Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 1 INTRODUCTION In the last few months the unthinkable has happened. A cable TV channel, one that has been with pay television from the beginning, one widely held as an anchor tenant of the franchise, has decided to launch a standalone OTT service. HBO will begin signing up Internet customers in 2015 without requiring that they have a pay TV subscription. The move by HBO has been greeted with raised eyebrows by some in the industry. NBC Universal head Steve Burke said of the HBO move that “it’s going to be a challenge for them to not cannibalize what is already a really, really good business.” 1 Despite the cautious industry reception to HBO’s announcement, others have decided to follow the lead. CBS launched a $5.99 per month OTT subscription service called CBS All Access. And Showtime has said it will also launch direct to consumer Internet service in 2015. 2 Others have decided to keep their content safely ensconced behind the pay TV wall. Chase Carey, COO of Fox, said the company has no imminent plans to offer its own content direct to consumers over the Internet. What could be inducing cable stalwarts to potentially put the billions of dollars they earn from pay TV at risk by going direct to consumers OTT? This paper offers four solid reasons why they are taking the risk. Taken together, these four reasons explain why any cable TV channel can, and should, launch their own OTT TV service now. Though it may be challenging to avoid cannibalization of pay TV revenue streams, it is not impossible and may lead to growth in both viewers and revenue. Taking pay TV channels OTT direct: Four reasons to launch standalone service now Author: Colin Dixon, Founder and Chief Analyst, nScreenMedia | Date: December 4, 2014 This paper presents four reasons that explain why any cable TV channel can, and should, launch their own OTT TV service now. This paper was made possible by the generous sponsorship of www.schange.com
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Taking Pay TV Channels OTT Direct: Four Reasons to Launch
Standalone Service Now | Page 1
I N T R O D U C T I O N
In the last few months the unthinkable has
happened. A cable TV channel, one that has been
with pay television from the beginning, one widely
held as an anchor tenant of the franchise, has
decided to launch a standalone OTT service. HBO
will begin signing up Internet customers in 2015
without requiring that they have a pay TV
subscription.
eyebrows by some in the industry. NBC Universal
head Steve Burke said of the HBO move that “it’s
going to be a challenge for them to not cannibalize
what is already a really, really good business.”1
Despite the cautious industry reception to HBO’s
announcement, others have decided to follow the
lead. CBS launched a $5.99 per month OTT
subscription service called CBS All Access. And
Showtime has said it will also launch direct to
consumer Internet service in 2015.2
Others have decided to keep their content safely
ensconced behind the pay TV wall. Chase Carey,
COO of Fox, said the company has no imminent
plans to offer its own content direct to consumers
over the Internet.
potentially put the billions of dollars they earn
from pay TV at risk by going direct to consumers
OTT? This paper offers four solid reasons why
they are taking the risk.
Taken together, these four reasons explain why
any cable TV channel can, and should, launch their
own OTT TV service now.
Though it may be challenging to avoid
cannibalization of pay TV revenue streams, it is
not impossible and may lead to growth in both
viewers and revenue.
Ta k i n g pay T V c ha n n e l s OT T d i re ct : F o u r r e a s o n s t o l a u n c h s t a n d a l o n e s e r v i c e n o w
Author: Colin Dixon, Founder and Chief Analyst, nScreenMedia | Date: December 4, 2014
This paper presents four reasons that
explain why any cable TV channel
can, and should, launch their own
OTT TV service now.
generous sponsorship of
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 2
R E A S O N 1 : I T ’ S A L L A B O U T D A T A
“ Standard
Richard Quest, the CNN International News Anchor, described the predominant model of media delivery
today as “standard products to passive recipients.”3 It is becoming increasingly clear that the key to success
in an IP world is anything but standard and passive.
Inside the pay TV bundle, neither HBO nor CBS gets much data on how the content is consumed by viewers.
Lack of viewer data limits their ability to tailor the experience to each individual. Yet that is precisely what
an increasing number of viewers are coming to expect. By tracking how, when and where viewers are
watching content, HBO and CBS will be able to create an experience closely attuned to the needs of
customers.
This data will inform every part of their business. For example, Netflix uses its extensive user data to figure
out what type of content to create, and even the impact of a new show on subscriptions.
Internet natives already know this and are riding the data to huge viewership. Michelle Phan, the YouTube
make-up queen, interacts with her audience constantly through social media. She uses this interaction to
find out what her audience wants her to cover and creates content to fit. And it works. Her YouTube
channel has 6.4 million subscribers, driving 18 million monthly views and 2.8 million average views per
video.4
HBO and CBS need the audience data to commission content much more accurately targeted to their
audience. In the case of CBS, this also allows for more accurate targeting of advertising. And better targeted
ads are more likely to be watched by viewers and, as a result, are more valuable.
