One of the great cons of this era is the idea that cable/satellite are the only bundlers and that the end days of bundling have come.
Let’s get past our parents’ paradigms and deal with today. Every network is a bundler. Netflix is a bundler. Hulu and Amazon and Crackle and HBO and your local PBS station are all bundlers. They all sell their bundles differently. But they are all in the business of buying/creating content and finding an audience that generates revenue, whether by ads, subscriptions, a combination, or some other model.
Because of media’s hipster lust for the new story, the culture lives in the illusion that there is some profound difference between, say, Netflix and ABC. And there are some real differences. But in the end, they are both paying for content to get viewers. ABC needs advertisers so their network can be “free,” but they also generate money from affiliates and cable/satellite retransmission fees. Netflix needs to keep enough content at a high enough interest level to keep subscribers and generate new subscriptions. They are delivered via different wires. But still, they are very much the same at the core.
Differentiation is real, but mostly it’s a game. Newer content on a network. Fuller swaths of older entertainment on Netflix. Put up with commercials on a network. Put up with a monthly fee on Netflix. You know, if everyone who watches network TV paid only $3 a month for that service, a network would generate $36 billion a year on what is aired on the network alone (aka excluding ancillary markets). Obviously there are content costs, but that’s real money. And a network offers more than 1,300 hours a year of original, first-release content. Netflix is selling its originals hard, but you’re looking at fewer than 100 hours a year of new content.
I’m not running down Netflix. Their bundle is of great value—real and perceived—to a lot of people (including this subscriber). But we are at the very beginning of the shake-out of this new technology that allows Everything Everywhere and even just on your TV, the “everything” is a major evolutionary step.
Let’s not even get into the ramification of expanding the options of consumers from a very, very small stream (no pun intended) 30 years ago to a constantly widening one between then and, say, two years ago, to the expansion we are now in, to literally every film and TV show ever made that is in condition to be transmitted. Everything is where we are headed. It’s not that people need it. But there are fewer and fewer reasons not to make more available and the ability to do so width quality is getting cheaper and cheaper, versus and ongoing narrowing of the audience that wants “4-quadrant” entertainment. (There is a whole different conversation about movies there… but not having it today.)
The assumption media has been dining on for the last few years is that the paradigm shift will destroy existing businesses. And some will go. But slowly, the industry seems to be learning a vital lesson. No one really cares about how they get the content. They care about getting it, it looking reasonably good, and it not costing them much more than they are now used to paying on a monthly basis.
The reason for consolidation-mania right now is that the industry is going to be sliced up like a pizza again soon…in the next few years. And if you want to be one of the surviving, thriving bundlers—I suspect that each household will be paying about 10-15 content providers, 1 internet provider, 1 wireless provider, and anywhere from 1-3 big picture bundlers who you actually write the check to/e-debit to every month. If you aren’t one of that group—and there will be competition in all areas, but as we have seen for decade of the wireless/cable era, not many thriving competitors—you are done.
In many ways, this is Betamax vs. VCR and Blu-ray vs. HD all over again. It’s a much bigger picture. But consumer buyers of content do not want to work very hard to make their choices or purchases, no matter how media or hipsters paint the picture.
Aereo matters because it is challenging the ownership of content. However, it is meaningless in the big picture because if there are easy alternatives, no one is going to pay a monthly fee to have local TV streamed. It only works if it is the only option. And that is already iffy, getting more iffy every day. Aereo is nothing but a con to create a sale to a bigger company. Barry Diller is smarter than to believe otherwise. Forget the issue of stopping broadcasting (which is may be a bit early to do), but why would the broadcast networks allow Aereo to continue to grow rather than to give the power of streaming to everyone with cable or satellite? They wouldn’t. And WatchABC and WatchESPN are overt signals of that. (Again, as a DirecTV subscriber, deals have not been made to give me access to either streaming service yet… but it will… because eventually, it will become a problem for DirecTV and a sales tool for all its competitors market-by-market. But that’s another piece.)
Everyone who bundles is getting ready for the war. The War Of Deep Pockets. A war of attrition. A war that resets the map for the next 20-to-30 years once the dust settles. And any “country” that is not prepared to fight will have to be ready to be occupied by one of the bigger groups, whether cable companies, satellite companies, content companies, or even outside players who see an opportunity here to become mega-companies.
Why was Hulu not sold? Because Hulu with deep pockets is a serious asset in these wars. The $750m they say will be invested in Hulu is a little light, but with the price tag of $300m a year for a studio’s film and TV content (for the next 5 years or so), it’s enough to put up a serious challenge to Netflix (though Universal, Sony, and Fox are the only “available” studios right now).
Are you a documentary streaming business? There are a bunch of them. 1 or 2 will survive. And the only way that company (or two) will survive is by eating all the other ones. Very, very few consumers are going to pay monthly for a number of doc streamers. Millions will pay for doc streaming that offers a high percentage of total docs being made and the back library of title. No one is getting out alive with 75,000 subscribers.
People don’t want so much choice.
If you are a local affiliated station, you still have some life in you. But we are near a time when direct delivery by networks is more than a clever notion. ABC is doing it now… though they choose to do it through their local Owned & Operated stations… they have a vested interest in making it work for their own investment. Great. Who will be next for WatchABC (the WatchCBS and WatchNBC and someday, WatchFOX)? The biggest affiliate group that is willing to do it. Divide and conquer. ABC can nationalize streaming and at the same time, increase the value for their local affiliates, who pay for the privilege… and will pay more and more.
Being a small affiliate group means getting the crappiest deal. You will get a deal. But it will be the dregs because you don’t change the game for the big multinational company that is really running the show.
If you are DirecTV, the threat of losing NFL Sunday Ticket looms… and if it goes, it has huge ramifications for the company. Simply, at least 20% of DirecTV customers are there for the NFL and they are locked into a noncompetitive position because there is only one NFL provider like Sunday Ticket. But the day that changes, there will be at least three competitors in every market knocking on the door, trying to pry away customers who were previously 95%+ locked up.
Major League Baseball, which has a lot more content than the NFL, still offers packages through providers, but also offers its own MLB.TV, which offers every non-national (or non-national conflicting) game out of your local TV market for less than the cable/satellite providers and to all forms of streaming, including HDTV, pads, and phones. The NFL will weigh what they think they can generate with their own NFL.TV and DirecTV will be challenged to pay 105 or more over that. And like MLB.TV, if NFL does it themselves, it will surely integrate the local stations so there is no loss to them, only added viewers to their national (and perhaps local) ads.
Now… do you know any major sports fan who pays for these packages who is going to change their cable or satellite package if the price matches or is better than buying the separate bundles and includes similar streaming options? Of course not. Why change? And that is why cable and satellite can survive. The wires are already in the ground or signal in the air. If consumers don’t have to choose one service over the other, they won’t. And even with all these pieces, they are all interconnected and benefit from being so.
But you don’t want to be the little kid on the field. Not now. Not while teams are being picked.
It’s really that simple (and that complex).