MVPD/SVOD Team-Ups Seen as Picking Up Steam
Multichannel video programming distributors are signing affiliation agreements with subscription VOD services at an increasing clip, with some seeing such arrangements between the erstwhile distribution rivals becoming the norm. After Comcast and Netflix's announcement earlier this month of a deal to integrate SVOD into the X1 platform (see 1607050061), more such deals undoubtedly will be announced in the next year or so, and longer term, there will be MVPDs likely signing up multiple SVODs, Brian Shepherd, president-global broadband, cable and satellite business at CSG, told us. Such arrangements may remain out of the hands of mom-and-pop cable operators because of the technology demands, but they have become increasingly common among mid-sized and big MVPDs, said Leichtman Group President/Principal Analyst Bruce Leichtman.
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"Most customers wouldn't know what OTT [over the top] means; all they care about is content and subscribing to different services to get that content," Dish Network Chief Technology Officer Vivek Khemka told us. Dish was the first major MVPD to integrate Netflix into its set-top boxes (see 1412170025). "We think there is going to be a desire for our customer to get a unified customer interface ... without having to do the ritual of 'let me turn my TV to HDMI-2,'" Khemka said.
Among major MVPDs, only Charter Communications and AT&T's DirecTV don't have such SVOD agreements, Leichtman said, saying whether MVPD/SVOD team-ups become commonplace depends largely on what those two do. Neither company commented. Charter CEO Tom Rutledge said in May at the MoffettNathanson Media & Communications Summit that there's "no reason" why SVOD services like Amazon Prime, Hulu or Netflix couldn't be integrated into the cable company's user interface. Charter is pursuing such deals, said Rutledge: "Having these programs makes your broadband more attractive." Other SVOD/MVPD deals in the past 18 months have included Hulu on Cablevision (see 1504280054) and Netflix on Mediacom (see 1505050056).
Twenty percent of U.S. MVPD subscribers have a service integrated with OTT access, SNL Kagan said in a report earlier this year. It generally is too early to draw any conclusions about what effect those deals are having on subscriber movement, it said then. SNL Kagan didn't comment now. That fear of premium service customer cannibalization has been "the apprehension -- and a valid apprehension" to MVPD/SVOD deals, Leichtman said, saying MVPDs increasingly see such arrangements as "propping up a frenemy." With pay TV saturated and in slow decline and SVODs maturing and their subscriber growth slowing, "what becomes more and more important is glue and retention," Leichtman said. "That's what both sides are looking at."
MVPDs and SVODs used to be in "an all or nothing war" for subscribers, but that's "shifting to a 'competition' model" with MVPDs increasingly focused on being the content aggregator of choice, Shepherd said. For SVOD services, such deals are routes to additional customers, he said. "It's not that the parties are falling in love -- this is in both groups’ self interest."
The announcement of the Comcast/Netflix tech deal also was strategically aimed at trying to undercut FCC "unlock the box" arguments underlying its set-top box NPRM that cable distributors, through their set-tops, are blocking OTT competition, Leichtman said: "The timing of it is not coincidence." Pay-TV providers have their own HTML5 plan for ditching set-tops, with NCTA providing more details Friday (see 1607220041).
When Dish launched its Hopper DVR service in 2012, it was clear SVOD services, especially Netflix, already were significant portions of Dish customers' video watching, but "it was a painful experience' of having to switch inputs and remote controls and sometimes even TVs, Khemka said. Partnering with Netflix also helped Dish be more content centric by giving an avenue where, for example, viewers could go into past seasons of current shows through Netflix's library, Khemka said.
Dish has talked about a one-party billing system, Khemka said, but it hasn't decided whether to pursue it. Dish already has Netflix and Vevo, and launched the Disney app on Hopper through the Disney interface, and the company is on track to launch YouTube in the next quarter or so, Khemka said: "As the media landscape changes, we have talked with everybody."
But each integration takes significant resources, Khemka said. "It's not as easy as drag and drop," Khemka said, saying the Netflix integration "took several months."
In an earnings call with analysts July 18, Netflix CEO Reed Hastings said the integration into Comcast's X1 platform should come later this year. The Comcast integration "will help modestly," though many Comcast households already have a Smart TV or Roku, Hastings said.
The SVOD/MVPD deals come as the TV Neutrality Alliance (TVNA) has been pushing the FCC to move on its proposal to classify some types of OTT as MVPD -- a proposal largely seen as dormant (see 1606240019). If the FCC were to OK such a rule change, TVNA founding member Telletopia's next step would be to see about also partnering with an SVOD provider like Netflix and merging its live linear streaming service of broadcaster content with an on-demand provider, Telletopia co-founder/CEO Gary Koerper told us. The OTT-as-MVPD proposal got stalled by worries it accidentally would regulate SVODs, but he said the opt-in OVD certification step that TVNA is now pitching (see 1606140018) sidesteps those worries and creates a more competitive video marketplace. He said Chairman Tom Wheeler still backs the idea, but "we need more backers, more momentum." The FCC didn't comment.