Another major skirmish is heating up in the media business. As I predicted would happen in my new book "C-Scape," the balance of power has begun to shift from the distributors — like cable and satellite tv companies — to the content creators, who are beginning to understand that the new world gives them countless opportunities to expand their distribution and much more leverage with their distribution partners.
And, with the plethora of new devices, technology and distribution outlets, the better content players not only can expand their distribution, but in order to keep up with their audience’s changing habits they have to expand so they can reach their customers where the customers want to be reached.
A new study from Neilson suggests that so-called “time-shfting” (which means watching a TV show at a different time than it is originally shown on TV) is growing rapidly among US consumers. The number of people watching time-shifted TV jumped from 82 million to 97 million in one year, an 18% increase. The consumer is speaking through his actions.
One of the latest volleys in the developing power war came from Time Warner (NYSE:TWX) head Jeff Bewkes, who told his audience at a media conference in New York yesterday that he could see HBO being offered as a standalone service, outside of the traditional cable, or satellite or other pay TV service.
Those are fighting words to the cable and pay-tv industry, which has given HBO the platform to build a business that reaches 30 million subscribers, frequently as part of packages with other movie and pay tv channels. The cable operators typically offer HBO as one piece of the pie when they sell customers a “bundled tier” of several movie channels for a significant monthly fee, some of which goes to HBO.
He knows that the cable and pay tv industry won’t go down without a fight, so before he leaps he’s going to test a new concept called “HBO Go,” which will allow subscribers to HBO on existing platforms – like Verizon (NYSE:VZ) FIOS, Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T) Universe — to see the network online because they are already paying for it. In that case the distributor is the content provider’s partner and “authorizes” the paying customer to be able to view the programming online.
But, he warned the audience, if he can’t grow his subscriber base as a partner with his existing distributors, he might decide to move the entire business to new platforms.
Bewkes comments came out a day after Needham @ Co analyst Laura Martin reported the results of a survey she did of 300 people who pay a subscription for TV via cable, satellite or other wire. She asked people to reveal which TV channels they had to have available online in order to cancel their subscription service. In other words, what were the most important TV stations to them.
The four major networks came in 1-2-3-4 (CBS, ABC, Fox, NBC), with ESPN just behind them. The next most important was Discovery (NASDAQ:DISCK). Martin said that “Most folks think of the four networks as a monolith. This may be because consumers actually watch shows on all four broadcast networks, or it could be because they have no idea which network their favorite shows are on.”
HBO finished 8th, but that was considered a major victory since it is only in less than one-third of the total homes. They have a loyal, and paying following.
The message is clear, the best content creators have the most power.
For their part, The distributors are trying to enlist consumer support in their negotiations with content providers. And, they are threatening to drop less-popular programming in an effort to keep prices to the consumer down while the more powerful content providers are squeezing them for higher fees.
DirecTV (NASDAQ:DTV) execs told the crowd at their investor day last week that they are looking to at least partly offset fee increases by dropping what Hollywood Reporter called “small, less popular channels.” They pointed to their recent dropping of Comcast’s G4 network as an example. It was not widely viewed and so far has not been missed, according to DirecTV exec Derek Chang.
Hollywood Reporter said Chang admitted that they “have noticed a clear shift of leverage to content owners.” He also said that some of the stronger networks, particularly sports channels, were demanding double-digit percentage growth. Therefore, he said, the satellite service was reevaluating all of its offerings to see what can be taken off and how they can lower their fees.
This kind of pressure threatens what has been a standard business practice for years at television distributors; bundling of networks into “tiers” for a fee. That system has allowed for the growth of many new networks by getting them some revenue early on. And without tiers, many networks may not have gotten started. It’s extremely difficult to build a brand on the web, so many networks relied on the distributor to help build their audience and brand. But the larger, more powerful networks, can piggyback on their existing networks to cross promote.