This immediately made us laugh. Moody’s the investment service, has come out and said that Over The Top TV services will not impact cable and broadcast TV operators any time soon.
What it means by this is that over the next ten years there will still be TV as we currently know it. Of course there will, but will it make anything like as much money? The seeds for next generation video viewing will have been deeply planted by then, and the writing will be on the wall sooner, rather than later, for either broadcast or pay TV services and their current economics.
Broadcasters will suffer (or benefit ‘ depending upon how quickly they embrace OTT) at the hands of interactive internet based advertising models and Pay TV will become priced not to include the cost of the network it travels over. The result could be that Moody’s is inviting you to lend debt to this class of operator, with little or no chance of ever seeing it again. What point is there to Moody’s if that’s the case?
The key here of course is that both Broadcasters and pay TV services are seeking to dominate the OTT services themselves, using their existing content leverage to keep anyone new out of the game. Does Moody’s really think that this will be universally successful? What if one cannibalizes the other? If TV Everywhere services from Pay TV wins out over Broadcast free to air services like the BBC iPlayer? Couldn’t one crush the revenues and viewership of the other. Apparently not, not for ten years.
At Faultline we have spent the past decade focused solely on new content business models, and the one thing we can say with certainty is that this is a complex and tough market to predict. Studios are financed by broadcasters and pay TV service operators and these all rely on triple play pricing with a constantly built in ARPU improvement, year on year. Underpinning this is the idea that 300 or more channels are the norm on TV, just to create unwatched and unloved TV advertising to inflate the TV advertising pie. The current scenario has got disaster written all over it, with potential advertising collapses or re-assignment to the internet, new content creation paradigms and totally new methods of forming viewing habits. Moody’s cannot know that debt to these organizations is alright for the next ten years and it’s irresponsible for it to say so.
‘Even with the advent of Internet TV, the broadcast and cable networks that invest heavily in exclusive content rights to popular programming and sporting events, which command high viewership will be protected from online competition over the next 10 years,’ wrote Sr. VP Neil Begley in his section of the report, ‘2020 Vision: US Telecom, Media and Technology’.
At best it’s a guess and at worst it’s poor advice. What is needed is a working model of how OTT will become embraced ‘ we are fed up with hearing about how it just won’t happen, but people with vested interests to bury their heads in the sand.
The ‘wild card,’ noted Begley, is whether Google or Apple will be willing to make the financial commitment to compete for sports-content rights and invest in production to put their own programming on the web in competition with the traditional content companies. What about Netflix, already spending that kind of money for exclusive rights in TV series and film? Why does this just have to be a single technology company globally? Why cannot it be about a continuum of large and small companies all chasing an OTT dream? And ten years ago who would have predicted the Netflix online video uptake ‘ nobody. At Faultline we said it would happen, but we couldn’t have named Netflix in 2000 because at that time it was doing $36 million in revenues and wasn’t even public.
The argument has been put time and time again that content rights are everything and content is king, but then why is every single pay TV operator in the US and Europe all planning an OTT service, and with the advent of the internet couldn’t some major sports events try taking their own service to market directly over the internet instead of taking upfront money from the networks? Nah! Couldn’t happen! Could it?