OTT media services continue to vex pay-TV and television networksWednesday, June 29th, 2016
Moody’s: Over-the-top media services continue to vex pay-TV and television networks
NEW YORK — The reign of pay-TV and television networks as the most stable, predictable and highest-margin segments of the US media industry is rapidly eroding, Moody’s Investors Service says in a new report.
Over-the-top services (OTTs) and digital ad platforms such as Netflix, Amazon Prime, Hulu, Facebook, Apple, YouTube and Sling TV are breaking down the long-standing practice of contractual aggregating and bundling content for distribution through closed-system set-top boxes. This shift from traditionally-scheduled, linear TV to time-shifted, digital, mobile and subscription video on demand (SVOD) streaming platforms reflects dramatically changing habits for consumers, Moody’s says in “Pay TV and Television Networks — US: OTT Invasion: Grand Bargain Required for Long-Term Sector and Credit Stability.”
“The success of these OTTs has in large part been fueled by content licensed from the very industry heavyweights they are challenging,” says Neil Begley, Moody’s senior vice president. “This is emboldening them to invest heavily in original, exclusive programming, and eventually bid more aggressively for streaming rights to major league sports.”
According to the report, to compete with OTTs and rapidly growing digital ad platforms for subscribers and advertising revenue, the pay-TV and television networks must end their linear distribution model, offer all programming on-demand with full stacking rights, implement robust search and recommendation interfaces, and implement real-time targeted ad placement focused on the viewer instead of the program.
Such a seismic shift is unlikely, however, unless all major content creation and distribution companies can lead a total overhaul to transform how the industry distributes content and advertising.
“Instead, based on the current trajectory, we believe that companies will go it alone, meaning change will be inconsistent, stability will erode as individual network churn rises, and operating performance will come under pressure for those that stumble,” says Begley. “This could result in potential for rating pressure for many notable industry players that cannot defend against the rising change.”