HBO NOW, CBS ALL ACCESS & OTHER TV NETWORK STANDALONES A SNAPSHOT ANALYSIS BY MITCH OSCAR MARCH 2015 THE FRAME Since the fall of 2014, press coverage of TV network-standalone subscription video streaming services has fueled the imagination of the media community. For the first time, consumers have the opportunity to subscribe directly to individual TV Network channels without maintaining a cable, satellite or telco pay TV platform subscription. As recently as early March, NBC announced a planned launch of a comedy focused subscription online video service. Concurrently, premium channel HBO introduced HBO Now, a service that will not require a traditional TV subscription and will be available exclusively – for three months – on Apple devices when it makes its debut in early April, which happens to coincide with the premiere of the new season of HBO’s hit fantasy series Game of Thrones. Within days of these pronouncements, CBS chief Les Moonves whispered plans to launch a standalone Showtime premium streaming service and Sony promised to roll out its new over the top service, PlayStation Vue, by year’s end. The snapshot is a succinct exploration of this burgeoning standalone TV network streaming distribution model and the possible ramifications for the television ecosystem i.e., advertising, over-the-top streaming video services deployment, TV viewing measurement and challenges for multichannel video platform distributors (MVPDs). Highlights: ♦ Standalone ad supported TV networks will proliferate in the near future. ♦ Viewing measurement and reportage will be critical to the standalone model’s success as well as other platforms, whether over the top platforms, streaming video services or TV Everyone apps. ♦ Cannibalization of viewership through different platforms concurrently broadcasting the same programming is inevitable. ♦ Creative windowing of content will be key to maximizing revenue. ♦ Greater competition for talent and creative content will augment the cost of doing business. ♦ Recent federal regulation supporting net neutrality and OTT access to broadcast content (TV station and network) will ensure the deployment of more streaming video services. ♦ MVPDs face the greatest challenges to maintain their current subscriber base and launch successful tangential services. Confidential and Proprietary 1 of 11 THE EXPOSURE TV viewing is becoming more ubiquitous across screens regardless of monitor (traditional TV, over the top devices, mobile screens and computers) and consumed in combination of live, time-shifted and/or on demand proportions. Media companies that produce content and/or distribute programming are increasingly facing more challenges to preserve as well as amortize their value propositions: Augmentation of Production Costs Demand for programming that will entice viewers and subscribers to sample new services and maintain existing relationships is becoming more competitive, and therefore substantially raising the costs of programming. Although ad supported TV networks fund the majority of content creation, streaming video services, such as Netflix and Amazon Prime, are becoming more aggressive as they bid for talent and product. The chart below delineates the estimated 2014 original and acquired content investment, according to Nielsen/Variety: Sector Billions Ad Supported TV Networks $44.0 Netflix $1.8 Amazon $1.0 Hulu $0.8 YouTube $0.2 Viewing Measurement and Reportage Ad supported TV advertising gleans between $65 billion and $70 billion annually. As more television program viewing is experienced outside of the traditional “living room” monitor and/or in a time shifted fashion, measurement and reportage of content viewing in the commercialized, on demand space becomes even more important in order for TV networks to protect, maintain and grow revenue – which becomes the basis for funding incremental and better content as well as distribution avenues. Marketplace Competition Deep-pocketed technology entities – such as Apple, Google, Amazon, Facebook and Microsoft – that have connections to consumers through hardware, software and commerce (social and financial), are steadily expanding their model to include forays into the television realm. When coupled with dominant streaming video services – such as Netflix (39 million U.S. subscribers) and YouTube (1+ billion people each month consuming nearly 6 billion hours of video) – and over the top devices – such as Apple (25 million Apple TV sales) and Roku (10 million units) – the consumer has many more options for assessing programming and committing his/her monthly patronage. An at-risk sampling: cable operators glean nearly $100 billion from their subscribers (video, broadband, telephony, home security); cable networks generate $32 billion in annual