There is already ample evidence in the market that viewers are increasingly comfortable with being more
actively involved with what they watch. Ericsson forecasts that by 2020, 50% or more of what people
watch will be on-demand. In some market segments we may already be passed that point.5
Mr. Quest is exactly right in his characterization of old media as standard products to passive recipients.
Audiences are becoming increasingly active in their viewing. If content providers stick to their mass-
market standard product ways they will find themselves relegated to the sidelines by content companies
that leverage the full power of the user data they obtain from their OTT services.
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 3
R E A S O N 2 : G O F O R I N C R E M E N T A L R E V E N U E
“All in, there are 80
million homes that do not
have HBO and we will use
all means at our disposal
to go after them.”
Richard Plepler, CEO, HBO
Discussion
HBO growth inside the pay TV package is stalled. Every pay TV subscriber that wants HBO under the current
business terms has it. Numerous marketing approaches have been tried, from free weekends to broadband
bundles, yet the company simply can’t push much beyond the 30M subscribers it currently has. Further, the
company has seen Netflix blow passed this number of subscribers in the last year, with no signs that things
are going to slow down.
The company is clearly aware it needs to do something new to ignite growth. Mr. Plepler (HBO’s head) said:
“All in, there are 80 million homes that do not have HBO and we will use all means at our disposal to go after
them.”6 This is why the company decided to go direct to consumers in 2015.
Going direct over the Internet for traditional media companies is certainly nothing new. Sky, the UK satellite
company, decided to take the same approach in 2011 with its OTT standalone product Now TV. UK
consumers can buy access to all 7 Sky Sports channels for £6.99 a day or subscribe to a movie package on
monthly basis for £14.99. This approach appears to be working with company officials crediting Now TV with
helping lift subscriptions 70,000 in the first quarter of 2014.7
Sky’s Now TV offers
premium sports a la carte
to Internet users
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 4
R E A S O N 3 : B E R E A D Y T O “ F L I P T H E S W I T C H ”
“ We’re well-
marketplace demands
need to do that now.”
Bob Iger, Chariman and CEO, Disney
Discussion
While no one wants to rock the pay TV boat, it’s also becoming clear consumers are increasingly enamored
with the web approach to media. If a large number of pay TV subscribers were to decide to disconnect pay
TV, it just makes good sense to be ready to react. As Bob Iger said: “We’re well-positioned to go direct to
the consumer if the marketplace demands it, but we don’t feel a need to do that now.”8
Is this likely to happen soon? Apparently not. The number of US pay TV subscribers has been static at a
little over 100 million for the last 5 years. However, there are some worrying signs for the future. The
young do not seem to have the same affinity for traditional TV as older age groups.
Millennials put considerably less stock by pay TV than the rest of the population. Just 63% of 18-29 year
olds with broadband report also have pay TV.9 That is 11% below the average ownership and 14% lower
than the 30-49 year olds. This substantial difference is probably due to the 19% that have never subscribed
to the service, since cancellation rates amongst millennials are identical to the 30-49 year olds.10 And it is
with the 19% that have never subscribed to service that operators have the biggest challenge. Just 2% of
that group say they are considering subscribing in the next three months.11
Simply put, there is no better way to be ready for a mass migration away from pay TV than to have a
standalone OTT service already in market.
74%
63%
77%
78%
16%
18%
18%
14%
10%
19%
5%
8%
Average
Millennials
30-49
50+
© nScreenMedia, 2014
(n=1000)
(n=364)
(n=389)
(n=247)
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 5
R E A S O N 4 : L O O K F O R N E W O N L I N E O P P O R T U N I T I E S
“ There are 10 million
they do want CBS
Discussion
The web is already bringing disruption to some areas that have traditionally been pay TV strongholds.
With disruption, comes opportunity. That is what Disney’s purchase of Maker Studios is all about, and what
CBS is up to pitching CBSN into the volatile world of online news. As Les Moonves, CBS President and CEO,
said: “There are 10 million homes that have broadband only. They don’t have cable, they don’t have
satellite. But they do want CBS content.”
