nScreenMedia OTT multiscreen media analysis

New originals from Yahoo!, Xbox will impact pay-TV’s bottom line

A slew of original online content announcements illustrate just how big a problem pay-TV operators face keeping people on the set-top box. And it’s a battle they can ill-afford to lose with billions of dollars of pay-per-view revenue at stake.

Microsoft is steadily building out its stable of original content slated for release through Xbox. Xbox Studios is working with Seth Green on a new stop-motion animated show, and Sarah Silverman on a sketch comedy show. Yahoo! also stepped more squarely into the entertainment television sphere. The company announced it is looking to create 4 new web comedies featuring 10 thirty minute episodes each. The budget per episode is set at $700,000 or more.

Clearly Microsoft and Yahoo! are taking the creation of online content very seriously. They join a long list of companies working to swell the ranks of quality online video; including Netflix, Machinima, Hulu, Funny or Die and Amazon. And as this pool of online video swells, so the time people spend with the cable set-top box remote control diminishes.

The allure of online content on TV has yet to translate into a mass of cord-cutting, but it is already costing operators a lot of money. As the new free white paper Multiscreen Becomes Mainstream makes clear, operator pay-per-view revenue is not only at risk, it may already be moving to online providers.

When a pay-TV subscriber switches to an Xbox or smart TV portal to watch an online video, any searches he makes for a movie will return results from the device’s movie store, not the operator’s video-on-demand (VOD) library. If the subscriber purchases or rents that movie, the operator has missed out on the opportunity to earn that business. Switching to a different TV input, and remote control, puts at risk the $2B of revenue operators earned from renting movies in 2013.

However, the white paper makes clear this revenue risk to operators is not just theoretical. US VOD sales increased a very conservative 4.8% in 2013 over the previous year. At the same time, online subscription streaming service revenue increased 32% and electronic sales of movies increased nearly 50%. In other words, the market for on-demand online entertainment expanded greatly in 2013, while pay-per-view increased hardly at all.

Some operators have recognized the problem early and acted to limit the damage to their core business. Virgin Media, in the UK, has opened up their TiVo DVR service platform to popular online providers such as Netflix. As Ian Mecklenburgh, former Director of Products at Virgin Media, put it:

“It is better for a customer to find something on Netflix and stay with the operator TV remote in their hand than for the customer to leave.”

This, the company hopes, will keep subscribers with the pay-TV service longer, and keep the pay-per-revenue with the operator.

If you want to learn more about this topic, and four other ways multiscreen is changing the TV business you need to download the new free nScreenMedia white paper Multiscreen Becomes Mainstream.

Why it matters

The availability of quality online TV shows is expanding fast.

This is encouraging pay-TV subscribers to switch the operator remote for a TV or game console.

This puts at risk the $2B in pay-per-view revenue earned by US operators in 2013, and is already strangling growth at a time when online is expanding fast.

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