HBO, Showtime and Starz are merely using Amazon Channels as an intermediary to reach viewers, substituting for the role played by conventional multichannel video programming distributors rather than providing true "direct-to-consumer" services, according to a new research note from BTIG Research's media/cable analyst Richard Greenfield.

He calculated that half of HBO Now subscribers and 75% of Starz viewers watch those networks' shows via Amazon Channels, a service for Amazon Prime members, while "the vast majority" of Showtime online viewers come in via Hulu add-ons, he said.

These factors auger early signs that virtual MVPDs "are cannibalizing" traditional cable, satellite and telco TV operators -- an “elephant in the room” topic that "nobody talked about at the 2017 TV Upfronts," Greenfield said.

At the same time, the ease of cancelling vMVPD accounts should make investors cautious about "who is in/out of each bundle" since subscribers don't need to commit to a full year at any time.

Amazon, Netflix, Hulu and over-the-top video factors constitute six of the "baker's dozen" topics in Greenfield's June "media thoughts."

"Direct-to-consumer has failed for cable networks," Greenfield said, refuting network programmers who "talk about their direct-to-consumer strategy and focus on their early success stories. "DTC is really just new, wholesale relationships. ... While it is phenomenal that premium channels such as HBO, Showtime and Starz are adding paying subscribers, they are not building a direct-to-consumer relationship."

He also pointed out that Amazon itself is a program producer. It can use its massive data analysis to monitor the choices of premium network customers and use that intelligence to commission its own, competitive programming.

In other OTT analyses, Greenfield compared the "bandwidth disparity" in usage of Netflix vis-à-vis Amazon and Hulu, noting that, "despite increased competition, Netflix’s ability to identify and either license or produce 'buzzworthy' content appears far better than its peers'."

He said he expects that Hulu's 2018 plan to revamp its next-day-delivery of ABC, Fox and NBC shows (for a higher fee) will convert Hulu into a "direct copy of Netflix and Amazon Prime Video," offering a combination of original programming and archived broadcast network shows.

Live and Cheap
Another new Amazon initiative -- which surfaced after BTIG published its June report -- could further appeal to cord-cutters seeking to reduce their media bills. The Greenfield analysis came within days of Amazon's announcement that it will offer Prime subscriptions for about half price (roughly $6 per month) to low-income customers, such as families who receive public assistance. That plan was greeted by an array of opinions, seen by some as an effort to move beyond mid- and upscale customers into the "Walmart shoppers" category -- many of whom may want to reduce their cable expenses.

Greenfield said cord-cutters are "embracing vMVPDs" with expectations they bring from the "legacy MVPD ecosystem." In particular, viewers expect live, real-time programming and easy-to-access program guides. As vMVPDs grow, "the majority of subscribers are going to be coming from the legacy MVPD ecosystem and they will want live TV surfaced faster, not to mention a traditional program guide such as Sling just added."

Greenfield's latest commentary reiterates a point he made in April, when he emphasized that Amazon's growing subscription relationships give it advantages that "legacy media executives need to pay attention to." At that time, he cited Amazon's chief financial officer Brian Olsavsky, who observed that the "volatility" in Amazon Prime activity was coming from the growth in digital video and music, and other digital services.

Greenfield concluded his current analysis by citing the power of Amazon's brand plus its "deep pockets, willingness to think longer-term than most other companies and incredible consumer data." Acknowledging that Amazon has stumbled in its early attempts to enter some categories, he warned that the company is "capable of iterating until they succeed."

Over-the-top subscription video-on-demand services are a black box in the sense that they don’t release viewership metrics, but new proprietary data analysis from Parrot Analytics attempts to penetrate the sector and peer at what lurks inside.

What Parrot found in the first quarter of 2017 is that, for the first time, a non-Netflix show was the most popular digital original series around the globe, as Amazon Video’s The Grand Tour — featuring the former BBC Top Gear trio of Jeremy Clarkson, Richard Hammond and James May — took the top spot in five out of 10 markets, including the United Kingdom.