Mr. Moonves has set his sights on one of the fastest growing new audiences in media today: the large and
growing community of people that rely on a variety of non-pay TV sources for their entertainment. Since
2010 this group has steadily increased, from 17.8 million US households to 22.6 million in 2014. Over half
of these homes have access to video over broadband. According to Parks Associates, there are 94.5 million
broadband homes in the US today and 14% (or 13.2 million) do not have pay television.12
CBSN could be a great product for those broadband only homes. It is also a great way of leveraging CBS’s
extensive news infrastructure in a new way that doesn’t compete with other CBS properties. For existing
pay TV channels, a careful look at existing assets could uncover new opportunities for them online.
96.9 99.4 100.1 100.4 100.4 100.9 100.7
19.9 17.8 17.4 19.6 20.7 21.6 22.6
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4
US HOUSEHOLDS WITH AND WITHOUT PAY TV - 2008 TO 2014
Pay TV HHs Non-Pay-TV HHs © nScreenMedia, 2014
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 6
C O N C L U S I O N
Just by being present online with content that is
traditionally only available in pay TV does
increase the possibility that cord cutting could
catch fire. And this, in turn, does put at risk pay TV
revenues. However, this paper illustrates that
there are also risks in not launching OTT direct to
consumers!
the opportunity to future-proof content value will
be worth the risk of launching outside the pay TV
bundle.
content providers can minimize the risk of over-
turning the pay TV apple cart.
References
1 Shalini Ramachandran and Amol Sharma, “Comcast Dubious About HBO’s Web Video”, The Wall Street Journal, October 23, 2014
2 Colin Dixon, “CandW Discuss TV ads, CBS OTT ad-support live TV News”, nScreenMedia, November 6 2014 3 Richard Quest speaking at the Ericsson Media Summit, NYC, October 29 2014 4 Case Study, “YouTube Creator Stories: How Michelle Phan Became Everyone’s Beauty Bestie”, think with
Google, May 2014, https://www.thinkwithgoogle.com/case-studies/michelle-phan.html (accessed on 11/25/14)
5 Simon Frost, Head of TV Marketing, Ericsson, speaking at the Ericsson Media Summit, October 29 2014 6 Ryan Waniata, “HBO breaks free of cable, will offer online-only subscriptions in 2015”, Digital Trends, October
15 2014, http://www.digitaltrends.com/home-theater/hbo-go-break-free-cable-chains-2015/ (accessed on 11/26/14)
8 Marc Graser, Disney Downplays a la Carte Plans as ESPN Preps OTT Services”, Variety, November 6 2014, http://variety.com/2014/digital/news/disney-downplays-a-la-carte-plans-as-espn-preps-ott-services- 1201350086/ (accessed on 11/26/14)
9 Colin Dixon, View My Video: Consumer Digital Media Consumption, nScreenMedia, Q2 2014 10 Colin Dixon, ibid. 11 MarketingCharts staff, Pay-TV Subscription Trends Among Millennials, marketingcharts.com, April 8, 2014,
www.marketingcharts.com/wp/television/pay-tv-subscription-trends-among-millennials-41842 (accessed on 7/8/14)
www.nScreenMedia.com
generous sponsorship of
future-proof content value worth the risk of
launching outside the pay TV bundle.”
Colin Dixon
I N T R O D U C T I O N
In the last few months the unthinkable has
happened. A cable TV channel, one that has been
with pay television from the beginning, one widely
held as an anchor tenant of the franchise, has
decided to launch a standalone OTT service. HBO
will begin signing up Internet customers in 2015
without requiring that they have a pay TV
subscription.
eyebrows by some in the industry. NBC Universal
head Steve Burke said of the HBO move that “it’s
going to be a challenge for them to not cannibalize
what is already a really, really good business.”1
Despite the cautious industry reception to HBO’s
announcement, others have decided to follow the
lead. CBS launched a $5.99 per month OTT
subscription service called CBS All Access. And
Showtime has said it will also launch direct to
consumer Internet service in 2015.2
Others have decided to keep their content safely
ensconced behind the pay TV wall. Chase Carey,
COO of Fox, said the company has no imminent
plans to offer its own content direct to consumers
over the Internet.
potentially put the billions of dollars they earn
from pay TV at risk by going direct to consumers
OTT? This paper offers four solid reasons why
they are taking the risk.
Taken together, these four reasons explain why
any cable TV channel can, and should, launch their
own OTT TV service now.
Though it may be challenging to avoid
cannibalization of pay TV revenue streams, it is
not impossible and may lead to growth in both
viewers and revenue.
