosse League. Most of the packages operated independently from other digital services until this year, when B/R Live and ESPN+ launched with agreements to add many of the OTT services under their respective banners.

Berke said the emergence of DTC services like ESPN+, Bleacher/Report Live, CBS Sports’s CBS Sports HQ — with huge digital footprints and significant resources — have provided another platform for standalone sports networks to distribute and sell their content while maintaining their core OTT product for the diehards.

“Everybody is looking for as much shelf space as possible, so they will increasingly look to offer standalones or create partnerships with other entities and run the services side by side,” Berke said. “As long as the programming is being sold and watched, they’ll try all these different things out.”

Bleacher Seats

Turner, which launched its Bleacher Report Live in April, will offer several OTT sports services within its app, including NBA League Pass — which Turner Sports distributes in association with the league — and the National Lacrosse League’s out-of-market service for the 2018-19 season, which last year was offered at a suggested retail price of $49.99.

Related: Turner to Launch Streaming Service Bleacher Report Live 

While Bleacher Report Live is offering all of its live events — which include Spring League football games, the World Arm-wrestling League and UEFA Champions League soccer games — for free as part of the service’s introductory offer, eventually consumers will be able to purchase sports content through B/R Live by subscription or on an individual-game basis, according to Turner Sports president Lenny Daniels.

B/R Live will support its league partners with marketing and promotional opportunities across the full spectrum of the services, he added.

“We’re not paying for the rights and saying go away — we’re partners through and through, and we’re going to help them sell their services,” Daniels said. “You just can’t pay someone a rights fee and say we’ll see you in a couple of years — it just doesn’t work like that anymore.”

Along with offering the NHL and MLB out-of-market packages, the ESPN+ service last week secured digital rights to the Atlantic 10 Conference, which gives the $4.99 per month service rights to more than 500 college sports events per year. Those events were previously available through the conference’s website, with consumers paying an average of $9.95 to $14.95 per month to access them.

Related: ESPN Makes Direct-to-Consumer Pitch With ESPN+

The Atlantic 10 deal adds to an already strong price-value proposition for ESPN+, which will offer thousands of live sports events for less than $5 per month.

“There’s just an incredible amount of sports content, and the fan affinity for all the different sports out there just make it a very rich environment for the fan,” said ESPN executive vice president and chief technology officer Aaron LeBerge.

Berke, who consulted on the ESPN+-Atlantic 10 deal, believes more standalone OTT sports services will look to partner with other DTC services for the opportunity to increase sales and marketing opportunities.

“You’re going to want to partner up with [DTC] services that are highly distributed and that have substantial resources behind them,” Berke said. “You’re seeing properties partner up with very well-financed and well-distributed OTT platforms to gain eyeballs and distribution.”

That outreach also extends to the traditional pay-per-view business. ESPN+ will offer for purchase UFC’s monthly pay-per-view fight cards beginning in 2019 as part of its recent five-year, $1.5 billion TV deal with the mixed martial arts outfit reached last month.

While UFC will not offer its globally distributed Fight Pass OTT service within ESPN+, UFC chief operating officer Lawrence Epstein said the MMA outfit’s PPV events will benefit greatly from the additional editorial coverage from ESPN’s linear and digital outlets. The PPV preliminary fights will air on the flagship ESPN channel as part of the deal.

“We see this as a massive enhancer to the growth of our PPV business,” Epstein said. “Everyone was focused on the numbers associated with the ESPN+ and ESPN broadcast deal, but the enhancement to PPV, which is still a big part of our business, is going to be incredible.”

It’s unclear whether ESPN will charge the same suggested retail price for the UFC PPV events as the linear cable distributors. Epstein added that the licensing fee deals with traditional PPV distributors such as In Demand and DirecTV are up at the end of this year, but would not provide details on negotiation points.

“The splits are clearly better for content owners in the digital landscape than they are for traditional cable and satellite distributors, at least for right now,” Epstein said.

