Aggregation has ebbed and flowed in pay TV ever since it started over half a century ago in the US and at present the tide is on the way out with the impending launch of D2C (Direct to consumer) streaming services by major studios or content houses such as Disney and AT&T’s WarnerMedia. There are also other major tectonic forces operating, notably the ambitions of Amazon, Apple and Google in particular to assume the aggregator role, along with the rise of Android TV as a platform giving smaller pay TV operators a leg up by being able to embrace apps within their branded offerings. The integration of these forces does suggest though that we are entering a two-tiered era where aggregated services will provide a large range of content but with a risk premium material will be confined either to these emerging streaming offerings, or D2C services from leading sports rights holders.
Aggregation peaked just over a decade ago in most developed markets, with pay TV operators then providing access to almost all premium content, subject to windows for movies, via increasingly bloated packages. The problem was that a lot of consumers were denied access to a lot of premium content they had previously been able to access free to air, primarily top sports such as football.
Then Netflix came along and changed the game as far as movies and TV series were concerned, initially confined to second tier content but then leading the race towards original programming almost in anticipation of the current disruption in the content business. Netflix became a super-aggregator for a while, the SVoD superstore of choice, combining its own fast expanding catalogue with premium material from the leading houses which were at first happy enough to earn revenues that way. At the same time, pay TV operators were forced to embrace Netflix so that they could preserve their role as aggregators while also coming out with skinny streaming bundles, to defend against churn.
The next development was the start of fuller convergence between content and the means of consumption, leading to content houses wanting to go D2C and take control of their consumers’ experiences. Disney in particular with its range of consumer attractions including theme parks, merchandise and toys, as well as movies, VoD and live TV content, saw great benefits engaging directly with its audience. It was willing to sacrifice revenue from third parties and to invest heavily in technology, infrastructure and content to reduce the gap behind Netflix in particular. Disney also saw great potential in harnessing data gathered from consumers to drive consumption across and stimulate synergy between all its outlets and services.
Already, well before the Disney+ D2C service is launched, this adventure has cost the company over $1 billion, $580 million in equity investments primarily relating to increasing its stake in Hulu and $469 million directly in its D2C project, largely relating to BAMtech, the streaming group whose technology drives the ESPN+ sports service. That figure is sure to rise given that Disney is currently negotiating with AT&T to acquire the latter’s 10% Hulu stake, which would cost almost another $1 billion. There is also revenue lost from pulling its content from Netflix, which is contributing to the growing fragmentation within the content landscape.
On the other side of the coin, the pro-aggregation forces are coming from the big three of Google, Apple and Amazon. Apple, long seeking a big idea to take TV by storm rather than chipping around the edges as it has done, has tried to set out its stall as the aggregator of choice. Without a major content coup this does not qualify as a big idea, but does embrace multiple apps, including Netflix and Amazon, within a single UI, navigation and recommendation system, also providing access to local FTA channels in some regions.
But primarily it is a second division VoD aggregation service still relying on subscriptions to these apps where relevant to access free content. The ability to choose between say Netflix and Amazon to access a movie listed by both is hardly a game changer. Amazon for its part is also offering considerable aggregation, but on the back of a more compelling content catalogue of originals, with a scattering of live sports thrown in. It is building out on the back of Amazon Prime with the great cross selling and promotion opportunities that brings, combined with its Alexa virtual assistant and AWS cloud infrastructures.
Netflix scores by having the strongest content catalogue by far on the SVoD front and is getting into cinema, reflected in its spat with Steven Spielberg over whether it should be nominated for the Oscars again in future. Its challenge is to maintain that dominance against intensifying competition from big players, squeezed between Amazon and Disney encroaching along different fronts, while keeping revenue in sight of costs.
Comcast and AT&T, now that it has WarnerMedia, are two other incumbents with global aspirations and strategies forming, but Disney is best placed to make an immediate impact beyond its American and European heartlands through its three pronged combination of Disney+ for kids, Hulu for more mature content and ESPN+ for sports, although these will be reorganized, while news content with a regional or local focus is likely to be introduced as a fourth tier to reinforce appeal in overseas markets.
Google has an interesting position by having both a direct and indirect presence. The direct one is YouTube and most significantly its commercial YouTube TV arm currently available just in the US after its launch there in April 2017. It streams over 60 live TV networks including ABC, CBS, NBC, Fox, CNN, TBS and Disney’s ESPN, while also showing some MLB and soccer. There are no stated plans yet for international expansion, which is waiting for sufficiently compelling rights deals to be struck.
But Google is also gaining revenues through Android TV which has finally taken off following the launch of its Operator Tier in September 2016. This took a while to germinate with operators and gained traction first in Europe with the help of specialists such as 3SS and Accedo that built custom launchers.
After initial failure of Android TV to gain much ground, Google developed Operator Tier as a compromise to attract operators by allowing them to define layouts and functions while imposing their brand rather than Android. It has been deployed now by around 60 operators, largely because of freedom from overt control from Google while still being able to access the app store. Outside the US, the clinching factor has been the reality dawning on many operators that they must embrace Netflix and Amazon, having earlier regarded them as existential threats. Android TV is the most convenient and powerful way of loading those apps and taking responsibility. The service still has to be configured for voice control and must include Play, the Google app store, but no other Google apps are obligatory, by contrast with the Open Handset Alliance rules that govern most Android smartphones.
Now Android TV is poised for takeoff in the US, as AT&T is coming towards the end of a six-month trial with its DirecTV Now streaming service. Given that the latter is now shedding subscribers this has not been an obvious success, but Android TV almost certainly had nothing to do with that. The fact is, Android TV is providing a lifeline to many second-tier operators facing the need to offer affordable aggregated services.
Unfortunately for many operators, aggregation revolves more around commercial than technical considerations and it is unclear how some will be able to compete with compelling bundles at affordable prices. For consumers it may end up being a case of almost regretting the migration towards streaming as they find they end up paying just as much as before for all the content they want to watch, without the convenience of having it all neatly aggregated. At any rate they will be facing multiple bills to pay, even if there is aggregation at the search and discovery level.