Ta k i n g pay T V c ha n n e l s OT T d i re ct : F o u r r e a s o n s t o l a u n c h s t a n d a l o n e s e r v i c e n o w
Author: Colin Dixon, Founder and Chief Analyst, nScreenMedia | Date: December 4, 2014
This paper presents four reasons that
explain why any cable TV channel
can, and should, launch their own
OTT TV service now.
generous sponsorship of
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 2
R E A S O N 1 : I T ’ S A L L A B O U T D A T A
“ Standard
Richard Quest, the CNN International News Anchor, described the predominant model of media delivery
today as “standard products to passive recipients.”3 It is becoming increasingly clear that the key to success
in an IP world is anything but standard and passive.
Inside the pay TV bundle, neither HBO nor CBS gets much data on how the content is consumed by viewers.
Lack of viewer data limits their ability to tailor the experience to each individual. Yet that is precisely what
an increasing number of viewers are coming to expect. By tracking how, when and where viewers are
watching content, HBO and CBS will be able to create an experience closely attuned to the needs of
customers.
This data will inform every part of their business. For example, Netflix uses its extensive user data to figure
out what type of content to create, and even the impact of a new show on subscriptions.
Internet natives already know this and are riding the data to huge viewership. Michelle Phan, the YouTube
make-up queen, interacts with her audience constantly through social media. She uses this interaction to
find out what her audience wants her to cover and creates content to fit. And it works. Her YouTube
channel has 6.4 million subscribers, driving 18 million monthly views and 2.8 million average views per
video.4
HBO and CBS need the audience data to commission content much more accurately targeted to their
audience. In the case of CBS, this also allows for more accurate targeting of advertising. And better targeted
ads are more likely to be watched by viewers and, as a result, are more valuable.
There is already ample evidence in the market that viewers are increasingly comfortable with being more
actively involved with what they watch. Ericsson forecasts that by 2020, 50% or more of what people
watch will be on-demand. In some market segments we may already be passed that point.5
Mr. Quest is exactly right in his characterization of old media as standard products to passive recipients.
Audiences are becoming increasingly active in their viewing. If content providers stick to their mass-
market standard product ways they will find themselves relegated to the sidelines by content companies
that leverage the full power of the user data they obtain from their OTT services.
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 3
R E A S O N 2 : G O F O R I N C R E M E N T A L R E V E N U E
“All in, there are 80
million homes that do not
have HBO and we will use
all means at our disposal
to go after them.”
Richard Plepler, CEO, HBO
Discussion
HBO growth inside the pay TV package is stalled. Every pay TV subscriber that wants HBO under the current
business terms has it. Numerous marketing approaches have been tried, from free weekends to broadband
bundles, yet the company simply can’t push much beyond the 30M subscribers it currently has. Further, the
company has seen Netflix blow passed this number of subscribers in the last year, with no signs that things
are going to slow down.
The company is clearly aware it needs to do something new to ignite growth. Mr. Plepler (HBO’s head) said:
“All in, there are 80 million homes that do not have HBO and we will use all means at our disposal to go after
them.”6 This is why the company decided to go direct to consumers in 2015.
Going direct over the Internet for traditional media companies is certainly nothing new. Sky, the UK satellite
company, decided to take the same approach in 2011 with its OTT standalone product Now TV. UK
consumers can buy access to all 7 Sky Sports channels for £6.99 a day or subscribe to a movie package on
monthly basis for £14.99. This approach appears to be working with company officials crediting Now TV with
helping lift subscriptions 70,000 in the first quarter of 2014.7
Sky’s Now TV offers
premium sports a la carte
to Internet users
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 4
R E A S O N 3 : B E R E A D Y T O “ F L I P T H E S W I T C H ”
“ We’re well-
marketplace demands
need to do that now.”
Bob Iger, Chariman and CEO, Disney
Discussion
While no one wants to rock the pay TV boat, it’s also becoming clear consumers are increasingly enamored
with the web approach to media. If a large number of pay TV subscribers were to decide to disconnect pay
TV, it just makes good sense to be ready to react. As Bob Iger said: “We’re well-positioned to go direct to
the consumer if the marketplace demands it, but we don’t feel a need to do that now.”8
Is this likely to happen soon? Apparently not. The number of US pay TV subscribers has been static at a
little over 100 million for the last 5 years. However, there are some worrying signs for the future. The
young do not seem to have the same affinity for traditional TV as older age groups.