Sports executives said they can envision creating new packages exclusively for the DTC services.

The NBA in particular would potentially look to expand NBA League Pass — which already includes full-season, per-game and per-team subscription offerings — to include live game micro-transaction buys in which consumers would be able to purchase live games in progress, potentially beginning at the start of the fourth quarter.

NBA commissioner Adam Silver said during Turner’s March B/R Live press conference that the micro transactions through B/R Live, targeted toward fans with limited free time who want to catch an exciting end to a game or a spectacular performance from a player, will further enhance the league’s already popular league out-of-market package without cutting into traditional package purchases.

“The advantage we have online as opposed to traditional cable systems is that we can test and respond in real time,” Silver said. “We can set price points and experiment with different ones.”

The potential marketing and promotional opportunities aren’t lost on other standalone OTT sports content providers. FITE TV, which offers more than 60 live boxing, wrestling and mixed martial arts matches per month, would be interested in partnering with an ESPN+ or B/R Live for distribution of its PPV events, chief operating officer Michael Weber said, although no negotiations are ongoing. While the company has a strong technological backbone delivering its PPV events as well as a comprehensive website and FITE TV app, Weber said the company’s events would gain more exposure if packaged with a larger DTC sports service.

“Building a relationship with someone who could build off of our technology platforms would be very welcome,” he said. “We also bring a lot to the table that could help them as well.”

While the partnerships benefit both parties, Daniels doesn’t believe the leagues will abandon their standalone OTT offerings anytime soon.

“A lot of people are wondering if consolidation is going to happen,” he said. “Maybe long-term, but I think leagues like the NBA will continue to do their own thing, and I think they need to because there are fans that will want to go all in on a particular league. I think they can co-exist.”

Add the direct-to-consumer subscription video market to the growing list of segments dominated by online retailer Amazon. More than half of all direct-to-consumer subscription video purchases are made through Amazon Prime Channels, with its dominance particularly pronounced with premium TV apps from HBO, Showtime and Starz, according to a study conducted by The Diffusion Group,

More than half of HBO direct-to-consumer subscribers used Amazon Prime Channels to purchase their service, according to TDG’s most recent research report The Future of Direct-to-Consumer Video Services - Analysis & Forecasts, 2018-2022. The rate is even higher for Showtime (72%) and Starz (70%), while only about 30% use the individual TV network's website or app.

"While Amazon Prime Video continues to receive the lion's share of attention from industry media, Amazon has quietly built a stronghold in the burgeoning direct-to-consumer market," TDG president Michael Greeson said in a statement. "Even with Apple's pending entry into this space, we expect this dominance to expand further in the next five years."

Apple is said to be readying a new feature in its TV app that will allow viewers to purchase subscriptions to networks and third party streaming video services directly rather than having to download individual apps from its App Store. The service, according to some in the industry, appears to be modeled after Amazon Prime Channels. 

Greeson added that currently, Amazon gets a cut of direct-to-consumer sales and owns the customer relationship, while the content partners handle hosting, streaming and customer support. If Apple could wrangle similar deals, TDG predicts it will be successful given it does not require a $120 annual fee from customers just to access the service like Amazon does. TDG estimates that TV direct-to-consumer subscriptions will increase four-fold in the next five years.

Critics of AT&T’s pending $108.7 billion purchase of Time Warner have pointed to the myriad dangers of consolidating large content and distribution companies – but some analysts say the environment is already headed in that direction.

The U.S. Dept. of Justice has already said it would block the AT&T-Time Warner merger, with the parties scheduled to go to court to state their cases on March 19. Whatever the outcome, the rush for scale won’t be slowed, UBS Securities telecom analyst John Hodulik said.

Related: Feds Lay Out Court Strategy for Blocking AT&T-Time Warner

Hodulik — who believes the deal will be approved — cited in a research note the steady decline of traditional TV distributors, the accelerated push for heft and the inevitable move to direct-to-consumer services as catalysts for more deals. Subscribers to traditional pay TV providers have declined by about 50% since 2010 and dipped 14% in 2017 alone, he noted.

