Thanks, very interesting. I think there is another reason for all those companies to put "all their eggs in the streaming basket", and it was the hope of finding more value in the "big data" than they finally seem to have been able to obtain, so far. I think it was a promise that has not been fulfilled.
Good piece, although I have been pretty consistently making the opposite argument. Although I am well aware that the industry is closer to your point of view than mine.
A primary reason why the cable bundle throws off so much revenue is that is was essentially a monopoly. There wasn't any easy way to watch the channels without subscribing to a bundle. And because there were few options, companies felt no competitive pressure to moderate prices. Any carriage increase just passed through the consumer and most favored nation agreements meant there was no worry that customers would go elsewhere.
I agree that MVPDs offering various streamers as some sort of a soft bundle will slow the erosion. But that's the best case scenario.
Hi Rick. Thanks for the comment and sorry for the delay. I'm not sure we disagree that much.
I agree that the TV value chain was overearning because of the forced bundling model. Netflix came in, broke the bundle, and wrung out the excess returns. The horse has left the barn on that - the old forced bundle is never coming back.
However, the media companies' compounded the damage by their reaction to this disruption: underpricing their streaming services; the belief that everyone needed to own their own streaming service; sky high content and marketing spend; and the compression of multiple windows into one window.
So, while the former effect is irreversible, the latter effect is reversible. That's what you are currently seeing: price increases, new ad tiers, lower content spend, more analytical approaches to marketing, more licensing, re-embracing the theatrical window, etc. The big remaining opportunity is to "re-bundle," albeit this time in a way that is mutually beneficial for the providers and the consumer - a bundle that offers choice, savings and convenience, while also boosting aggregate revenue and reducing churn. The point of the piece was that the MVPDs should play a key role here, if the industry can work together.
From the perspective of a tech-savvy sports-fan consumer, part of the problem with TV Everywhere was that ESPN had been offering games on all their linear platforms on the service then known as ESPN360 for free to customers of participating ISPs. To then lock those games behind the clunky authentication mechanism, which only a handful of providers were participating in at first, felt downright offensive and turned me off of the whole concept. I've resisted authentication ever since (helped by my not living on my own at any point so I'd have to use my parents' login) but the Charter-Disney deal may be the point that causes me to admit defeat, in part because, like you, I like what it means for the future of the bundle.
Another reason media companies flocked to start their own streaming services was because it seemed like an existential matter for their businesses. If you listen to certain stock market analysts, the main alternative to running your own streaming service is to become an "arms dealer" selling your content to the highest bidder. But with the pressures facing both the linear pay TV industry and movie theaters, streaming services started to look like they were going to become the main if not sole mechanism for consuming content for the majority of consumers, and they were increasingly spending money to produce their own content. If you can't make your own streaming service work, and you're just selling your wares to a streaming service, what's stopping them from just buying you outright? What are you even doing as a separate company? (Not that that necessarily has to be the outcome - you could sell your content to a multitude of different companies - but exclusive deals seemed to be how most media companies were operating.)
I agree. I think it is easy to criticize the media companies in hindsight for the decisions they made. I have written elsewhere that I was an advocate for years of Time Warner making a big push into streaming by creating a Time-Warner wide SVOD service that was branded HBO. (I have a deck as far back as 2012 advocating that.) The decision that Jeff Bewkes made instead - to sell the company - was the right one and seems more right by the day.
So, yes, they were between a rock and hard place - launch your service, throw all your resources into it, accelerate the demise of traditional pay TV and pressure your returns - or risk irrelevancy, as you describe. There wasn't even really a viable middle path of investing prudently in a streaming service while also and trying to maintain linear - that's what Paramount tried initially and it got a lot of heat for being on the fence.
Disruption is a very powerful force and when it takes hold it is very hard to prevent. I don't think there were any good choices other than what Bewkes and Murdoch decided - to exit!
This is a great read
Thanks, very interesting. I think there is another reason for all those companies to put "all their eggs in the streaming basket", and it was the hope of finding more value in the "big data" than they finally seem to have been able to obtain, so far. I think it was a promise that has not been fulfilled.