Netflix’s Stranger Things was the top digital original in the U.S. in that period, but the surprise was that the announcement of the series’ season two release date, set for October 31, caused an average spike in demand of 262% in all ten global markets covered, Parrot Analytics found in latest quarterly Global Demand Report.

In the U.S., other events caused spikes in popularity in certain shows. Amazon’s Goliath, for example, got a lift in January when it won a Golden Globe, and Netflix’s Grace and Frankie ticked up when season three was released on March 24.

Season two of Hulu’s The Path premiered on Jan. 25, with episodes doled out weekly until April 12. Though that strategy didn’t follow digital’s typical binge-viewing model, The Path still saw demand rise under this more linear TV-like release schedule, the research firm said.

Among other regional examples, The Grand Tour, Stranger Things and Amazon’s The Man in the High Castle were the top digital original series during Q1 in the U.K. In France, three Netflix titles — Orange Is the New Black, Black Mirror and Stranger Things — led the way, while The Grand Tour, Stranger Things and Marvel’s Luke Cage were the top trio in Japan.

To determine that popularity, in the absence of hard usage data from each OTT service, Parrot Analytics bases its findings on what it calls Average Demand Expressions, relying on a platform that collects consumer demand data from several sources, including video streaming-media and social-media platforms, photo-sharing platforms, fan and critics’ ratings systems, as well as file-sharing platforms. Once that data is captured, Parrot Analytics combines it using an artificial intelligence system that pumps out a single measure of demand.

Though original titles from Netflix, Amazon Video and Hulu tend to rise to the top of the demand heap, Parrot Analytics also monitors demand for content from other sources, including YouTube Red (YouTube’s SVOD service), Crackle (Sony’s ad-based VOD service), and Seeso (NBCU’s comedy-focused SVOD).

Pay TV subscribers were leaving the ranks in the third quarter at about the same rate they did last year, but some analysts are bracing for the impact that new over-the-top offerings from DirecTV and Hulu might have on overall cord-cutting.

The pay TV industry lost about 486,000 subscribers in the third quarter, similar to the 436,000 net loss in the same period last year, according to MoffettNathanson principal and senior media analyst Craig Moffett. But if you add over-the-top provider Sling TV to the mix, the losses add up to 282,000 versus 277,000 last year.

Improvement in the cable sector, which lost 124,000 customers in the period vs. 218,000 in Q3 2015, wasn’t enough to offset continued heavy losses in the telco TV sector — down 365,000 subs in the quarter compared with 41,000 subs lost in Q3 2015 — and sluggish growth in satellite TV.

Leichtman Research Group president and principal analyst Bruce Leichtman estimated that pay TV lost about 255,000 subscribers in Q3, slightly higher than the 210,000 losses he estimated in the prior year.

“While the narrative is, ‘This market is falling apart,’ that’s not the reality,” Leichtman said. “What we’re really seeing is a market, which we have been seeing for the past four years, that is saturated and in slow decline.”

A WINTER OF DISCONTENT

But Moffett warned that while the seasonally weak summer months were stable, winter may be coming for the industry. AT&T’s DirecTV Now, the aggressively priced ($35 per month) 100-channel OTT service, is scheduled to launch later this month, and Hulu is expected to release its live-streaming service in the first quarter of 2017.

Moffett said pricing will be key. If DirecTV Now follows through with a $35 price point that is more than just an introductory base price — and Moffett is skeptical — the service could truly be the “game-changer” its management has spoken often about.

“AT&T is taking its content partners for a dance on the edge of a cliff,” Moffett wrote. “It is next quarter, and the quarter after, that will matter. The music has barely begun to play.”

In the meantime, traditional strong points for the pay TV sector continue to be pressured, with satellite and telco TV video losses mounting (see chart).

Dish Network continued to lose net new subscribers by the bucketful in the third quarter; it was down an estimated 320,000 subscribers, not including gains at Dish-owned Sling TV, according to Moffett. Including Sling TV gains of about 204,000 customers, Dish lost 116,000 net subscribers in the period.

At DirecTV, strong gains — 323,000 net additions — in Q3 couldn’t offset heavy losses at parent AT&T’s U-verse TV service. U-verse TV shed 329,000 video customers in Q3, three times the 92,000 subscribers it lost in the prior year, as it transitions customers to DirecTV’s satellite platform. Verizon Fios managed to add about 36,000 video customers in the period, even with last year’s 41,000 additions.