OTT Has Changed Everything
“OTT is clearly the future of video distribution,” Hodulik wrote, and is likely the main driver behind the mega content deal between The Walt Disney Co. and 21st Century Fox, Comcast’s unsolicited bid for British satellite TV company Sky and CBS’s moves to revisit a recombination with corporate sister Viacom.

Hodulik argued that government fears that a combined AT&T-Time Warner would limit content choices and drive up prices run counter to the OTT-inspired shift. And if AT&T isn’t allowed to purchase Time Warner, another company will.

Earlier this month, at an industry conference, CBS chief operating officer Joe Ianniello called the current environment an “arms race” to accumulate content needed to drive direct-to-consumer products.

Ianniello said CBS All Access, the broadcaster’s own OTT product, will add six to seven new shows in the next 12 months, just to compete with the likes of Netflix and other providers. “We’re doubling down,” he said.

Hodulik thinks the land rush for content is warranted. He predicted that virtual multichannel video programming distributors such as Sling TV and DirecTV now will nearly triple their subscriber bases from about 5.5 million in 2017 to 15.1 million by 2020.

Watch MCN: vMVPDs by the Numbers

At the same time, pay TV subscribers, down 3.6% in 2017 to 95.4 million customers when vMVPDs are included, are expected to dip another 4.4% in 2018 to 91.2 million, according to the analyst.

Cable Gets Into the Act
Hodulik said traditional distributors dipping their toes in the vMVPD waters — like Comcast and Charter Communications — will make the full plunge in the next few years.

Comcast introduced Instant TV in late September, a package of broadcast and education channels for $18 per month, to compete with Sling TV and DirecTV.

Charter unveiled its “Choice” package — 25 channels for $21.99 per month — earlier this year.

Mostly because of a desire not to cannibalize existing, higher margin businesses, the offerings haven’t been broadly offered. That is about to change, especially as streaming services gain scale, Hodulik believes. He said he thinks it won’t be long before their OTT offerings mirror their existing video packages.

“We believe scale benefits will eventually lead cable to offer streaming TV services out of region, likely in conjunction with a wireless offering,” he wrote.

Seeing select premium networks alongside a few other channels going direct-to-consumer (DTC) with streaming services is more than a passing fad.

Citing the ongoing unbundling of cable TV packages in the coming years, The Diffusion Group predicts that all “major” TV networks will introduce OTT-powered, direct-to-consumer services by 2022.

That, of course, would build on several of the services that have already been launched, such as HBO Now, Starz, Showtime and CBS All Access, as well as those that are in the plans from The Walt Disney Co., including ESPN Plus, among others.

RELATED: ESPN Plus Is Name of New Streaming Sports Service

Mike Berkley, TDG’s senior advisor and author of the report -- The Future of Direct-to-Consumer Video Services - Analysis & Forecasts, 2018-2028 – said those mark the “early signs of an emerging media tribalism.”

TDG predicted that the move by major networks to go OTT and reserve their best content for direct-to-consumer offerings will help drive total DTC subscriptions close to 50 million by 2022.

"Big media companies are reacting more boldly to changes in TV viewing behavior," Berkley added. "Consolidating, bulking up on originals, and marketing directly to consumers are driving their strategic direction."

He also stressed that DTC strategies by networks are also risky and could damage their relationships with traditional distributors.

“If networks extract too much high-value content too quickly, channel conflicts are inevitable,” he said.

Viacom CEO Bob Bakish said that while he expects to see modest growth at its traditional linear networks over time, mobile will be the real engine for the content company.

Bakish, speaking at the Morgan Stanley Technology, Media & Telecom conference in San Francisco, pointed to Viacom’s recent deal with wireless carrier Telefonica to license its content brands to the telco’s Movistar Play mobile video offering in Latin America.

