With 2013 about to fade into memory and the pace of change in the cable TV industry moving at warp speed, it’s a prudent thing to look ahead. But looking ahead just won’t cut it anymore. The smartest players try to see around the bend, before anyone else catches on. And the only way to predict anything with authority is to intimately know the relevant issues.
With that spirit in mind, the beat reporters of Multichannel News asked the brightest minds in the business what was on their radar for 2014. Their responses and our analysis on the most critical issues facing the television industry follow.
MORE SCRIPTED SHOWS
More reality-based cable networks and online streaming-content providers will aggressively jump into the scripted-series arena in 2014. The ratings success of cable’s scripted comedy, drama and movie series in 2013 — to date, nine of the top 10 most-watched cable shows during the year were scripted dramas or comedies, according to a Turner analysis of Nielsen data — will drive more networks to launch original fictional shows.
While networks can still perform well with mostly reality-themed programming, cable executives say that a successful scripted program can significantly propel a programmer’s brand both among viewers and critics.
“Scripted content actually redefined us — we became that week-after-week appointment television outlet that viewers were seeking,” Crown Media Family Networks CEO Bill Abbott said. After successfully launching its first-ever scripted series, Cedar Cove, this year, Crown’s Hallmark Channel will launch two more scripted dramas shows in 2014 — When Calls the Heart and Signed, Sealed, Delivered.
“It has allowed us to create a lot of value for our viewers, advertisers and distribution partners,” Abbott said.
Bravo, WE tv, Discovery Channel and E! have already announced their first respective scripted projects that will launch over the next 18 months. In 2013 Cable networks like History (Vikings), Science (The Challenger Disaster) and National Geographic Channel (Killing Lincoln, Killing Kennedy) — as well as over-the-top players like Amazon (Alpha House) — launched scripted fare for the first time in 2013 to big ratings numbers and, in some cases, TV awards recognition.
Nat Geo’s Killing Kennedy, which drew a network-record 3.4 million viewers for its Nov. 10 premiere, recently garnered a Golden Globe nomination.
While not it’s first scripted series, online content streaming service Netflix established itself as a programming force with the 2013 premieres of drama series House of Cards — which this past September won the first Emmy Award for an online content provider — and dramedy Orange Is The New Black, which recently garnered both Golden Globe and Screen Writers Guild Award nominations.
Science Channel and Amazon are also expected to roll out additional scripted fare in 2014 to add to a cornucopia of quality scripted shows already offered by a variety of cable networks such as USA Network, FX, AMC and TNT, as well as over-the-top content distributors Hulu and Netflix. All are looking for a taste of the same immediate ratings hit and positive critical acclaim that several networks in 2013 garnered with the launch of their maiden scripted projects.
— R. Thomas Umstead
BIG DEALS AHEAD
After a long drought, 2014 could finally become what Wall Street has been anticipating ever since the consolidation craze of the late 1990s — "The Year of the Deal."
Charter Communications, which made initial overtures to Time Warner Cable in June, set off an unprecedented run in cable stocks in 2013 as investors predicted an industry-wide consolidation effort to combat high programming costs and competition. As of press time no formal offers have been made — Charter was expected to make a “bear hug” offer valuing the larger TWC at about $65 billion as early as last week — but most analysts are anticipating a flurry of M&A activity next year.
“If and when we get a Charter deal, the question is what we will see next,” MoffettNathanson principal and senior analyst Craig Moffett said. “I suspect we'll see some smaller deals for privately-held cable operators next year as well. As programming pressures mount, it gets harder and harder to stay independent.”
While Charter has grabbed all the headlines, toward the end of the year it appeared that programmers were also testing the M&A waters after reports surfaced that Discovery Communications was mulling a takeover of Scripps Networks Interactive, parent of such cable programming stalwarts as Food Network and HGTV.
While no formal offer had been made — and after a one-day 8% rise in Scripps shares, the initial enthusiasm appeared to wane — Sanford Bernstein media analyst Todd Juenger wrote last week that even if a Scripps deal doesn’t get done, it could highlight the need for an international strategy.
“Maybe this will trigger a wave of consolidation, which the market seems ready for,” Juenger wrote. “If not (or even if it does), we also believe the other theme that will become apparent as THE central issue for the future of these businesses is international.
“The growth of non-U.S. markets is already visible, hiding in plain sight at Discovery and 21st Century Fox,” Juenger continued. “M&A will force investors to think hard about multiples paid relative to growth potential — and it will be very hard to justify paying premium prices for slower growing, U.S.-centric assets. “
Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak also said consolidation would be the biggest development in 2014, but outside of a large distribution deal, he said he expects some other big industry questions to be at last partially answered in 2014.