Thanks. I think that's right, on both counts.
Good piece, although I have been pretty consistently making the opposite argument. Although I am well aware that the industry is closer to your point of view than mine.
A primary reason why the cable bundle throws off so much revenue is that is was essentially a monopoly. There wasn't any easy way to watch the channels without subscribing to a bundle. And because there were few options, companies felt no competitive pressure to moderate prices. Any carriage increase just passed through the consumer and most favored nation agreements meant there was no worry that customers would go elsewhere.
I agree that MVPDs offering various streamers as some sort of a soft bundle will slow the erosion. But that's the best case scenario.
FWIW, this was my rant from yesterday:
https://toomuchtv.substack.com/p/too-much-tv-your-tv-talking-points-d52
Hi Rick. Thanks for the comment and sorry for the delay. I'm not sure we disagree that much.
I agree that the TV value chain was overearning because of the forced bundling model. Netflix came in, broke the bundle, and wrung out the excess returns. The horse has left the barn on that - the old forced bundle is never coming back.
However, the media companies' compounded the damage by their reaction to this disruption: underpricing their streaming services; the belief that everyone needed to own their own streaming service; sky high content and marketing spend; and the compression of multiple windows into one window.
So, while the former effect is irreversible, the latter effect is reversible. That's what you are currently seeing: price increases, new ad tiers, lower content spend, more analytical approaches to marketing, more licensing, re-embracing the theatrical window, etc. The big remaining opportunity is to "re-bundle," albeit this time in a way that is mutually beneficial for the providers and the consumer - a bundle that offers choice, savings and convenience, while also boosting aggregate revenue and reducing churn. The point of the piece was that the MVPDs should play a key role here, if the industry can work together.
But the old days are never coming back.
From the perspective of a tech-savvy sports-fan consumer, part of the problem with TV Everywhere was that ESPN had been offering games on all their linear platforms on the service then known as ESPN360 for free to customers of participating ISPs. To then lock those games behind the clunky authentication mechanism, which only a handful of providers were participating in at first, felt downright offensive and turned me off of the whole concept. I've resisted authentication ever since (helped by my not living on my own at any point so I'd have to use my parents' login) but the Charter-Disney deal may be the point that causes me to admit defeat, in part because, like you, I like what it means for the future of the bundle.
Another reason media companies flocked to start their own streaming services was because it seemed like an existential matter for their businesses. If you listen to certain stock market analysts, the main alternative to running your own streaming service is to become an "arms dealer" selling your content to the highest bidder. But with the pressures facing both the linear pay TV industry and movie theaters, streaming services started to look like they were going to become the main if not sole mechanism for consuming content for the majority of consumers, and they were increasingly spending money to produce their own content. If you can't make your own streaming service work, and you're just selling your wares to a streaming service, what's stopping them from just buying you outright? What are you even doing as a separate company? (Not that that necessarily has to be the outcome - you could sell your content to a multitude of different companies - but exclusive deals seemed to be how most media companies were operating.)
I agree. I think it is easy to criticize the media companies in hindsight for the decisions they made. I have written elsewhere that I was an advocate for years of Time Warner making a big push into streaming by creating a Time-Warner wide SVOD service that was branded HBO. (I have a deck as far back as 2012 advocating that.) The decision that Jeff Bewkes made instead - to sell the company - was the right one and seems more right by the day.
So, yes, they were between a rock and hard place - launch your service, throw all your resources into it, accelerate the demise of traditional pay TV and pressure your returns - or risk irrelevancy, as you describe. There wasn't even really a viable middle path of investing prudently in a streaming service while also and trying to maintain linear - that's what Paramount tried initially and it got a lot of heat for being on the fence.
Disruption is a very powerful force and when it takes hold it is very hard to prevent. I don't think there were any good choices other than what Bewkes and Murdoch decided - to exit!
The quality of this essay is a level above what you would read in The Economist. An example of newsletters at their very best.
Thanks Will, means a lot from you!