Power Lawyer Ken Ziffren on Who Wins the Race to Go Over-the-Top (Guest Column)
As 'OTT' becomes 'ASAP' for everyone from HBO to CBS to Nickelodeon, a top lawyer handicaps the new rush to reach millennials and cord-nevers.
This story first appeared in the March 20 issue of The Hollywood Reporter magazine.
It seems of late that there is a (pun intended) virtual tsunami of new and improved over-the-top (OTT) programming services, which mainly are designed to serve the so-called "cord-cutters" or "cord-nevers." I'd like to examine the fundamental issues and concepts for these new services and offer some guesstimates of their likely success.
By "over the top" services, I mean Netflix and Amazon Prime, of course. But I also mean any outlet offering professionally produced content made available on-demand over the Internet (either in lieu of or in addition to linear viewing). Here, content is streamed to connected televisions and other devices. The business model could be subscription, VOD and/or ad-supported. In today's pay TV industry, cable and over-the-air networks are paid affiliate fees ranging from a few cents to about $6 for ESPN, based on the number of subscribers reached, as opposed to the number of viewers actually watching the programs. The current OTT ecosystem is not following the linear TV model, so subscribers are being asked to pay for only the specific channels to which they subscribe; the appeal is made to millennials, mostly, who are willing to limit channels to escape the $80-plus-a-month tab when they subscribe to cable, a telco or satellite.
So in late March, Sony will offer nearly a full suite (lacking Disney/ABC/ESPN and the premium pay channels) of pay TV programming in the $50- to $60-a-month range to its 40 million PlayStation subscribers in the U.S. The user experience is said to be outstanding. The downside, of course, is that the content is the same as on traditional pay TV, meaning there is no exclusive, original programming. And with 12 live channels, Dish's Sling TV will try to attract millennials who would pay $20 a month (plus $5 extra for kids or news) for the same Disney/ESPN/A&E, Scripps and Turner Network content on pay TV, lacking any of the Big Four's fare. I'm doubtful either of these efforts will be world-beaters, but we can admire the risk-taking involved.
The Big Four broadcast networks also are trying to break in. Hulu (owned by ABC, Fox and with NBC essentially a limited partner)
offers delayed viewing of its network shows, plus library content and now expanded original programming on a subscription-plus-ad model. Hulu Plus is priced to compete with Netflix and has reached more than 5 million subs. CBS is offering All Access (but without NFL) with current shows plus library content on a delayed basis, also on a subscription-plus-ad model at a lower price of $5.99 a month. And NBC will launch a comedy subscription service later this year that also will feature its late-night programming at an even lower price ($2.50 to $3.50), presumably plus ads. The issue of how to deal with their respective affiliate stations in these plans has not been revealed, nor how the digital exposure will affect lucrative "off net" distribution deals. We'll have to wait and see.
HBO will launch its HBO Now in early April as a stand-alone product for a $15-a-month fee. Showtime and Starz also are seeking to join the club. In basic cable, several players have announced OTT plans as well as have funded new entrants. Viacom will use Nickelodeon content to start a mobile service in March called Noggin (going after preschoolers) at $5.99 a month plus ads. Discovery shortly will mount its service with science, technology and nature-focused nonfiction content from its rich library as well as current content from OWN, Science and other channels. And its former chairman John Hendricks will finance, along with venture capital investors, an ad-free subscription service called CuriosityStream featuring programming in four broad categories — science, technology, civilization and human spirit — at prices ranging from $2.99 to $9.99 based on video resolution. The latter two services have a goal of reaching 5 million to 7 million subs in three to five years.
Perhaps more radical but certainly notable are channels seeking superfan subscribers. These range from sports (e.g., tennis, golf, wrestling) and news to faith or religious content to personality-driven, like what Lloyd Braun's Whalerock Industries is doing with such celebrities as Howard Stern and the Kardashians. Disney CEO Robert Iger has hinted at potential OTT services based on the Star Wars and Marvel brands. These don't necessarily have a demographic base, as do the others mentioned above. Likely they will be subscription-based, with ads depending on how risque the content, but certainly with VOD potential for "events."
Picking winners and losers out of these raises a more important issue: What is the measure of success? For the new entrants into the business — those who do not have a significant presence in the existing pay TV ecosystem — the issue is whether they get a great return on investment and have continuing growth potential. With that criteria, I'd give both Whalerock (disclosure: a client of our firm) and CuriosityStream an A- grade. With incumbent companies, the criteria is more complicated. For them, I see the goals as improving the stock multiple, increasing the brand recognition and avoiding cannibalization. On that basis, I'm giving only passing grades to Sony, Dish, Viacom and the Big Four networks. I think that Discovery and the sports OTTs — because they have dual revenue streams, are multigenerational and educate the viewer — have real upside.