“That’s a look at things to come,” Bakish said. “We’re also in a very interesting conversation in the U.S. about bringing our brands to mobile and I believe that will happen in 2018 a well.”

Bakish also hinted at a direct-to-consumer offering that leverages more than 10,000 hours of library content in a “differentiated way” and is complimentary to its MVPD relationships that could come later in the year. He declined to give further details.

“I realize that sounds kind of cryptic, but it’s an opportunity we’re very excited about and you will hear more about later in the year,” he said.

On the linear front, Bakish said Viacom lost about 2.5% of its subscriber base in Q4, an improvement over the 3.5% loss of two quarter ago. Deals with OTT providers like DirecTV Now and Sling TV made the difference and he said Viacom is in talks with additional OTT companies for carriage of its networks.

Bakish said he has “modest expectations,” for its domestic linear TV networks – he predicted mid-to-high single digit percentage growth at its Media Networks in fiscal 2019. But that growth will be mostly driven by advanced advertising, film and TV production, international and social media opportunities.

NBC Sports Group has extended its national direct-to-consumer streaming sports strategy to the regional level with the creation of a 15-game over-the-top package involving the National Basketball Association’s Portland Trail Blazers.

Starting Monday, Dec. 11, the $39.99 Blazers Pass, available to viewers within the footprint of the Blazers' television market, will offer a package of 15 games to cord-cutters and cord-nevers, as well as subscribers of pay TV providers that don’t have a distribution deal for the RSN. Multichannel News programming editor R. Thomas Umstead spoke with David Preschlack, president of NBC Sports Regional Sports Networks and Platform and Content Strategy, about Blazers Pass and if the company’s live sports streaming strategy would extend to other NBC-owned regional sports services. Here’s an edited transcript of their conversation.

MCN: Why did you choose the Trail Blazers and NBC Sports Northwest to launch an OTT service around?
David Preschlack: This was part of the recent rights deal we completed last year, where we procured all the games. Before that, there was a broadcast package of 20 games, so we wanted to buy a pay TV exclusive product to provide value to our distribution partners. Then, we wanted to work in this DTC [direct-to-consumer] concept as a way to experiment in the Portland marketplace. We have a series of products ranging from the English Premier League to track and field, cycling, rugby and motocross to [our] domestic and international products, so it’s not a new concept to NBC Sports.

MCN: Do you believe there’s enough fan interest in paying for an OTT service on the regional sports level?
DP: As consumer habits are changing at a national level, consumer habits are changing on a regional level, too, and we felt that it was important in the context of our rights deal to have the ability to experiment by taking a subset of the games and selling them direct-to-consumer. In this particular case, that’s what we’re doing with 15 Blazers games. As has been reported, those 15 games will co-exist with the network, so fans who receive NBC Sports Northwest through our multichannel provider partners will have access to the games as well. The world is changing and our feeling certainly is that you have to embrace that and try to serve our fans in a way that’s reflective of a changing marketplace.

Related: NBC Sports to Launch 'Premier League Pass' OTT Service

MCN: Does Blazers Pass become the template for what NBC Sports will look to do with its other RSNs?
DP: I think it’s too early to tell. Markets are different and rights deals are different, so I don’t think that we’re wedded to kind of any one approach going forward in terms of establishing direct relationships with fans. We’re certainly open-minded about how the industry and the regional sports landscape is evolving, and we want to continue to push the envelope to serve all different types of fans. We’re not living in an environment where one size fits all, and you’re seeing that in a variety of different ways.

The bundle is still a great product at a great price for a lot of consumers, but there are also fans and consumers gravitating towards digital [multichannel video programming distributors] MVPDs like Hulu or YouTube TV and that’s a great product for them. There are also some fans that are gravitating towards a product of 15 high-quality games for $34.99 — and by the way, we’ve already got some orders for the product. So we’re trying to provide the best value proposition that we can to as many fans as we can. How that evolves in other markets remains to be seen.

