Communacopia Day 2: Cord-Cutting, OTT and Video-Nevers

Threads of cord-cutting wound their way throughout Goldman Sachs ’ Communacopia conference Thurs, with the consensus emerging that some sort of change to the model is inevitable. “I suspect over long-term the business will change dramatically. But I don’t expect that will happen in a big hurry. The price pressure in rising programming costs will accelerate that,” said Liberty Media pres/CEO Greg Maffei. Does that mean the door is open for new TV bundles or levels of tiering? “Two trends work against that. When you see these consolidated large content companies, they are going to work hard to make sure there’s no tiering of their stuff, but it’s too a broad of a base as possible,” he said. “But some distributors are going to feel pressure and make the bite and do something different because they have to. There are 2 tectonic plates crashing here.” He said it was no surprise that Charlie Ergen and DISH are at the forefront, with plans for an OTT service. “You would’ve guessed he’s the logical one to make a break and try to do something different just because he’s an innovator and he has a different base and he’s willing to take risks with it.” While DISH has been clear that the service will target a limited market, there has been some investor concern that it could make the higher priced video package vulnerable. Maffei said the key in any case—whether it’s a new tier of service, a promo or an OTT offering—is to not let discounts affect the whole bundle. “Try[ing] hard to not let them pollute the higher-priced tiers is the goal,” he said. Verizon CEO Lowell McAdam spoke at the conference, revealing plans to launch its Internet video service (fueled by its purchase of Intel ’s OnCue) in mid-2015. He said tier 1 content providers are having engaging discussions, including the Big 4. “If you look at an over-the-top, I think you could end up with a bundle that will have the major broadcast content providers, and we would use our network around multicast to handle that very efficiently. And then you’d have a lot of these sort of custom channels that people can do the video demand, the IPTV much more interactive that you could have on these individual channels,” McAdam said. He added that conversations with content companies have changed “dramatically” over the last 6 months. What about the direct-to-consumer approach, does it make sense to make Starz available in that way? “The first and more logical step is to work with distributors to offer it in a broadband package that doesn’t require you to take all that sports programming,” Maffei said, noting it would be easy to do since Starz is independent and doesn’t have other nets tied to it. Starz CEO Chris Albrecht made that same point later in the day, saying he’s not as concerned about the 8mln-10mln homes that might have broadband and not video, but the 50mln homes that might have broadband and no premium nets. He argued that it becomes an economical model that will affect more than millennials, saying that as baby boomers live longer they’ll have to look for different choices as they stretch their money over more years. It doesn’t sound like this is just a theoretical discussion. When asked how receptive he sees traditional MVPDs to a bundle of broadband access plus Starz Play, Albrecht said he just talked to his team last week and said “we need to make a case for this.” Whether Sony ’s virtual MVPD service launches or not, “it’s becoming more in the consciousness of everyone… [that] this is going to happen,” he said. For the 4th year in a row, the number of Americans who say they intend to cut the cord has risen. That is according to June data collected by Frank N. Magid Assoc, which continued its annual tradition of presenting research on cord-cutting at the conference. This most recent study reveals that 2.9% of Pay TV consumers are “very likely” to cancel their Pay TV in the year ahead. This is up slightly from last year (2.7%) and up from 2.2% two years ago. No surprise that sports fans are more tethered, with 4.9% of 25-34-year-olds saying they are very likely to cut the cord, while only 1.4% of ESPN viewers said they are likely to say goodbye to pay TV. Viacom on Thurs offered up some new research that was a bit more optimistic. Its study of more than 1500 US Viacom viewers ages 13-44 found that 33% of millennials only watch live TV and 66% watch live TV at some point in their viewing (that compares to 45% of Gen Xers only watching live and 80% watching it live at any point in their viewing path). Of course, that doesn’t mean they’re happy with the TV status quo, with 84% of viewers surveyed agreeing they’ll have more option for where, how and what to watch. Albrecht put it succinctly: “There’s no question that they’ll be attached to some cord from these distributors. The question is whether they’ll be video-nevers.”