That includes getting more clarity regarding Dish Network chairman Charlie Ergen’s plans for the vast amounts of wireless spectrum he has been hoarding over the past several years. According to Wlodarczak, Ergen could use that spectrum either as a wedge to get a merger deal with rival satellite-TV giant DirecTV by promising to create a legitimate wireless competitor, or he could lease out the frequencies before an eventual sale.
Wlodarczak also believes that in the coming year, an even larger percentage of cable operators will convert their systems to all-digital, resulting in faster data speeds, expanded HD offerings and reduced piracy. Moreover, a shift to all-digital could help MSOs take some video share from satellite, causing “video subs to come in better than expected.”
— Mike Farrell
NO BIG LAWS FROM D.C., BUT FCC WILL BE TESTED
If proposed cable mega-mergers materialize, it will provide a test bed for new Federal Communications Commission chairman Tom Wheeler’s regulatory mantra of “competition, competition, competition.”
That mentality will drive Wheeler’s vision of the government’s role in ensuring an open and interconnected Internet. He has signaled there is no rush to close the Title II docket. That could mean trying to re-craft an Open Internet order if it is remanded back to the FCC.
But that would be a highly contentious process that could siphon off resources and energy from the main task at hand — the broadcast-TV spectrum incentive auctions that will likely be his defining issue. A more likely scenario would be to launch a likely lengthy process of reconsideration, depending on what the court says.
Like his predecessor, Julius Genachowski, Wheeler recognizes that user-based Internet pricing is part of a cable operator’s basic business model — as long as operators don’t use their size and technology to quell the voices or slow the speeds of competing services.
While the agency is deeply engaged in the net neutrality debate, one thing it won’t have to consider is the implementation of a big new telecommunications law. Still, the House Republicans’ planned telecom rewrite marathon will “create big business because nobody can afford to ignore it,” says one cable lobbyist. The telecom law rewrite is billed as including a series of hearings and white papers stretching throughout 2014, with the heavy lifting coming in 2015.
House Communications Subcommittee Chairman Greg Walden (R-Ore.) signaled that a rewrite of the telecom law, not the renewal of the Satellite Television Extension and Localism Act (STELA), was where thorny issues like retransmission consent would be taken up, which could kick retrans reform on the Hill down the road.
But STELA still includes the FCC’s authority to enforce good-faith negotiations between TV stations and pay TV providers, which will either have to be renewed or be allowed to expire. Given that it will almost certainly be the former, look for some in Congress to try to better clarify good faith through cable-friendly suggestions like interim carriage or outside arbitration during impasses. Wheeler could tackle retrans issues, either by revisiting the FCC’s over-two-year old retrans reform proposals, or through changes to media ownership rules or via merger conditions on the TV station deals that involve shared-services arrangements. He signaled at his confirmation hearing that he didn’t like it “when consumers are held hostage over corporate disputes.”
Wheeler has already signaled with a January agenda item that he is ready to tackle the transition to IPv6, the latest iteration of the Internet protocol, with help from other federal agencies. Look for real-world IP transition trials, with consumer-oriented issues like interconnection and access top of mind.
— John Eggerton
TECH ADVANCES WILL CREATE NEW RIVALS — AND NEW WEAPONS
A virtual MSO will rise. Although Intel Media has apparently hoisted the white flag as it attempts to sell the assets of “OnCue,” the platform it was set to use to launch a subscription pay TV service that could be delivered over-the-top, don’t expect the notion of the “virtual” MSO to fade away in 2014.
If anything, expect this budding segment of the industry to show signs of blossoming as other players secure the distribution rights required to deliver a compelling over-the-top subscription TV offering. But instead of requiring dedicated hardware, as was to be the case with Intel’s offering, expect a successful virtual MSO to focus on apps and a bring-your-own device model that will take advantage of the growing use of smart TVs, tablets, and specialized streaming devices that pipe content directly to the TV.
But who will be first? Google and Sony are among the most likely candidates, as they have the cash to pull it off and they both know their way around the content distribution business, a component that was lacking in Intel Media’s strategy. Verizon Communications, said to be a leading candidate for landing the OnCue assets, is the wild card of the bunch. Word is that its interest in OnCue is not about helping it become a virtual MSO, but instead to help it accelerate a product roadmap that will help it keep stride with Comcast’s cloud-fed X1 platform.
