As over-the-top and subscription video on demand services like Netflix and Hulu continue to gain traction in the content business, networks must abandon the traditional linear TV model and migrate to an on-demand environment, according to a new report by Moody’s Investors Service.
But getting here won’t be easy. Moody’s says that shift will require that content providers unite to beat back the rivals they helped create by licensing their shows.
"The success of these OTTs has in large part been fueled by content licensed from the very industry heavyweights they are challenging," said Moody’s senior vice president Neil Begley in a statement. "This is emboldening them to invest heavily in original, exclusive programming, and eventually bid more aggressively for streaming rights to major league sports."
According to the report -- Pay TV and Television Networks -- US: OTT Invasion: Grand Bargain Required for Long-Term Sector and Credit Stability --to compete with OTT services and rapidly growing digital platforms for subscribers and advertising revenue, the networks must:
- End their linear distribution model
- Offer all programming on-demand with full stacking rights
- Implement robust search and recommendation interfaces
- Implement real-time targeted ad placement focused on the viewer instead of the program.
Such a seismic shift is unlikely, however, unless all major content creation and distribution companies can lead a total overhaul to transform how the industry distributes content and advertising.
"Instead, based on the current trajectory, we believe that companies will go it alone, meaning change will be inconsistent, stability will erode as individual network churn rises, and operating performance will come under pressure for those that stumble," Begley said in a statement. "This could result in potential for rating pressure for many notable industry players that
cannot defend against the rising change."
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