Leichtman saw the share shift between telco and satellite as more of a business decision than a change in consumer preference. He noted that the telco sector added 1.6 million video subscribers in 2014 and lost 1.4 million video customers in the past year. Of those 1.4 million losses, 1.33 million were from AT&T.

“What we’re seeing is a share shift driven by a decision that AT&T has made, not by consumers moving away from telco TV,” Leichtman said.

CABLE’S BROADBAND EDGE

Broadband has apparently been the difference for the cable companies as cable’s high-speed Internet customer growth has far outpaced the telcos’ for decades.

Leichtman estimated that broadband added about 3 million customers in the past year, and said cable accounted for more than 115% of that growth.

“Cable added nearly 3.5 million broadband subscribers, and the telcos are losing,” Leichtman said. “The bundle is as important as it has ever been.”

BTIG media analyst Rich Greenfield estimated that pay TV subscribers from all sources are declining at a 0.9% rate year-to-date and the rate is likely worse among the privately held MVPDs. In a blog post, Greenfield wrote that he is more concerned about cord-shavers — subscribers who are opting for skinny bundles — than those who are severing the relationship altogether.

Cord shaving raised some stubble in late October, after Nielsen estimated that ESPN lost 621,000 subscribers in one month, double the normal rate. Disney has disputed the figures — Nielsen stands by them, and they show increased losses at other networks — but affiliate fees declined in Q3 in part because of a declining base.

Disney chairman and CEO Bob Iger said he was bullish on ESPN’s future, adding that the main reason for the subscriber losses — migration to smaller packages — is easing. He also was encouraged by new deals with digital and over-the-top providers.

But it is just those digital and OTT providers that Greenfield is most worried about.

Greenfield pointed to the new virtual MVPDS, most concerned with the absence of friction in the subscription process. Customers can sign up and drop the service at any time with a click of a mouse, without having to return equipment or pay early termination fees.

“While this clearly may lead to new subs entering the ecosystem,” Greenfield wrote, “we are far more worried about the aforementioned 88 million video subscribers shifting to platforms where they no longer need to pay for an entire year of service to access the content they are most interested in.”

SIDEBAR: Birds and Wires

AT&T’s continued migration of U-verse TV customers over to DirecTV dominated Q3 telco TV losses, while cable managed to reduce subscriber declines in the period.

      Q3 2015                     Q3 2016

Total Cable Adds . . . . . . . . . . . . . (218) . . . . . . . . . . . . . . (124)

Satellite TV Adds . . . . . . . . . . . . (152) . . . . . . . . . . . . . . . . 3

Telco TV Adds . . . . . . . . . . . . . . .  (41) . . . . . . . . . . . . . . . (365)

Sling TV Adds . . . . . . . . . . . . . . . . 155 . . . . . . . . . . . . . . .  204

Total Net Adds . . . . . . . . . . . . . . (277) . . . . . . . . . . . . . . (282)

Source: MoffettNathanson estimates; figures in 000s; numbers in parentheses represent declines.

A study on so-called peak TV and streaming reveals just how elevated a perch television is enjoying in pop culture.

Fully 72% of respondents  to a survey by Miner & Co. said they choose TV shows over movies these days, while 67% said they are streaming their favorite TV shows at the expense of reading. Furthermore, 85% said they have a summer streaming list, while 76% have a summer reading list.

Miner & Co. Studios surveyed 801 TV viewers between the ages of 18 and 59.

"For the past few years, streaming has tended to drown out conversations about broadcast and cable, and it continues to gain strength as a preferred platform for viewing,” said Robert Minor, president, Miner & Co. Studios. “But the investment in quality scripted across the board has, at least for now, captured viewers’ attention across all options – broadcast, cable and streaming. The choice, convenience and control of streaming will continue to hold very high appeal but content is key – especially in attracting and retaining viewers.”