Look for Netflix to launch on cable — and vice versa. Expect 2014 to shape up as the first year in which Netflix gains entry on a set-top box leased out by a U.S. cable operator, enabling the over-the-top video streamer to repeat the feat it’s been able to achieve with Virgin Media in the U.K., and with ComHem in Sweden. Although major operators such as Comcast and Time Warner Cable will likely remain resistant to the idea, expect at least one of TiVo’s U.S. cable partners — RCN, Suddenlink Communications, and Mediacom Communications, among them — to offer access to Netflix on leased devices.
But that won’t be the only Netflix-esque move to come out of U.S. cable. Comcast already has a way to counter the Netflix model with Streampix, a premium-level video product that can reach set-tops as well as connected devices, but it’s missing a national reach and a retail component. Expect those gaps to be partially filled in 2014 as some of the nation’s major cable operators band together on a Netflix-style service that can be delivered and featured on smart TVs, tablets, gaming consoles, the Google Chromecast adapter, Roku devices, and other stand-alone video streaming devices.
All the while, cable operators will be boosting speeds. Now that CableLabs has polished off the product specs for DOCSIS 3.1, a platform that will give cable the potential to deliver multi-Gigabit speeds over hybrid fiber/coax plant, expect the first signs of deployment to emerge before the end of 2014. Cable put DOCSIS 3.1 on a fast track, completing the specs 40% faster than its predecessors, and putting vendors in position to push forward on the product front.
— Jeff Baumgartner
SPORTS FEES WILL CONTINUE CLIMBING (BUT RSNs SEE LIMITS)
Even though its combined $930 million in rights deals with ESPN/ABC and TNT won’t expire until after the 2015-16 season, new National Basketball Association commissioner Adam Silver, David Stern’s successor, will make a splash with new national contracts, the value of which will escalate significantly beyond the game’s Nielsen growth over the past decade.
Fox is looking to add key product for its fledgling cable network Fox Sports 1, and the scarcity of other major rights will drive prices well into the next decade.
Given myriad affiliate problems at Comcast SportsNet Houston and DirecTV’s not offering the Pac-12 Networks, the days of programmers hitting home runs right out of the gate with new sports networks are over.
Expect Time Warner Cable, which succeeded in launching a pair of Los Angeles Lakers-centric regional sports networks to full distribution, save for Dish Network, to encounter carriage problems with SportsNet LA, which will throw out the first pitch on Dodgers games with the start of the 2014 baseball season. The new entrant is reportedly seeking an estimated $5 in monthly sub fees.
For its part, ESPN, which experienced early problems with the University of Texas’ Longhorn Network, will be peddling the SEC Network ahead of its August debut. Does ESPN have the clout to convince distributors that the king of college football — Auburn is seeking an eighth consecutive national title for the conference — is worth carrying beyond its 11-state footprint?
All of the NFL’s new TV deals — a combined, seasonal payment of $4.95 billion from CBS ($1 billion), NBC ($950 million) Fox ($1.1 billion) and ESPN $1.9 billion — begin with the 2014 campaign, while DirecTV’s exclusive contract for the Sunday Ticket expires after next season.
The NFL has held talks with other providers, notably Google, about the out-of-market package, but DirecTV CEO Mike White has indicated he believes the top satellite provider will retain the “NFL Sunday Ticket” package of out-of-market games. Figure DirecTV will pay a significant increase over its current $1 billion per season outlay because the loss-leading Sunday Ticket — with more than 2 million customers— is a key driver of subscriptions. The NFL and DirecTV were in negotiations at press time late last week.
The Winter Olympics and the World Cup — the globe’s biggest sporting events — will take place in Sochi, Russia and Brazil, respectively. NBC Sports Group has already raked in more than $800 million in national ad sales, a record for the Winter quadrennial, while authenticated streaming marks are sure to fall quicker than Lindsay Vonn in the downhill. The ratings may take silver compared to the gold of Vancouver’s more favorable time zone in 2010.
Conversely, viewership for the 2014 FIFA World Cup — the last for U.S. rights-holders ESPN and Univision — figures to benefit from late-afternoon and early-evening (ET) telecasts from Brazil, versus the morning matches from South Africa in 2010. The Sunday, June 22, match between the U.S., which will be hard-pressed to escape its Group of Death, and Cristiano Ronaldo-led Portugal on ABC will serve up a huge soccer audience, while Univision will score gigante with Mexico’s June 17 encounter with the host nation.
— Mike Reynolds