35 years ago, I was hired by a fledgling new subscription-based pay TV network called Home Box Office. Even at that time, the conventional wisdom among many smart people in our industry was that pay TV was ultimately doomed to fail. After all, they argued, why would anyone pay for something they were already getting for free. Well, most of these experts who predicted pay TV’s demise hadn’t seen HBO, and the rest as they say is history. Today, the global pay TV and over-the-top (OTT)/subscription video on demand (SVOD) marketplace is booming, both in the U.S. and globally. It is already a roughly 200 billion dollar a year industry and it has been forecast to expand to over $250 billion by 2025. There are many forces working together to drive this growth.
First and foremost, there is simply better content and a lot more of it. A total of 487 scripted original programs aired on U.S. television in 2017.[i] Over the past 15 years that is growth of roughly 170%, and we could easily reach well over 500 shows this year with new entrants into the original content game from Facebook and Apple. Other drivers of growth include the now 65 million U.S. homes with Internet enabled devices, deeper broadband penetration, and a swelling number of both subscription and advertising funded video on demand services.[ii] It also doesn’t hurt that the service quality is increasing as Internet speeds increase and 5G wireless services start being rolled out in major cities in the U.S. In terms of quality of streaming services, something that long hindered consumer adoption, as of October 2017, 46% of streaming customers were “Very Satisfied” and 44% were “Somewhat Satisfied” with their SVOD streaming services.[iii]
As this market continues to grow, we will see a radical transformation of the industry, with a very fragmented ecosystem eventually consolidating into a small number of companies that control all aspects of the system. Seeing this upheaval occur, and watching who will come out on top will make the next few years fascinating. Let’s look at how I think it will unfold, and who will win the pay TV revolution.
Television ecosystem today
The U.S. pay TV competitive landscape is complex and crowded. There are six main elements in the ecosystem:
- Content development (actors, social media users, directors, personalities, writers, producers);
- Content production (studios, live, production co., ad agencies, branded content);
- Content aggregators (ad supported TV, pay TV and OTT, digital publishers, theater exhibitors, social media platforms);
- Content distributors (multichannel video programming distributors, telcos, satellite, internet services providers, theater exhibitors);
- Distribution technology (TVs, smartphones, tablets, out-of-home media, cars, theaters, social media platforms);
- Distributions screens (TVs, smartphones, tablets, VR headsets, billboards, in-dash, in-theater).
There are literally thousands of companies that service this eco-system. The biggest, most successful ones operate across multiple areas of the ecosystem. However, only a handful of companies currently operate in four or more of these spaces.
Google now has everything with distribution through Google Fiber (albeit still limited) and original long-form content development and production through YouTube. Comcast now has almost everything except distributions screens. Apple and Amazon both have content developers, aggregators, distribution technology, and screens. This potentially gives these firms front runner status in the race to consolidation.
Content is still king, but…
Content is still king today, and it will continue to be, but now so is the technology that delivers this content. Still, all things being relatively equal on the tech front, those companies with the best content will continue to win. While flashy, innovative must-have technology is driving the industry’s rapid evolution, content is still the “product,” that which is driving consumer demand and adoption at the end of the value chain.
Because content is the most critical differentiating component, we now see a trend where studios will be producing more of their own content, and making less of it for their competitors. The key to success will be building, owning, maintaining, and continually exploiting financially successful franchises across all content types: film, TV, publications, music, games, and user generated content.
Content first, but that’s not all…
To survive and thrive in the next five years, companies will need:
- Strong original content development and production (i.e. studios);
- Evergreen content libraries (i.e. studios, indie distributors);
- Some ownership control over the content delivery system (“pipe”) to the consumer;
- 100% ownership and control over their own distribution platforms/apps;
- Broad-reaching owned and operated digital marketing assets (.coms, social media platforms, mobile apps);
- Ancillary internet of things services, platforms, and devices (e.g. in-home security) for bundling;
- The ability to scale globally.
By 2023, I believe the eight corporations below could control up to 80% of the U.S. pay TV market with a few others, such as Netflix, Twitter and Charter Spectrum, as possible contenders.
- Walt Disney
Life could soon be a “silicon” beach
It’s conceivable that all the major Hollywood film and TV studios with the possible exception of Disney will be owned by a number of these companies, or simply replaced, as physical studio sound-stages are replaced with virtual ones. Right now, Disney appears to be the one studio brand that has a shot of emerging in this group of eight, as they will soon be adding a fourth key element, distribution technology, to their development, production and aggregation capabilities with the launch of their own direct-to-consumer OTT SVOD service later this year.
Right now, there are a few companies to watch. Netflix is still growing and could continue to expand or be acquired, but by whom and when. Twitter’s evolving video content strategy and strength in the “immediacy” of access bears close watching. Disney’s acquisition of Fox (and therefore more of Hulu) and their latest move into OTT strategy could also shift markets. Verizon still needs to snap up content to make the other parts work. AT&T, whether it’s allowed to merge with Time Warner or not, and how that decision will inevitably affect the company. An interesting development to watch for with Apple is whether they will go to a TV subscription model, as they did with music. And, finally, Facebook must do something big in the content space soon, if only to change the conversation away from privacy.
How the pay TV market will transform in the next few years will make for some compelling viewing. There will be amazing dramas played out as partners are wooed, market share battles rage, deals fall apart, and mergers are consummated. Happy watching!
[i] Otterson, Joe. (2018, January 5). 487 Scripted Series Aired in 2017, FX Chief John Landgraf Says. Retrieved from http://variety.com/2018/tv/news/2017-scripted-tv-series-fx-john-landgraf-1202653856/
[ii] The Nielsen Company. (2017, Q4). The Nielson Local Watch Report – A Focus on Streaming Trends in our Cities. Retrieved from http://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2018-reports/local-watch-report-q4-2017.pdf
[iii] Statista – The Statistical Portal. (2017, October). Are you satisfied with the streaming quality of your internet streaming service? Retrieved from https://www.statista.com/statistics/777743/satisfaction-streaming-quality-of-internet-streaming-service/