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Next TV: Analyst: Content Consolidation Could Come

Despite pressures on subscribers and ad sales, Needham & Co. media analyst Laura Martin said continued pressure from subscriber losses, reduced ad loads and longer subscription video-on-demand windows could spark a wave of consolidation in the content business.

In a discussion with Mark Robichaux, Multichannel News, B&C and Ratings Intelligence editorial director,  at the Next TV Summit in San Francisco, Martin said that audience erosion at cable networks – she pointed to the Walt Disney Co.’s disclosure last week that its ESPN network lost about 7 million subscribers over the past two years – and moves to cut ad loads and extend subscription video-on-demand windows will undoubtedly pressure the stocks. But she added that the ultimate result could mean more consolidation as weaker networks are swallowed up by their stronger counterparts.

“The empires of bundles that are less well managed need to end up in the hands of the best managed companies, [like] Discovery, Disney,” Martin said, adding that the weaker targets would still attract high private market premiums. “In a way, as a shareholder you want to own shares of the weaker ones.”

Martin said the dual revenue streams of advertising and subscription revenue should help cable networks weather the storm. And she added that online video doesn’t currently pose a threat – its annual sales are about $2 billion, compared to $150 billion for TV – and won’t until the industry adopts a third party form of measurement.

Martin said that digital giants like Facebook self-measure and utilize metrics that wouldn’t hold water in the TV universe. For example, Martin said the digital world considers an ad viewable if it has been watched for at least one second and 50% of its pixels were viewed.

“The implication is that when you fast-forward through the entire pod of commercials on your DVR, every ad would be considered viewable in the digital world,” Martin said.

Even with those lenient metrics, she said up to 30% of digital ads are viewed by non-human traffic and 50% are considered non-viewable.

“If the digital world wants to tap into the $70 billion of TV [ad] money, they must have third party measurement and auditing,” Martin said.

The analyst also wasn’t convinced of the impact of over-the-top services like Sling TV and CBS All Access. She said while they are admirable experiments and consumers seem to want low-cost skinny packages, Martin can’t see how the providers make any money.

She estimated that Dish Network’s Sling TV has about 350,000 subscribers after a year in business, subscribers that were likely cannibalized mostly from its satellite TV business.  Martin said trading satellite’s $70 per month revenue stream (and $30 profit margin) for $20 in monthly revenue (and $3 in profit) is a “worthy experiment, but I think it’s been disastrous so far.”

CBS’ over the top service, CBS All Access launched about a year ago as well and charges about $5.99 per month. Martin estimated that service has about 400,000 paying customers.

“Consumers are screaming that they want something slimmed down, skinnier; they’re just not showing up at the door,” Martin said.