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OTT: Content’s Frenemy With Benefits

New providers help cable programmers weather sub losses from traditional pay TV 5/08/2017 8:00 AM Eastern
Time Warner Inc. CE Jeff Bewkes: MVPDs are "mitigating some of the declines at the traditional providers."
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The surge in new paid over-the-top video offerings is helping big cable programmers stanch the bleeding of pay TV subscribers.

While traditional Pay TV operators have generally suffered customer declines due to new virtual MVPDs and other over-the-top providers, those very same newcomers have offset losses for the big programmers.

For at least the past two years, most cable programmers have seen traditional TV carriage dip about 2% annually as customers either drop service, reduce their programming packages or take their money elsewhere. The growing number of competitors — the latest, Hulu Live TV, launched its beta-test version last week (see Cover Story) — has steadily chipped away subscriber rolls at the top pay TV distributors.

Comcast, the only major cable operator that gained basic video subscribers last year (161,000) and in the first quarter (42,000) did so largely through retention efforts and the rollout of its next-generation X1 platform. X1 also has given customers better access to subscription video-on-demand services; X1 includes an embedded app for Netflix with others likely to follow.

In April, Comcast launched a wireless service, Xfinity Mobile, that should also boost those retention efforts.

On the programming side, some content providers are the streamlined services counteract losses resulting from their networks being part of a larger pay TV bundle.

Time Warner Inc. chairman and CEO Jeff Bewkes said on an earnings call last Wednesday that virtual multichannel video programming distributors (vMVPDs) are having an impact. “It’s mitigating some of the declines at the traditional providers,” he said. “So, if new offerings can combine that kind of attractive pricing and packaging with the sort of new 21st century on-demand platforms, interfaces, then we think they can definitely attract new subs into the network system. And that’s a great opportunity for Turner and every other network to find its natural audience.”

CBS chairman and CEO Les Moonves said the company will bundle its CBS All Access and Showtime OTT offerings for the first time this year while continuing to offer them separately. For any skinny bundle to survive, he said, it must include the CBS network.

“We are not being affected in any way by any changes in subscription numbers throughout the industry,” Moonves said on the call.

While consumers seem ready to drop premium channels such as HBO, Showtime and Starz from their traditional pay TV packages, they’re snapping them up through other avenues, Morgan Stanley media analyst Ben Swinburne found in a recent report.

In a recent survey of about 3,100 pay TV customers, Swinburne noted that premium uptake is down so far this year compared with last year — about 46% of respondents said they had at least one premium network, vs. 53% in 2016. But he still predicted premium network subscribers would be up in 2017, as they have been for the past five years, due mainly to digital distribution.

Every premium channel has a digital direct-to-consumer counterpart, which also stems the losses. And the vMVPD field, once occupied solely by Sling TV (which launched in 2015), has become increasingly crowded.

In addition to apps from individual networks, services like CBS All Access, Sony PlayStation Vue, DirecTV Now and YouTube TV are increasingly gaining customers. Swinburne estimated by the end of this year, virtual MVPDs will have 3 million subscribers.

Hulu Live’s launch is another sign of increased vMVPD traction, Swinburne said. “Notably, we believe Hulu should benefit from its existing, scaled direct-to-consumer subscriber base and its ability to drive advanced advertising innovation,” he said.

Hulu Live should do well because it will carry “gold” tier networks from The Walt Disney Co., CBS, NBCUniversal and Time Warner, as well as Scripps Networks Interactive’s three core channels of HGTV, Food Network and Travel Channel, said Swinburne. Hulu’s owners — Disney, Fox, NBCUniversal and Time Warner — should also “benefit from involvement in a new distribution platform as pay TV consumption continues to evolve,” he added.

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