A shift in the balance of power
By Kate Bulkley
For Broadcast August 22, 2013
OTT services are changing the TV landscape, says Kate Bulkley
I’m taking a break in the US at present, but even on holiday it’s worth keeping an eye on some key TV industry trends – not least as what’s happening in the States is often a good indication of what will soon happen in the UK.
So when my DirecTV system broke down (it’s a satellite pay operator, a US equivalent of BSkyB), I noted that the company’s response was marvellously efficient.
It sent out an engineer the next day, who identified the fault and promptly installed a new dish on my roof and super-small set-top boxes for both my TVs. I paid $50 for the callout – and nothing for all this fancy new equipment.
I thought all this was pretty impressive – and extremely cheap – and the reason is simple: the pay-TV companies (both satellite and cable) are less scared of each other now than they are of the emerging OTT services such as Netflix and Hulu.
That power shift is having dramatic consequences in the US. Time Warner has been battling with CBS over VoD rights, a fight that has led the cable company to block the broadcaster from its system for more than three weeks.
Can you imagine Virgin Media blanking ITV for that long? CBS, home to the likes of The Big Bang Theory, wants to unbundle its VoD rights so it can extract an extra payment from Time Warner, while also negotiating with Netflix et al for the same rights. Both sides know that VoD is an important revenue stream and neither wants to blink in a showdown of great significance.
Meanwhile, consolidation is in the air among the pay-TV industry. Liberty Global’s John Malone has been on a buying spree (including the purchase of Virgin Media in the UK) and there is now talk that Malone is pursuing the purchase of the much bigger Time Warner Cable, which has an enterprise value of $55bn.
Malone, CableVision boss Chuck Dolan and Dish Network owner Charlie Ergen (the big boys of pay TV) are trying to figure out their next move against the power of content owners, and the fast and furious OTT crowd that is willing to write big cheques for key shows.
Google and Intel are the latest companies to get in on the OTT act. Google recently launched its Chromecast dongle, which allows users to put the internet on their TV from other devices, and former BBC tech guru Erik Huggers is launching a service at Intel that will offer TV in the US without a cable or satellite hook-up.
Dish Network’s Ergen told analysts this month that consolidation is the way for pay-TV operators to counter the “monopolistic” power of programmers, who are raising their rates by three to five times inflation.
Michael White, the chief exec of Dish’s biggest competitor DirecTV, concurs, telling analysts: “The balance between content providers and distributors is out of whack. Further industry consolidation does make sense to help address what I think are unsustainable cost increases for the average customer.”
No wonder rumours about a DirecTV and Dish Network merger are rife. After all, the first question I asked my DirecTV engineer after he hooked up my set-top box was: “How can I get Netflix on my TV?”