Embracing the Enemy

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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.”


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.


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.”