Related: NBC Sports Rebrands Comcast RSNs

MCN: Overall, how do you see the regional sports business evolving as it pertains to a changing content distribution environment?
DP: I really believe that these types of experiments/product offerings are really, really well situated for regional sports networks to take advantage of. We’re targeted towards the region and in order to scale something like this, it’s obviously a lot less work than if you wanted to scale a product nationally. It enables us to kind of come in and get our hands dirty in the market. We have a lot of boots on the ground in Portland running our network, so we can learn and figure out how this can influence serving our fans better going forward.

I’ve always viewed the regional sports networks as incredible opportunities to experiment as the [TV sports] business in the broadest possible sense continues to evolve, and this is an example of that. We’re obviously going to watch this closely, and while we do not have any other plans right now to do anything like this in other markets, we’re going to be testing other things. It could be new ad technologies; it could be how we partner with different content companies; it could be a lot of different things.

The good news is, when you’re focused on experimenting in a market as opposed to nationally, you can do it quickly and efficiently, and then to the extent that things work, it’s completely scalable.

NBC Regional Sports Networks has jumped into the direct-to-consumer market by launching NBC Sports Gold’s Blazers Pass, a streaming product that lets fan buy 15 telecasts of the NBA's Portland Trail Blazers games without subscribing to cable.

The Blazer Pass costs $34.99 for all 15 games, with a 10% discount if purchased by Dec. 1.

NBC Sports Northwest will continue to offer Trailblazer games on traditional TV and streaming via its TV Everywhere app,

“When we set out to renew our rights last year, distribution was a top priority,” said David Preschlack, president, NBC Sports Regional Networks and Platform and Content Strategy. “In today’s media environment, fans have the ability to follow their favorite teams in a variety of ways. We’re pleased to offer Rip City this new DTC product, so that fans can follow Damian Lillard, CJ McCollum, Jusuf Nurkic, and the team during key games. In addition, we’re pleased to offer NBC Sports Northwest customers access to more games than ever before.”

NBC Sports has gotten into the direct-to-consumer game by offering Gold Passes to sports including Premier League Soccer, rugby and cycling.

“NBC Sports Regional Networks has worked hard to make our games accessible to our passionate fan base,” said Chris McGowan, president and CEO of the Trail Blazers. “This DTC offering is another example of our two organizations working together to provide a way for all fans in the region to watch across any platform. We continue to make access to our games a top priority."

NBC Sports Gold is available on Apple iOS, Android, Apple TV, Roku, Amazon Fire TV and Chromecast platforms and online at NBCSportsGold.com. NBC Sports Gold is powered by Playmaker Media, NBC Sports Digital’s technology service.

Blazers Pass subscribers will also receive a complimentary gift package, and will be entered into a monthly drawing for a chance to win a pair of tickets for a courtside experience to a home game. Fans can also enter at http://www.nbcsports.com/blazerspass.

Discovery Communications is positioning itself to help distributors find the net while looking for new content to fill traditional and non-traditional pay TV offerings both in the U.S. and internationally, CEO David Zaslav told analysts Thursday.

On a conference call with analysts to discuss third-quarter results, Zaslav said Discovery sees its pending purchase of Scripps Networks Interactive in furthering that strategy, giving it the compelling content that traditional and non-traditional distributors crave.

Zaslav said that the future seems to be pointing to large tech companies like Google, Amazon, Facebook and Apple getting deeper into the content delivery weeds. But as they expand their offerings, they’re going to need to partner with content creators.

Related > Facebook Willing to Experiment With Video

“We think that if Apple wanted to do a deal with one person and offer a Family Pak everywhere in the world, or if Facebook wanted to do that or Amazon or if the mobile players wanted to do it in Europe, who could they go to?” Zaslav asked on the call. “There [are] very few companies; it’s maybe less than three.”

Discovery and Scripps, which have established worldwide brands, are among that group.