Not surprisingly, streaming and cable scored the highest for delivering great television; perhaps more surprising is that broadcast, which goes largely ignored at the awards events, was a very close runner up. Some 87% of respondents said streaming services, such as Netflix and Amazon, are “very” or “somewhat” reliable sources for great television. Cable too had 87%, though the subset of premium cable scored 83%. Broadcast networks came in at 86%.

Among respondents, 77% said there’s no such thing as too much good TV.

Read more at broadcastingcable.com.

Industry observers have blamed over-the-top streaming services for contributing to what is now a cornucopia of quality programming for which there’s not enough hours in the day to watch.

But when it comes to watching everything available on the small screen, viewers are giving it their best shot, according to a Horowitz Research study.

A third of over-the-top viewers say that they are watching more TV overall than they did five years ago, according to Horowitz’s recent Multiplatform Content and Services, Wave 2 2015 survey.

Services like Netflix, Hulu and Amazon Prime are fast becoming the first choice for viewers when they turn on the boob tube. One-third (31%) of viewers surveyed say they turn to Netflix when they first turn on the TV, slightly below the 34% who say live TV feeds from cable and broadcast networks are their first choice.

OTT services are the first platform of choice for more than half of 18-to-34-year-olds, further showing that streaming content from OTT services continues to dominate millenials’ viewing habits.

And the OTT services are giving viewers a lot of new original content to stream. Netflix will add new series such as Fuller House, a reboot of 1990s sitcom Full House; the Judd Apatow comedy Love; a new Marvel-themed series, Luke Cage; and hip-hop themed drama The Get Down later this year to its core shows, including Orange Is the New Black, the fourth season of which will debut in June. Netflix has also renewed women’s jailhouse dramedy Orange for three additional seasons.

Hulu this year will roll out the big Stephen King miniseries 11-22-63, about the assassination of President John F. Kennedy; The Path, a project from Aaron Paul (Breaking Bad’s Jesse Pinkman); and new dramas starring Hugh Laurie and Jeffrey Donovan.

Amazon, coming off consecutive Golden Globe Award wins for comedy series Transparent andMozart in the Jungle, will bring back sophomore shows Bosch and Catastrophe this spring.

Given the myriad quality programming choices available to viewers, it’s not hard to foresee a continual increase of overall TV viewing — and, arguably, a decrease in time spent sleeping.

RELATED STORIES:Viewer Watch 2016: Half-Full or Half-Empty? | Viewing Shifts: Hype and Reality

Pay TV operators and programmers have increasingly planted their feet on both sides of the raging debate over shifts in TV viewing, dipping their toes into over-the-top video while continuing to embrace the traditional ecosystem.

“Many operators have decided that they will look beyond TV everywhere to support and offer OTT services, and we’re seeing content producers going direct-to-consumer, rather than working exclusively through the pay TV system, to compete in the OTT space,” Parks Associates director of research Brett L. Sappington said. “That is really changing the economics of the flow of content to the consumer.”

It will also make this year a pivotal one for pay TV, both for some of its older offerings, such as video-on-demand and TV everywhere, and for newer efforts such as Dish Network’s Sling TV or direct-to-consumer products like HBO Go.

“While we’ve been seeing declines in the traditional pay TV model, there are increased opportunities in OTT segment, where there are about 25 million homes that have not been touched by pay TV,” Ben Weinberger, senior vice president and chief product officer at Sling TV, said.

This relatively large market has produced “a very strong year ahead of forecast and budget” for Sling TV subscriber numbers, Weinberger said.

Meanwhile, Comcast, Verizon Communications and a number of other operators have launched bundles for OTT devices or mobile platforms as part of a larger push to revamp their product packages.

“The traditional bundle works very well for many people, but there are also a lot of people who don’t want to pay for things they don’t value,” Ben Grad, executive director of content strategy and acquisition for FiOS TV at Verizon. The telco has launched mobile-video service Go90, the Custom TV “skinny bundle” and expanded TV everywhere content, with live streams of more than 120 services available outside of the home for mobile devices.

But some analysts have worried that the move to embrace OTT services might hurt operators, who risk cannibalizing their traditional bundle, and programmers, who might lose ratings as they sell more content to subscription VOD services such as Netflix.