licensing fees from multichannel pay TV operators (cable, satellite, telco); and when premium and broadcast station revenue is added to the mix, the revenue aggregation approaches $45 billion, according to Needham & Co. Last year, streaming video services garnered subscription fees of over $4 billion, according to research firm DEG’s Home Entertainment Report. HBO NOW, CBS ALL ACCESS & OTHER TV NETWORK STANDALONES: A SNAPSHOT 2 of 11 THE EXPOSURE(cont’d) Cord Cutters and A La Cartists In the last five years, the hue and cry for a la carte TV subscription alternatives has become deafening – at least as sounded by journalists. As delineated in the chart below, the average number of channels per multichannel subscriber (cable, satellite, telco) is approaching 100: Year Channels (Average) 2000 42.5 2007 75.3 2014 99.6 Source: SNL Kagan Who needs them all and why pay for what one doesn’t imbibe are the core issues. Measurement companies Rentrak and Nielsen claim that the average pay TV operator customer regularly tool between upwards of 17 channels. Multichannel pay TV operators are fearful that subscriptions will diminish because bills for triple play services (video, broadband and telephony) are approaching an expensive $200 per month, of which $75+ is applied to video content. Alternative platforms such as streaming services appear to be more affordable to millennials and the economically challenged, and are thought to be responsible for the perennial “shrinkage” of multichannel pay TV subscriptions. To date, in response to these growing concerns, TV networks, premium channels and MVPDs (cable, satellite and telco) have launched three initiatives: TV Everywhere, internet Plus and direct to consumer standalone streaming video services. 1. TV Everywhere In 2009, Time Warner Cable proposed the TV Everywhere concept or model to the media community. Essentially, it would allow traditional ad supported TV networks and premium channels, such as HBO and Showtime, to offer their programming to consumers via a downloadable app to tablets or smartphones and/or featured apps embedded in over the top device menus – such as a gaming console (Xbox, PlayStation), Apple TV, Roku, Chromecast, Amazon Fire TV as well as smart TVs. The caveat: in order to access the content, the consumer would have to be a pay TV subscriber to either cable, satellite, or telco (AT&T Uverse, Verizon FiOS). The subscriber would then verify his/her status through an authentication process and the pay TV operator would authorize access to the programming. An arduous process that has become less complicated and reportedly more consumer friendly in recent months. 2. Internet Plus Last Fall, Comcast, the largest multichannel video program distributor (MVPD) in the U.S. with nearly 22 million subscribers and current suitor of Time Warner Cable’s 10+ million subscribers, launched Internet Plus, an affordable pay TV model that encourages people to sign up for broadband access plus entry level TV service. Customers pay a modest monthly fee, around $30+ monthly, to receive broadcast stations, a few cable networks, a premium channel and fair speed internet access. 3. Standalone Streaming Video Services The third and most recent initiative is direct to consumer TV network standalone streaming video services, which are the focus of this snapshot. HBO NOW, CBS ALL ACCESS & OTHER TV NETWORK STANDALONES: A SNAPSHOT 3 of 11 THE FOCUS After years of deliberation, ad supported TV networks, premium channels, and MVPD platforms are cautiously jumping into the streaming video pay TV business pioneered by Netflix in 2007, selling subscriptions directly to consumers. The following is a list of the most prominent TV network (ad supported and premium) and service provider endeavors – live, beta’d and planned. Pages 8-11 provide descriptions of each. Category Company Launch TV Networks CBS All Access October 2014 NBCUniversal 2015 (by years end) PBS Member on Demand Summer 2015 Viacom’s Noggin March 2015 WWE February 2014 Premium Channels HBO Now April 2015 Showtime “Not too distant future” Starz 2015 (by years end) Streaming Video Service Amazon 2015 (mid-year) Hulu Plus March 2007 Sony PlayStation Vue (by years end) Vessel Beta YouTube TBD MVPD Derived DirecTV’s YaVeo 2015 (by years end) Dish’s SlingTV January 2015 Verizon 2015 (by years end) Note: Top executives from other media companies are contemplating taking brands direct to consumers, including Time Warner with Adult Swim, Disney with Marvel and Star Wars, and Discovery Communications, which has OTT offerings in Europe, with Science and Oprah Winfrey’s OWN. HBO NOW, CBS ALL ACCESS & OTHER TV NETWORK STANDALONES: A SNAPSHOT 4 of 11 THE VIEW Trade publications abound with “the sky is falling” articles about cord-cutting,