Pay-TV’s Programming Cost Challenges Said to Dwarf OTT Threat
SILICON VALLEY -- The challenges pay-TV distributors face from looming over-the-top competition pale in comparison to the challenge of managing rising programming costs, said Tom Sauer, vice president of corporate strategy at AT&T, speaking on a panel at the ScreenPlays Media Innovations Summit Wednesday. “At the end of the day that’s what’s killing us all,” he said. “These content costs continue to go up. Those are huge challenges, we have to deal with on a daily basis” and only after dealing with them can distributors begin worrying about other problems, he said.
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Sports programming is “killing the business right now” for pay-TV distributors, said Mark Mangiola, a venture partner with Canaan Partners and former CEO of the @Home Solutions Division of Excite@Home. “The carriers have to be able to say to the ESPNs and RSNs of the world, ‘no more,'” he said. “Some of them are starting to do it,” by putting sports programming on pricier sports tiers that not all subscribers buy, he said.
But the rise of online video distributors poses real challenges to traditional MVPDs, Sauer said. New, over-the-top distributors have a very different business model than traditional distributors or carriers, and that allows them “to come in and price and do things at different margins that create threats to others’ businesses,” he said. “The biggest threat is not specifically any one company, but it’s this very different business model,” he said.
Online video distribution also presents opportunities for traditional pay-TV distributors, said Ann Shaub, director of Connected Home and customer premises equipment for Verizon. For one, it allows distributors to reach more TV sets without having to invest in set-top boxes and lease them to customers, she said, pointing to Verizon’s recent deal to stream some TV programming to the Xbox. “The reality is, one of the biggest complaints from customers we get is ‘Do I seriously need to rent another set-top box,'” she said. And though set-top box leasing generates steady revenue for operators, buying fewer boxes would mean lower capital costs, she said: “The challenge will be, ‘How are you going to make up that rental fee revenue.'”
AT&T’s entire U-verse has been available on Xboxes, but the service hasn’t been a huge hit, he said. “Maybe that’s because of the large upfront fee we charge,” he said. But the real reason could be that customers aren’t accustomed to watching linear TV on their game console he said. VOD on consoles has proven to be a success, but so far linear TV hasn’t, he said.