You can’t read an article about cable today without seeing those three-letter words: OTT and TVE. It’s not enough that cable operators are competing against traditional multichannel video programming distributors. They must prepare to battle virtual MVPDs and online-subscription services like Netflix, too.
HBO and CBS have set plans for over-the- top (OTT) offerings; others will follow. With cord-cutters and cord-nevers an attractive revenue opportunity, content providers are scrambling to protect the lucrative traditional cable model but also to capitalize on 10 million broadband- only homes. Major questions: Will HBO and CBS target this untapped opportunity? Will their ventures lead to additional cord-cutting?
TV everywhere (TVE) was intended to provide incremental value to cable subscribers by offering online content in exclusive windows, but that has become a double-edged sword:
• Programming costs have escalated as content providers seek to recoup the value of multiplatform rights. With the lack of consistency surrounding TVE, it has been hard to communicate a clear value proposition to consumers.
• TVE is providing content to cord cutters via rampant password piracy. As two leading cord-cutter apps are HBO GO and Watch ESPN, it is clear these users are enjoying content meant exclusively for cable subscribers.
• With authentication and usage low, but 100% of subscribers paying higher cable bills, most customers are failing to extract additional incremental value from their subscription. Only 29% of U.S. TV viewers were heavy (15%) or moderate (14%) TVE users, said a CTAM-HUB Research poll in April; 47% of respondents said they had never heard of TVE.
OTT continues to drive the price/value equation, but programmers are not willing to give up big, fat expanded basic. Sony and Intel had planned a virtual MVPD that offered consumers smaller packages, but coudn’t convince programmers to license only core services. Clearly, though, consumer behavior is changing, especially among millennials. Online subscription services like Netflix — whose $7.99-permonth price contrasts starkly with cable’s $65.00 average monthly cost — call cable’s value proposition into question. MVPDs are offering limited basic packages, penetration commitments in their programming agreements constrain them from actively marketing such packages or providing more flexibility to the consumer.
The industry is beginning to rally around consistent TVE branding and messaging. This cannot come soon enough. With new OTT services announced daily and more competition for the consumer’s wallet and attention, MVPDs must make TVE communications and interface improvements top priorities. Imagine an overloaded clothes closet. Since clothes are poorly organized, the closet owner wears the same old outfits. Isn’t TVE similar?
For MVPDs to compete effectively against virtual MVPDs and OTT, they must invest in TVE’s interface, customer websites and in clear communications. In addition, they must move beyond promoting the bundle’s value and instead emphasize cable’s overall value proposition and how OTT services can be a complement to a video subscription.
Lauri McGarrigan is executive VP of strategy and business development at Schoen Media Group.