Turner Broadcasting System’s launch on Sling TV, a virtual MVPD available on a subscription basis, has been a positive experience, executive vice president of brand distribution Jennifer Mirgorod said. “It is very important that our larger networks reach as many people as possible,” she said.

The slimming of the bundle has prompted fears that some networks might not be able to survive. But stronger programmers should continue to thrive, Disney & ESPN Media Networks executive vice president of affiliate sales and marketing Justin Connolly argued.

“The success of packages depends on the channels that underpin the package, and we have a handful of the strongest brands in the business,” Connolly said. “That is why providers like Dish and their Sling TV package took to us to help them build a sub base.”

Operators also view TV everywhere services as a way to improve the value of the bundle. “The price/ value equation is being challenged on the full pay TV bundle for $80 to $100 a month,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said. “That makes TV everywhere a very, very important component in our business.”

SEARCHING FOR VALUE

A number of other operators are also rolling out advanced set-top boxes that greatly improve the user interface and make it much easier to find content.

“As all these platforms multiply and the content multiplies, search, discovery and the consumer experience becomes everything,” Joe Atkinson, U.S. advisory entertainment, media and communications leader at PwC, said.

“As operators, we also need to recognize that there is a world of content beyond our set of linear offerings and on-demand capabilities,” David Isenberg, president and chief revenue officer at Atlantic Broadband, said. “The more we can integrate all that content together, the better the consumer experience and the better position we will be in.”

To that end, Atlantic Broadband has deployed TiVo boxes, which offer advanced search features and allow users to access both cable networks and OTT services like Netflix, with plans to launch Hulu. “It is not a matter of providing either pay TV or over-the-top services but both,” Isenberg said. “It is natural to bring the two of them together and, since we’ve launched Netflix, we’ve seen a strong and very positive customer response.”

Many of these efforts are in the early stages, but there are signs that a combination of advanced set-tops, improved interfaces and better TV everywhere offerings can pay off in better subscriber numbers.

“Our third-quarter video results were the best results we’ve had in nine years, and we’ve had 20 consecutive months of improvement in churn,” Matthew Strauss, executive vice president and general manager of video services for Comcast Cable, said. Comcast, the No. 1 U.S. MSO, has been rolling up 30,000 to 50,000 X1 advanced set-top boxes per month while expanding its VOD and TV everywhere offerings.

Along with an expansion of its VOD offering, which now has “the 100 top Nielsen shows” and “over 700 series” with a full season of episodes, Strauss said the improved interface and search capabilities of the X1 box have improved on-demand usage. “We now have over 85% of our subs on the X1 platform using VOD and we’ve seen a 40% increase in VOD usage of 40%,” he said.

Expanded TV everywhere products are also catching on. “We now have about 7.5 million subscribers using TV everywhere each month, which is over 35% of our subscribers” consuming about eight hours of video per month, Strauss said.

SPEEDING TO IP

Comcast and other operators are also continuing to upgrade their networks to provide faster broadband speeds, new services and expanded Internet-protocol delivery.

“In the past, when you looked at our road map, you might say there was a video lane and a broadband lane,” Cox Communications executive vice president of product development and management Steve Necessary said. “But now those lanes are merging.”

Atlanta-based Cox has rolled out Internet service at speeds of 1 Gigabit per second in a number of markets, with plans to make its G1GABLAST product available through its entire footprint by year-end.

“The G1GABLAST initiative is one of the major initiatives we’re working on to provide a big highway on which can we bring all of those capabilities together,” Necessary said.

But much work remains to be done with TV everywhere and other initiatives. While the number of TV everywhere video streams jumped 104% between September 2014 and September 2015, according to a recent report from Adobe, the share of households accessing the service grew to just 13.6% in the third quarter of 2015 from 12.6% in Q3 2014.

“TV everywhere has a lot of potential upside, but 2016 is the time when the industry has to come together and make it work or [they risk] having Netflix and Amazon become the place where new viewers start to learn to find content,” Adobe Digital Index principal analyst Tamara Gaffney said.

