There will soon be no more room for poor-quality content on pay TV, proclaimed Bruce Tuchman of Breaking Bad owner AMC Networks at this year’s IBC. It was not the first time we’ve heard such a prediction at the TV technology trade show, but there are several good reasons why we might be closer than ever to a shakeout of mediocre TV.
Tuchman argued that consumers and pay-TV operators will increasingly question why they are paying for numerous channels filled with shows and movies that are rarely watched. As both parties become more demanding, this “filler” content will be thrown out from the safety of the flat-fee pay-TV bundle, leaving quality channels and shows like Walking Dead, Mad Men, and other AMC titles.
It’s an intuitive argument that seems to be backed up by facts. An oft-cited 2014 Nielsen study revealed, for example, that US households had been watching an average of only 17 channels for at least half a decade. For this reason and more, several executives at IBC have proclaimed for a number of years that the number of TV channels will shrink dramatically in the near future.
The very same Nielsen study found that the average TV home in the US received 189 channels in 2013, up from 129 in 2008. Other mature markets experienced similar trends, bar the odd temporary dip in channel numbers as the financial crisis took its toll on advertising revenues.
There are some good – and not so good – reasons for this. The good reasons include the introduction of HD, +1, and highlight channels that cater to viewers’ increasing demands to access popular content in higher resolution and in more flexible ways. The not-so-good reasons include channel owners introducing increasingly niche – and not particularly compelling – offerings in a bid to increase their revenues. Even a tiny slice of the huge TV advertising pie can deliver a reasonable return compared with other media investments.
The channel owners have advanced this agenda partly by selling their product in bundles. So, if a pay-TV operator wants to carry channel A, it would have to buy channels X, Y, and Z too. To an extent, operators have been complicit in this practice by competing in an arms race based on offering more and more channels. Arguably, everyone’s been a winner – until now.
If there have been good reasons why poor-quality TV has persisted, there are even better reasons why it will wither.
First, no one “owns the customer” anymore. The spread of high-speed broadband and smart devices means that today’s TV viewers can – and inevitably will – use multiple paid and free OTT services to seek out the best content.
Second, the smart money’s on quality. In this world of abundance, trying to be a home’s single TV supplier will increasingly be a losing battle. For all its bluster, Netflix has moved from trying to be all things to all viewers, it has reduced the size of its catalog and increased its overall spend in order to invest in the best content.
Third, big deals need big data. Operator tactics include citing in-house data to argue that they should not have to buy poor-quality channels alongside good ones.
Fourth, super-sized service providers. Mike Fries, CEO of Liberty Global, hinted that his organization was also challenging the mixed-bag bundles TV channel owners sell. He stated the world’s largest pay-TV operator would spend less on linear channels and more on on-demand rights.
Fifth, skinny bundles. Pay-TV operators will be particularly aggressive in seeking better deals. A growing number are introducing so-called “skinny bundles” of a small selection of OTT channels and on-demand content in order to attract consumers uninterested in the “fat bundles” of old.
And finally, next year’s Apple TV. Unlike the latest disappointing upgrade, sources have told me that world-changing iPhone creator is poised to launch a “truly killer” version that pairs a stunning interface with a skinny bundle of the best TV content as early as next year – provided it can make the economics work for certain key content owners.
Rob Gallagher is director of research and analysis for media and entertainment at Ovum