“We see Scripps as a beginning,” Zaslav said. “Within two years we will be less than three-and-a-half-times levered. And we will be looking for what other IP do we have, how do we accelerate direct-to-consumer, how do we accelerate our overall market share. We think we are trying to be where the ball is. We see those big distributors are looking more and more for the ball, and the ball for them is content.”

Related > Discovery-Scripps: Thin Is In

Zaslav has been a big proponent of skinny bundles, and he has continued to point out how in Europe, sports-free packages are prevalent. On the call he said that the lack of a compelling non-sports bundle is one of the factors in the 3% decline in pay TV subscribers, and predicted such smaller offerings would become prevalent in the U.S., eventually.

While Discovery has had success with smaller bundles in Europe, it has been missing from key offerings in the U.S. from Hulu and YouTube. But Zaslav pointed out that Discovery is on DirecTVNow and Sony PlayStation Vue and is in talks with other OTT providers for carriage, He hinted that could come after the Scripps deal closes, expected early next year.

About a month after announcing plans to offer two direct-to-consumer offerings tied to its ESPN and Disney brands, Walt Disney Co. chairman and CEO Robert Iger offered more details on the products, including the inclusion of its Star Wars and Marvel films in the Disney-branded app, slated for a late 2019 release.

Disney announced plans for the DTC offering in early August. The content giant plans to launch a direct-to-consumer ESPN app in spring 2018 and a Disney app in late 2019. When it was first unveiled, Disney said the ESPN offering would include about 10,000 games, including contests from Major League Baseball, Major League Soccer and colleges that are not currently aired on its ESPN linear channels. The Disney app would include content not shown on its linear Disney Channel, but will have archive movies that are currently part of its output deal with Netflix, which is slated to expire in 2019. http://www.multichannel.com/news/content/disney-set-launch-direct-consumer-services/414481

When it announced the DTC initiatives, Iger said it hadn’t been determined whether its Star Wars and Marvel franchises would be included in the app. Now they will, in addition to other original content.

“We’ve now decided to put the Marvel and Star Wars movies on this app as well,” Iger said at the Bank of America Merrill Lynch media conference in Los Angeles Thursday. “It will have the entire output of the studio – animation, live action and Disney, including Pixar, Star Wars and all the Marvel films. In addition to that we have been spending a fair amount of time developing original content on the movie side for the app. The studio is already dev and will produce four-to-five original films exclusively for the app, primarily live-action.”

He added that its studio library product will be available, about 400-to-500 films, and on the TV side it will create 4-to-5 Disney branded TV series and 3-to-4 TV movies for the app. Television library content also will be available.    

Pricing for either app hasn’t been released yet, but the Disney chief said it could be announced for the ESPN app by the first of the year.

Iger, said he envisions the direct-to-consumer products to offer content much like Apple’s ITunes music service to offer a customized experience.

“Think of what ITunes is,” Iger said. “Where you will be able to go to the platform and actually buy, almost  on an a la carte basis, a sport, a sporting event, a season, a league, maybe a conference as a for instance. You'll be able to pick and choose over time what it is you want, it won't necessarily be a one-size fits all. We may launch it that way, but the goal eventually is to create something that a sports fan can essentially use to design what their sport media experience can be.”

Iger also addressed ESPN’s slipping subscriber base, adding that while there has been some decline, he still believes the network and other Disney properties will negotiate from a position of strength in upcoming carriage renewals. Iger said that he is currently negotiating with one large distributor – he didn’t identify it – and said that more than 50% of its subscriber base comes up for renewal by the end of 2019.

Iger said that despite worries over declining ratings across the industry, live sports is still strong and ESPN’s rights are deep and “quite attractive.”

“As we enter a new cycle of extensions with traditional distributors, we are well positioned,” Iger said. “We intend to drive significant value in those negotiations, I think you have to look at it as a blend of distribution and price. We intend to use the strong hand that we have and the brands that we have as we negotiate these new deals.”