By Andrew Devine (Strategy Consultant / ex-HBO, Paramount, Universal) | @a_devine | 4 min read
Content from OTT services such as Netflix and Amazon Prime has typically been met with initial skepticism from Pay TV traditionalists. In years past, general punditry usually went something like this:
2013: First OTT original series – “Internet required? No commercials? Watch it all at once? It’ll never work!”
2015: First OTT original film – “OK, TV worked but movies are meant for dark rooms and strangers!”
2017: First OTT NFL game hosted by Amazon – “I’m only here for toilet paper and Mrs. Maisel! Sports belong on TV!”
This sentiment was supported by the market’s overall projections. Back in 2015, 2020 Domestic OTT revenue was projected at $19B; Pay TV at $113B. 2020 actuals? OTT: $46B; Pay TV: $73B – essentially a $30B swap v. projection. And now, post-COVID, OTT is projected to grow by a whopping $42B $88 billion by 2025. Pay TV? $56B.
Before you weep for Pay TV, look at those numbers again because, although cord-cutting has been accelerating for a decade, Pay TV and OTT can finally hold hands. Despite Pay TV’s drop over the next four years, OTT adds total value in excess of +$25B.In other words: for every dollar lost by Pay TV, there are nearly three gained by OTT.
If I’m John Stankey at AT&T, I am hounding Jason Kilar to transfer as much value from my Pay TV networks to HBOMax where my overall economics are most favorable. Disney+, Paramount+, Netflix and the other major Hollywood players are all having similar conversations and have already figured out how to shift a sizable chunk of customers away from Pay TV via original and library animation, television, films, and even reality content. So what’s left?
Sports and News. According to MoffettNathanson, 86% of Pay TV subscribers point to Live Sports and News as their main reasons for NOT cutting the cord. Though Amazon has offered Thursday night football via Amazon Prime and Twitch since 2017, thanks to the recent NFL and NHL deals and with numerous other league right negotiations inevitably around the corner, OTT subscribers will have the ability to stream the Final Four then watch SpongeBob all in one place for only $9.99 a month. If that’s the case, and we’re strictly thinking Sports, what’s stopping the great migration from Pay TV to streaming?
- Availability of Games on OTT? — Not really, actually. Only 9% of sports fans are diehards that watch the regional, non broadcast games. Even FuboTV who dominates in availability can’t attract all casual fans.
- Interest in sports in general is dwindling so it’s not worth the investment? — While this is true for Gen Z, March Madness viewership just hit an apex, and the recent monstrous NFL deals suggest otherwise.
- Stream quality? — Bingo! Pay TV offers 4k resolution, 60 fps, 5.1 surround, near instant channel to channel swapping, pause, ffwd, rwd, etc. all with zero lag near 100% of the time. OTT cannot claim the same. Until OTT stream quality is good enough for sports bars and Super Bowl parties, it’s sidelined.
The Media Chiefs overseeing both OTT and Pay TV divisions are in a bit of a pickle. On the one hand, every Hollywood CEO is approaching the Streaming Wars as winner takes all, so acquiring Sports programming and investing in broadband infrastructure will be key. On the other, what’s available now works for millions of dedicated subscribers. Abandoning them too soon will leave crucial capital on the table, hamstringing the sports cash cow that is fueling their continued push in the overall content arms race. Thus, how much of the $17B linear loss do they give up to get a portion of that $42B OTT gain? Fortunately, these hybrid deals with the NFL and NHL create an opportunity to figure out the right mix over the next several seasons; time that will also be spent upgrading broadband and platform infrastructure to prepare for the day where Pay TV inevitably joins the ranks of DVDs and Movie Theaters.
As a look forward, let’s game out a few possible paths in this next era of sports viewership and OTT competition for livestream domination.
- WarnerMedia strikes a deal with the NBA through its forthcoming HBOMax AVOD tier – simulcasting games currently hosted on TNT and TBS on its streamer in a move similar to Peacock’s six game exclusive with the NFL.
- Fox Sports’ regional assets and NFL Red Zone are bought by OTT platforms that do not have a sister Pay TV presence. Our bet is on Amazon or Apple TV+ acquiring each for 150-200% of their most recent price tags $10.6B and $1.5B/year respectively.
- Traditional transactional VOD platforms like Amazon, Apple TV+, YouTube and Roku integrate one-off, sports PPV micro transactions, ie, $4.99 to watch Game 7 of the World Series; MLB and broadcasters get a cut.
- With 26% of the reason Pay TV subs haven’t cut the cord, Live News viewers will be the next target. Given their perceived political affiliations, it is difficult to see CNN suddenly showing up on HBOMax or MSNBC with Peacock. Look for an add-on option for an additional fee. Also possible: news channels to become their own add-on ‘channels’ on aggregators like Amazon, Roku or Apple TV for fees significantly larger than an HBOMax ‘add-on’ price.