November 13, 2019

If cord-cutters all cut cable, where do the networks go?

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By Kate Cox From Consumerist

The so-called “golden age of TV” may only be just now dawning for viewers, completely inundated with high-quality shows on every screen we own, but it’s more of a turbulent era for the companies that make our shows. With “cable TV” still morphing into “on-demand content anywhere,” programmers and distribution companies are struggling to adapt — and the smallest content companies may be the ones most likely to collapse or sell out as cord-cutters continue changing their habits.

The pay-TV marketplace is kind of a long chain of who-pays-whom. In the traditional model, your cable company pays content companies like Viacom, Discovery, Disney, NBCUniversal, and others a flat, per-subscriber fee — for the sake of argument and easy math, let’s call it $0.10 per network, per month, per subscriber.

So if you get 100 channels in your cable or satellite bundle, then your pay-TV company owes all those networks $10 every month on your behalf. If they charge you $20, then they get to pocket the other half of the income for operating expenses and profit. Cost-wise, that’s an extremely simplified model but the concept works.

Meanwhile, the content companies traditionally make something like half of their revenue from those affiliate fees, and the other half from ad sales. So in this pre-2010 model, everyone has their costs and risks distributed, and knows where the money is coming from. So far so good, right?

But the advent of the digital distribution era has changed that. The deals are new, they are different, and up until the last couple of years nobody could really tell how much they were worth. Streaming rights were for a long time an afterthought, which is how Netflix initially amassed so many of them so cheaply. Now that we’re leaping into the online era, though, the math has changed.

That, Bloomberg explains, is why we see so many media mergers afoot — including the most recent, the pending acquisition of Time Warner by AT&T.

“Everyone else should be very scared of the implications of this,” one analyst told Bloomberg. “This is absolutely a warning sign for every other media company that the business is changing.”

NBCUniversal has been part of Comcast for five years now, giving both halves an advantage over the competition: when you own content, “buying” access to it is a whole lot cheaper. The money is just moving from one of your corporate pockets to another, essentially. And that’s what AT&T basically wants to do: get all of that juicy content under its roof, so that it doesn’t cost much money to put it either on traditional Uverse or DirecTV services, or onto DirecTV Now.

Consumers are of course still watching cable networks — linear TV. Not everything is purely on-demand or purely online just yet, and nearly 98 million homes still pay for some kind of monthly cable, satellite, or fiber subscription. But overall the industry has lost about another million subscribers this year, and the trend towards increasing online viewership is clear.

Fights between the content companies and the distributors routinely result in blackouts for consumers, who find themselves stuck in the middle with each company blaming the other. It’s not a pretty place to be, but as analysts predicted a few years ago, that’s already spreading to online-only distribution.

That leaves the content companies in a hard position: the money from affiliate fees is changing, and even if they do end up in online bundles like DirecTV Now, PlayStation Vue, or Dish’s Sling TV, there’s no guarantee that the revenue stream will be the same nor that they will retain enough viewers to keep the ad sales money flowing.

Part of it is in reaction to a lack of competition among cable companies: the bigger pay-TV providers get, and the fewer of them there are, the more they can demand lower rates and better terms from content-only companies.

The fight for shifting, tightly-held consumer dollars is almost inevitably going to keep leading to more mergers, analysts tell Bloomberg. ““Either you are live and large, or dead,” one said.

But the CEO of Scripps Networks — parent company of , the , , and others — thinks his scrappy (scrippy?) company will carry along just fine as long as they make shows that people want to watch.

“Everything is not going to be a Comcast-NBC brand or AT&T-Time Warner brand,” he told Bloomberg. “There’s going to be some interesting vibrant brands that will still hang in there.”

Cord-Cutters Dropping Cable Force Networks to Make Hard Choices[Bloomberg]

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