Millennials put considerably less stock by pay TV than the rest of the population. Just 63% of 18-29 year
olds with broadband report also have pay TV.9 That is 11% below the average ownership and 14% lower
than the 30-49 year olds. This substantial difference is probably due to the 19% that have never subscribed
to the service, since cancellation rates amongst millennials are identical to the 30-49 year olds.10 And it is
with the 19% that have never subscribed to service that operators have the biggest challenge. Just 2% of
that group say they are considering subscribing in the next three months.11
Simply put, there is no better way to be ready for a mass migration away from pay TV than to have a
standalone OTT service already in market.
74%
63%
77%
78%
16%
18%
18%
14%
10%
19%
5%
8%
Average
Millennials
30-49
50+
© nScreenMedia, 2014
(n=1000)
(n=364)
(n=389)
(n=247)
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 5
R E A S O N 4 : L O O K F O R N E W O N L I N E O P P O R T U N I T I E S
“ There are 10 million
they do want CBS
Discussion
The web is already bringing disruption to some areas that have traditionally been pay TV strongholds.
With disruption, comes opportunity. That is what Disney’s purchase of Maker Studios is all about, and what
CBS is up to pitching CBSN into the volatile world of online news. As Les Moonves, CBS President and CEO,
said: “There are 10 million homes that have broadband only. They don’t have cable, they don’t have
satellite. But they do want CBS content.”
Mr. Moonves has set his sights on one of the fastest growing new audiences in media today: the large and
growing community of people that rely on a variety of non-pay TV sources for their entertainment. Since
2010 this group has steadily increased, from 17.8 million US households to 22.6 million in 2014. Over half
of these homes have access to video over broadband. According to Parks Associates, there are 94.5 million
broadband homes in the US today and 14% (or 13.2 million) do not have pay television.12
CBSN could be a great product for those broadband only homes. It is also a great way of leveraging CBS’s
extensive news infrastructure in a new way that doesn’t compete with other CBS properties. For existing
pay TV channels, a careful look at existing assets could uncover new opportunities for them online.
96.9 99.4 100.1 100.4 100.4 100.9 100.7
19.9 17.8 17.4 19.6 20.7 21.6 22.6
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4
US HOUSEHOLDS WITH AND WITHOUT PAY TV - 2008 TO 2014
Pay TV HHs Non-Pay-TV HHs © nScreenMedia, 2014
Taking Pay TV Channels OTT Direct: Four Reasons to Launch Standalone Service Now | Page 6
C O N C L U S I O N
Just by being present online with content that is
traditionally only available in pay TV does
increase the possibility that cord cutting could
catch fire. And this, in turn, does put at risk pay TV
revenues. However, this paper illustrates that
there are also risks in not launching OTT direct to
consumers!
the opportunity to future-proof content value will
be worth the risk of launching outside the pay TV
bundle.
content providers can minimize the risk of over-
turning the pay TV apple cart.
References
1 Shalini Ramachandran and Amol Sharma, “Comcast Dubious About HBO’s Web Video”, The Wall Street Journal, October 23, 2014
2 Colin Dixon, “CandW Discuss TV ads, CBS OTT ad-support live TV News”, nScreenMedia, November 6 2014 3 Richard Quest speaking at the Ericsson Media Summit, NYC, October 29 2014 4 Case Study, “YouTube Creator Stories: How Michelle Phan Became Everyone’s Beauty Bestie”, think with
Google, May 2014, https://www.thinkwithgoogle.com/case-studies/michelle-phan.html (accessed on 11/25/14)
5 Simon Frost, Head of TV Marketing, Ericsson, speaking at the Ericsson Media Summit, October 29 2014 6 Ryan Waniata, “HBO breaks free of cable, will offer online-only subscriptions in 2015”, Digital Trends, October
15 2014, http://www.digitaltrends.com/home-theater/hbo-go-break-free-cable-chains-2015/ (accessed on 11/26/14)
8 Marc Graser, Disney Downplays a la Carte Plans as ESPN Preps OTT Services”, Variety, November 6 2014, http://variety.com/2014/digital/news/disney-downplays-a-la-carte-plans-as-espn-preps-ott-services- 1201350086/ (accessed on 11/26/14)
9 Colin Dixon, View My Video: Consumer Digital Media Consumption, nScreenMedia, Q2 2014 10 Colin Dixon, ibid. 11 MarketingCharts staff, Pay-TV Subscription Trends Among Millennials, marketingcharts.com, April 8, 2014,
www.marketingcharts.com/wp/television/pay-tv-subscription-trends-among-millennials-41842 (accessed on 7/8/14)
www.nScreenMedia.com
generous sponsorship of
future-proof content value worth the risk of
launching outside the pay TV bundle.”
Colin Dixon
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