Diversified media companies are increasingly subsidizing video offerings with alternative streams of revenue, and that trend could reshape the long-standing industry model built on bundled delivery, panelists said during a May 25 discussion at the Digital Hollywood conference in Los Angeles.
Over time, content providers have raised prices, pressuring the ability of multichannel video programming distributors to pass along the extra content costs to subscribers, compressing margins. Meanwhile, companies like Alphabet Inc. and AT&T Inc. are offering their own digital bundles as virtual MVPDs at what appear to be very slim, if not negative margins, offset by advertising or wireless income.
"There's an overall trend here of video being used as a sweetener or differentiator for other revenue streams," Jonathan Hurd, a director at media-industry consultancy Altman Vilandrie & Co, told the panel. "It's going to be a challenge for players that don't have another revenue stream where video is subsidized with something else."
As Erik Ramberg, Ericsson's director of product management for TV and media, put it, "If you're solely a video provider, the margins have gone away." A bigger ecosystem of skinny bundles, where customers can buy more customized bundles and pay more per video unit than a big cable package, may be one way to solve the problem, he suggested.
Josette Bonte, chief strategy officer at the University of Southern California Institute for Communication Technology Management, and her team often provide research and consultancy services to major broadband and video providers, and she said they are currently considering their options, with some even discussing cutting out video services altogether.
In that model, a content company like Walt Disney Co. might develop its own bundles from its various content assets then pay a distribution network or platform to carry its service.
Hurd estimated that costs distributors pay for video content is growing at about 8% to 10% where cable package subscriptions have managed growth of just 6% to 8%.