A few weeks ago, I attended a Digital Hollywood conference for work, and I was asked to produce a piece on whatever topic I found interesting. Here is that piece:
A month ago, when streaming giant Hulu walked away with the Emmy for Outstanding drama series for its series adaptation of the dystopian novel of the same name, The Handmaid’s Tale, becoming the first streaming service to win this premier category, it seemed the final nail in the proverbial coffin of traditional television. Beating out premium cable competitor HBO’s contender, Big Little Lies, as well as NBC’s acclaimed drama, This Is Us, it would seem that streaming has taken hold of the industry not only in financial viability but now also critically.
In the wake of this development, it seems like the best time to reflect on the impact OTT content has had on the traditional television and film industry. Last week at Digital Hollywood’s fall conference, a number of industry professionals from product to programming to marketing to production weighed in on the future of OTT and streaming, including the advantages and challenges of this new format.
In a panel focused broadly on OTT and streaming, a table of panelists addressed the multimillion dollar question: “Is TV dying?” The answer: Well, it’s complicated.
It really should come as no surprise that this consideration of the future of the television industry is enormously multi-faceted. When one considers the intricate mess of networks, specialty channels, streaming services, studios and more that make up the industry which puts content before us every season, it is logical to conclude that traditional television isn’t going anywhere overnight. To ask if TV is in fact dying, is really more to ask if we are watching the slow but certain demise of traditional cable providers. As major studios like Disney and subscription cable channels like HBO opt to roll out their own standalone streaming services, independent of cable providers, the only thing that is clear is that landscape of traditional cable is shifting. It is now possible to circumvent the traditional cable plan via a combination of OTT services from aggregators and ‘Originals’ producers like Hulu and Netflix and straight from the networks.
Before we sign the death certificate, however, let’s consider the television consumption landscape. Cable provides are in a sense the original aggregator, preceding the dominant contemporary aggregators like Netflix, with near 100 million subscribers, Amazon, and Hulu. Subscription Video on Demand (SVOD) services together are used by 57 percent of all U.S. households according to a Nielsen report using data from Q1 2017 compared to 50 percent in Q1 last year. This report also so shows an increase in the number of households with internet but not cable subscriptions.
In terms of programming and monetization, cable and SVOD are relatively similar. Content is created by a studio then deals, rights, and fees have to be exchanged or negotiated by distributors, networks, SVOD services, and cable providers in order for a provider, whether it’s SVOD like Netflix or cable like Dish, to be able to offer that channel or series in your monthly subscription. Netflix doesn’t supplement their revenue with ads, but Hulu and cable providers alike monetize in the same way: subscription cost + ad revenue.
Now, if the model of SVOD versus cable is more or less the same, why are these not equal competitors? Originally, the answer was advertisements and convenience. In the case of Netflix, the current dominant player in the SVOD category, a viewer can pay one monthly subscription and watch anything in the vast collection for which the rights have been negotiated at the time. Although many cable providers offer on demand as well, there was the added bonus of being able to watch whenever you want not beholden to programming schedules or planning ahead with DVR. However, lack of ads and convenience isn’t always enough to sway a viewer from a traditional cable subscription. (In fact, one Digital Hollywood panelist in a talk I cannot recall aptly noted that we know that most viewers don’t mind some ads.) Besides, Netflix was only acquiring series after the season had premiered and concluded for some time. For many, the wait is simply not worth the lower cost of the Netflix subscription compared to traditional cable.
Hulu entered the landscape as a joint venture between The Walt Disney Company, 21st Century Fox, and Comcast and offered convenient, up-to-date access to series with some ads. Subsequently, Netflix starts producing ‘Originals’ as a way to add value to the service and encourage subscriber loyalty, a tactic now picked up by every streaming service. Ultimately, SVOD has transcended its place as a competitor to traditional cable and competes also with major studios and networks in the content creation space.
With the background of the landscape in mind, let us now consider The Walt Disney Company’s—a stakeholder in Hulu, LLC—decision to move forward with a streaming site of its own and to pull its content from Netflix when their rights deal has expired. In a discussion at Digital Hollywood dedicated to digital deals and monetization, panelists discussed this particular case. It was the general consensus that of the major studios, this move is probably feasible for Disney which has cultivated a distinct brand of content and maintains a base of customers loyal to the brand. Disney is not alone in this move toward independent, standalone streaming of networks. HBO Now has been available for some time and CBS now offers CBS All Access.
Still, the panelists voiced doubt that Disney’s move could be successfully executed by any other studio. A representative of Dish Network offered the example of a cable subscriber who wants all of Disney’s children and family channels (Disney, Disney Junior, Disney XD) but are less interested in the many ESPN channels. This subscriber calls Dish because they are unsatisfied with the cost of the service without the understanding that their request to lose ESPN will have no effect on cost as the two sets of channels are licensed to their provider in the same deal by The Walt Disney Company. Viewers want to be able to subscribe to à la carte content, but this is complicated by bundling.
It does seem that the creation of separate streaming destinations could be the realization of the à la carte consumer dream, but as mentioned before, these other networks don’t maintain a loyal viewer audience—loyalty is garnered by the series themselves. Viewers will not be satisfied when they realize they are required to maintain half a dozen streaming service subscriptions amounting to the same cost as cable to watch their favorite shows on CBS, ABC, NBC, Fox, etc. This is where the aggregate model wins out, and the majority of professionals speaking at Digital Hollywood were uniformly concerned by the growing fragmentation of content.
Another concern which arises and was addressed at the conference is that of discoverability among such fragmented content. A viewer who watches exclusively on SVOD services and still owns a TV likely also uses a multimedia device such as an Apple TV, Amazon Fire Stick, or Roku where the applications for these services may be housed and managed. The applications themselves manage search within their own library, i.e. you can find the show you want to watch easily within Netflix. What the viewer now loses is the ability to search universally across networks. Even devices which allow for universal search won’t take into account the subscriptions you have and instead give you rental options for a series which you may have access to already on Hulu.
This is a minor inconvenience for most programming but may be a major roadblock when it comes to live programming such as sports. While the rights to different games belong to a number of different networks, there is currently no avenue for discovering what is on where across all networks while cable still provides the good old fashioned program guide. The word “siloed” came up in this discussion as a descriptor of this new media consumption model, and this point is in my opinion the one on which this conversation centers.
If this model continues to develop, each network will have its own content in its own silo, isolated from the rest and undiscoverable unless a viewer has already entered via subscription. Especially on a mobile device or tablet, the increased use of which for consuming content is driving these moves toward SVOD models and away from cable, it’s simply bad user experience.
This lack of convenience in discovery along with questionable cost difference begs this question: Why not just stick with a cable subscription?
Ultimately, these strategic moves toward OTT by major studios is clearly founded primarily on revenues and abandoning the conversation on user experience for a later time. Jim Amos formerly of Sony Pictures and now at STX entertainment noted in a ‘Hollywood Masterclass’ panel that studios used to be able to depend on DVD revenue. When that channel ran dry, studios instead turned to the international markets, banking on highly recognizable franchise sequels which did poorly in the U.S. box office and paid off a great deal internationally. Amos continued stating that this past summer’s box office has shown that this reliance on international revenue will soon too go sour.
It seems then that studios are turning to the next profitable trend which is the turn from cable viewership to consumption on devices other than a television. As a micro consideration of the entire SVOD industry, it makes sense to put money into standalone applications for your content. However, as a fully fleshed issue, turning completely from the cable model may prove to be an equally as unstable crutch for studio profit.