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Disparities in virtual video service ambitions, economics on display


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Disparities in virtual video service ambitions, economics on display

The inaugural PayTV Show illustrated a broader trait of the evolving subscription video space: the odd juxtaposition of hailing virtual services as heir apparent to traditional multichannel while simultaneously acknowledging that margins are slim to negative and there is little end in sight to double-digit programming cost increases.

An air of virtual-video inevitability floated over the FierceCable conference held in Denver on May 14-16 with many participants relegating legacy multichannel to the past as a consumer model that is no longer working.

Streaming services have the wind at their backs, contributing to heavy losses in traditional multichannel subscription, heightened among younger demographics brought up in an over-the-top/à la carte world.

On a May 16 panel entitled "vMVPD Roundtable: Exploring the Future of Pay TV Over the Internet," Hulu LLC's Senior Vice President and Head of Distributions and Partnerships Tim Connolly said that Hulu viewers are, on average, 31 years old. In comparison, legacy multichannel subs are over 50 years old.

Jean-David Blanc, CEO of, a French streaming service counting 5 million users, confirmed the age gap between consumers primarily relying on legacy delivery and those preferring online solutions. He said users were age 30 or less.

Jon Steinberg, CEO of digital news network Cheddar, asked panelists if the industry wasn't missing an opportunity by not being more aggressive, proposing a marketing blitz to buy out existing legacy multichannel subscribers and essentially through offers, pick up their legacy set-tops and shoulder the early termination fees.

The panelists' response shed light on the economic realities of skinny bundles. While they did not dismiss the appeal of the sort of aggressive conversion championed by T-Mobile US Inc., the prospects of spending hundreds of dollars to convert customers to services with a $15 to $40 average revenue per user and narrow margins are problematic.

In the meantime, double-play deals including a high-speed data subscription and an internet-based video product point to a different potential approach; such deals entail partnerships with broadband incumbents (which also happen to be mostly legacy multichannel providers), rather than battling them.

The conversation was not entirely one-sided in favor of virtual services, with a dose of skepticism coming from traditional operators.

"At $40, the economics suck, and when you look at the core package, they all have something missing," said Andrew Olson, Sky PLC executive vice president of strategic innovation.

Traditional multichannel services, accustomed to margin sensitive investors and legacy programming constraints, are banking on a new aggregation model with linear subscriptions bundled with integrated access to OTT services available through a single customer experience, preferably using a set-top box.

The collection of operators on the May 15 "MVPD Roundtable," representing a nearly global perspective, presented OTT integration as table stakes, including Charter Communications Inc., which continues to work in adding Netflix Inc. to its Spectrum platform.

"If [Apple Inc. CEO] Tim Cook is right and the future of video is all about Apps, then either we have done a bad job or there is market pressure to get people to use something they like less," Olson said.

Bob Greene, Liberty Global PLC's managing director of business development, said despite the drumbeat behind OTT video, the operators will occupy valuable real estate, even to those companies lining up to replace traditional cable.

"Ironically, they all want to be on our set-top boxes, to be aggregated," Greene said.

Multichannel Trends is a regular feature from Kagan, a group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.