TV is not dying — but the structure that has propped it up fordecades is.
That was the message from Jim Nail, principal analyst at ForresterResearch, as he spoke to cable operators and network owners at The Independent Showon July 25. It was a message filled with both hope and caution.
This "TV industrial complex," Nail explained, refersto the "tightly integrated set of companies" that includes the studiosand content creators, the networks and the operators who deliver content into thehome.
"This has been fraying for a while," Nail said. "Thosecarriage agreement negotiations have gotten more and more contentious over the years.And now we even see the content owners saying 'Why do I even need you guys?'"
He pointed to the myriad networks and sports leagues that havecreated direct-to-consumer over-the-top offerings, such as HBO Now, CBS All Accessand MLB.tv. He also cited recent comments from the NFL with regards to its digitalambitions.
"When you look at what they're doing at NFL Now, they'recertainly thinking about how do we create that direct relationship with customersand cut out the rest of this value chain," Nail said.
Despite these efforts, however, the Forrester analyst believesthat the networks will soon discover they do need the cable operators — they justneed them in new and different ways.
Namely, Nail thinks cable companies of all size — including thesmall and midsize operators in attendance at The Independent Show — need to startpartnering with networks to bundle their over-the-top offerings in with broadbandservice.
"Why not have a basic tier of broadband that includes Sling,Hulu, CBS All Access?" Nail asked. Another tier might offer HGTV Watch andDiscovery GO, while a sports bundle could offer content from the leagues and WatchESPN.
"You've got this connection with your customers," Nailsaid. "Those networks have never had that kind of direct communication andrelationship with viewers. And that's a really hard thing to build."
Nail believes this is part of the reason why dedicated networkapps have not seen greater adoption.
"From our consumer technographics data, we see people don'treally go to the network apps that much. They're not looking for that," hesaid.
What they are looking for, he believes, is a trusted serviceprovider to create a tailored OTT package that is bundled with broadband.
"I believe that [the networks] will find in the near future,it's going to make a lot more sense to work with you to create these kinds of bundles,"he said.
Nail said it will mean a new way of doing business for both sides,as shared revenue might make more sense than traditional affiliate fees. Regardlessof the specific model, he expects the networks will soon say, "You know what,it makes a lot of sense for us to sit down and work with these people and find newways to work together in this new world."
Maybe. But Nail's vision of a collegial, collaborative approachseems to overlook what he said earlier about the "fraying" relationshipbetween network owners and cable operators. After years of contentious battles andrising programming costs, there is a lot of animosity and distrust between the twosides, as evidenced by the attendee who asked Nail what would prevent a networkfrom signing a three-year contract with an operator, using that time to establishdemand for an OTT offering, and then going direct to consumer, cutting out the operator.
Nail acknowledged it was possible, though he still thinks consumerswould rather subscribe to a single bundled service instead of 10 different network-specificOTT offerings.
Despite Nail's confidence, Robert Gessner — president of , a midsize operator in Ohio— was not convinced, saying that affiliate fees have risen too high too fast andnetworks are now addicted to those fees. As an example, he pointed to , which SNL Kagan, anoffering of S&P Global Market Intelligence, estimates earns $6.61 per averagesubscriber per month, and the fees that ESPN would need to charge OTT subscribersin order for the service to remain revenue neutral.
"You look at something like an ESPN at $6 or $7 bucks —if half the people would subscribe, then you have to charge $12. At $12, half aren'tgoing to subscribe. Maybe you get a quarter. That means it costs $25," Gessnersaid. "It just spirals."