Measurement is another key issue. “I think it is very encouraging to see the products Nielsen and comScore and Rentrak are developing to improve measurement,” Keith Kazerman, head of advertising sales product strategy and development at Discovery Communications, said. Programmers such as Discovery have also bulked up their own in-house data and analytics efforts, he added.

Over time, that could help radically change the way TV inventory is sold. Turner chief research officer Howard Shimmel said a variety of outside and in-house analytical tools has allowed the programmer to sell much more targeted audiences, such as would-be car buyers — something once only possible on digital platforms.

“We were selling TV on age and sex demos from when Lyndon Johnson was president,” he said. “We want to get to a world where we don’t deliver a report saying we’ve delivered the right amount of ratings points, but deliver a report saying how many sales we generated.”

RELATED:Analyst’s Questions for Netflix Go to 11

Netflix will report its second-quarter earnings Wednesday (July 15), following an incredible run-up in its stock price this year that has seen the per-share price more than double from $341.61 on Dec. 31, 2014, to $702.60 on July 14.

Netflix now ranks as the best performing stock on the S&P 500 for the first half of this year, per the Wall Street Journal.

The company’s seven-for-one stock split, which will take effect Wednesday before the Q2 earnings report, could further boost prices by making it more affordable to additional investors, and most analysts have been raising their price targets with generally positive reports. But, as highlighted by the WSJ in an article titled “Hot Netflix Not Ready for Its Close-Up,” many contrarians noted that free cash flow by non-GAAP measures has been negative over the last three quarters.

Both bulls and bears, however, agree on five key factors that will weigh heavily on the stock’s performance following the Q2 earnings report.

Subscriber Counts

The street consensus for the Q2 report is revenue of about $1.65 billion, higher than the $1.47 billion management has promised, and earnings per share of about $0.31. (Or $0.04, if Netflix reports it in terms of the stock split.) Management has forecast $0.26 earnings per share.

The big metric though will be subscriber counts. The 2nd quarter has traditionally been a slower one for Netflix, and management is predicting about 2.5 million net additional subs, fewer than the 4.88 million adds reported in Q1 of 2015.

International Markets

The saturation of the U.S. market, where the company hopes to hit nearly 41 million paid members in the Q2 report, means that its aggressive international expansion will be closely watched. Netflix is predicting it will have 21.50 million paid members with 1.9 million net ads in Q2 outside the U.S. That marks significant growth over a year earlier in Q2 of 2014 when it had about 12.9 million paid members. But international net adds will drop from the 2.28 million seen in Q1 of 2015.

Rapid international expansion has however cut into profits, producing negative free cash flow and significantly reducing operating income.

Programming Costs

The most bearish argument against Netflix has long been rising programming costs. Proponents of that view haven't slowed the company’s rapidly rising stock price. But those costs remain a major question mark, particularly as Netflix buys more international rights and ramps up its original programming.

At the end of the first quarter, streaming content obligations hit $9.8 billion, up from $7.1 billion at the end of Q1 in 2014. The company points out that this increase of 31% is in line with the growth in streaming revenue, which grew by 31% year over year from Q1 2014 to Q1 2015.

OTT Competition

Much of Netflix’s success with investors has been based on the idea that consumers will give up multichannel TV subscriptions for its OTT service.

So far, traditional pay TV subscriber loses have been miniscule — around 0.1 to 0.3% in the last two years. In fact, management has long maintained that the two offerings are complementary, and it continues to work to expand the availability of the Netflix offering on traditional pay TV operators like Dish and Atlantic Broadband.

Worries about a stagnant multichannel TV business have, however, encouraged many programmers to launch their own OTT subscription offerings and convinced some operators like Dish and Comcast to launch their own bouquets of streaming services.

Those offerings, which have only been in the market a short time, are unlikely to have much of an impact in the second quarter. But competitors like Amazon and Hulu continue to invest heavily in new programming and in the longer term, the trend towards wider usage of OTT services could actually produce some challenges for Netflix.

Price Increases

Whether and when Netflix will raise prices has been a longstanding question . Management has insisted it is comfortable with current pricing. But the company’s success after its last increases indicates that it may still have more headroom in raising subscription costs or carving out new tiers.

Read more at broadcastingcable.com.