×

Pay TV goes to war

Smart TV apps challenge dominant MSOs

To understand what market dynamics have yielded the explosion of smart TVs at this year’s CES, consider a simple concept: the immovable object meeting the irresistible force.

The immovable object: the cable operators, satcasters and telcos known as the MSOs. The Comcasts and DirecTVs of this world are so entrenched with both consumers and content companies that they won’t be easily displaced no matter how much dissatisfaction there is out there with them.

The irresistible force: The myriad alternatives to video delivery popping up all around the MSOs, from Netflix to Google TV. But there’s such a beehive of innovation emerging from so many companies that the impact of the so-called “over-the-top” category is irrevocable. NPD In-Stat forecast revenues from online rentals and downloads could double by 2015.

Smart TVs become the playing field where these opposing sides clash, either delivering the traditional TV package through a coaxial cable or wirelessly via broadband connection courtesy of on-screen apps.

These two movements spent much of the year grinding away at each other, starting the rumblings of a seismic shift already shaking American viewing habits. But there’s so much power pressing against each other that the entertainment landscape of the future may emerge from the tension between them as opposed to one force simply ceding ground to the other.

If a fault line has emerged, it’s the subscriber losses many MSOs experienced in recent quarters — damning evidence of cord-cutting, whereby disgruntled multichannel customers move on to cheaper digital options. But the reality of whether cord-cutting actually exists in any meaningful way is more complicated.

The phenomenon may or may not be primarily attributable to housing shortfalls resulting from the sluggish U.S. economy. But few doubt that the steadily increasing cost of multichannel video packages on recession-battered consumers is a factor.

Nevertheless, the trajectory of that cost can only continue to be headed upward given the rash of year-end deals between the most expensive programming package out there, the NFL, and its various channel partners. The 63% increase in programmer payments that will result in the $28 billion in renewals the NFL fetched from 2013-22 will be drawn from the operators, who will ultimately pass that cost onto consumers.

No wonder Credit Suisse found itself in December reversing a growth projection for the MSO business it had issued earlier in the year, revising a 250,000 sub gain to a loss of 200,000. But it also shifted its perspective on the discussion from blaming cord-cutters to what it dubbed “cord-nevers” — younger consumers who would sooner opt for cheaper digital alternatives than sign up for the first time for multichannel packages.

Perhaps the sole reason the TV business hasn’t splintered endlessly across dozens of new digital distribution options is that the networks are locked into hugely profitable deals with MSOs that protect their exclusivity to the content.

Just over half of the $48 billion cable networks collected in revenues in 2010 came from the affiliate fees the MSOs paid to them, according to SNL Kagan. The MSOs will also start to exert more control over broadcasters now that they made $1.47 billion this year in retransmission consent fees — giving them a dual revenue stream that effectively renders them cable channels.

That’s why networks like HBO can’t simply take their current content and make it available simultaneously with a third party like Hulu or go directly to consumers. But the cabler amply proved this year it is fully capable of doing just that with HBO Go, an app that allows only MSO subscribers to gorge on a deep trove of content with a slick interface.

At first blush, Hollywood might seem to have nothing to worry about. While the traditional multichannel world winds down, they compensate for the loss in revenues with sales to these new digital players. But it’s not simple.

“Even a moderate decrease in subscribers could have a disproportionate impact on EBITDA,” warned a Credit Suisse report. “The issue for media conglomerates is that cable network profit dollars are much bigger than studio profit dollars.”

More TV

  • How Cooking-Travel Shows Are Changing TV

    How Cooking-Travel Shows Are Changing TV

    Toyo hunches over his street food stove, cooking tuna with a blow torch, stopping to light his cigarette with it and produce a cheeky grin. The Japanese chef, who owns a roadside stand in the city of Osaka, is one of many highlighted in the Netflix series “Street Food.” Over the course of 30 minutes, [...]

  • SAG-AFTRA HQ

    SAG-AFTRA Leaders Approve Proposal for New Film-TV Contract

    The SAG-AFTRA national board has approved proposals for a successor deal to its master contract covering feature film and primetime television — a key step in the upcoming negotiations cycle with companies. The board approved the package Saturday with the performers union declining to reveal any specifics — its usual policy. The board established the wages [...]

  • Shannen Doherty'Jennie Garth: A Little Bit

    Shannen Doherty Joins 'Riverdale' Season 4 in Luke Perry Tribute

    “Riverdale” is planning to make a special tribute to Luke Perry. The show’s executive producer Roberto Aguirre-Sacasa announced at Comic-Con that Shannen Doherty, Perry’s longtime friend and “Beverly Hills 90210” co-star, will guest star in the season 4 premiere. The tribute episode will “reflect Perry’s enduring legacy and the indelible imprint his character” Fred Andrews [...]

  • Supernatural CW

    'Supernatural' Team Gets Emotional Final Season Sendoff at Comic-Con

    The cast and creative team of “Supernatural” bid a fond farewell to the attendees of San Diego Comic-Con on Sunday. At the show’s final panel in the gargantuan Hall H, the team thanked the fans for all of their support over the years as the series prepares to enter its final season. “I’m trying not [...]

  • Alicia Rodis photographed by Alicia Rodis

    SAG-AFTRA Moves to Standardize Guidelines for Intimacy Coordinators

    SAG-AFTRA is moving to standardize guidelines for intimacy coordinators as part of an effort to establish policies for union members when their work involves nudity and simulated sex. “Our goal is to normalize and promote the use of intimacy coordinators within our industry,” said SAG-AFTRA president Gabrielle Carteris. “Intimacy coordinators provide an important safety net for [...]

  • SDCC TV News Roundup: Syfy Releases

    SDCC TV News Roundup: Syfy Releases 'The Magicians' Season 5 Clip (Watch)

    In today’s SDCC TV news roundup, Syfy shares a clip from “The Magicians” Season 5, and Amazon sets the Season 4 premiere of “The Expanse.” CASTING Julie Gonzalo and Staz Nair have joined the cast of “Supergirl” for its upcoming fifth season. Gonzalo will portray iconic DC character Andrea Rojas aka Acrata, a polished businesswoman [...]

  • Doom Patrol -- Ep. 101 --

    'Doom Patrol' Renewed, Season 2 to Stream on DC Universe and HBO Max

    “Doom Patrol” has been renewed for a second season and will soon be available outside of DC Universe. At San Diego Comic-Con, series executive producer Jeremy Carver and star Diane Guerrero announced not only that the show will be back for another season but also that it will be available on HBO Max, the upcoming [...]

More From Our Brands

Access exclusive content