By Craig Barberich, Global Head of Media Solutions, Zuora
ESPN stocks plummeted last week when the company revealed that it had lost 7 million subscribers in the last two years. A few weeks ago, we heard the Sports giant was laying off 4% of its employees. Though unfortunate, none of these news come as a surprise. Over the last few years, the network has witnessed an unhealthy mix of increasing game rights fees and declining customer numbers. And the impact of sport television losing ground is being felt by the entire media ecosystem.
Sport channels are the biggest drivers of television revenue – both from ads and subscribers. Due to their live nature, they guarantee a much larger audience than other primetime shows and this brings in significantly higher ad revenue. Sports also bring in more from cable subscriptions than other channels. Whether you chose it or not, a big chunk of your cable bill goes towards sports (ESPN alone rakes in around $6.55 a month).
Audiences, long frustrated with traditional cable are cutting the cord. OTT, or over-the-top, refers to content that is delivered over the internet and does not require a cable operator to distribute it. For die-hard sports fans, it had been the biggest obstacle to cord-cutting. Saving a few dollars wasn’t worth missing out on the ball-by-ball excitement of a game. Until now.
Look at all the OTT offerings – the PGA TOUR LIVE, NBA League Pass, MLB, Rogers NHL Game Center, etc. CBS will even livestream Super Bowl commercials for the first time in 2016. With the layoff news, ESPN also announced plans to offer OTT services. As sports takes to OTT, viewers and advertisers are following and the bundle is beginning to unravel.
The ESPN story has rekindled predictions about the inevitable death of the cable industry. But this isn’t the end of the road for the cable industry. It’s only the end for the much-despised 300-channel cable bundle.
The truth is, the cable industry is sitting on a goldmine – a new forecast by research firm Digital TV Research pegs worldwide OTT revenue to reach $51 billion in 2020. That’s nearly twice of what’s expected in 2015 ($26 billion). In a telling sign of the times to come, Comcast now has more Internet than cable subscribers. In response, the company has launched Stream – a new OTT service of major broadcast networks – for its Internet subscribers.
While the industry lays the traditional cable bundle to rest, it’s pertinent to remember that viewers still want great content. They’re just demanding different ways to view it and to pay only for what they watch. It’s part of the larger economic shift of consumers valuing access over ownership and wanting an ongoing relationship rather than a one-time transaction. On-demand is now the preferred model for media consumption.
A great example of a company adapting to viewers demands is Rogers Media. The Canadian giant is diversifying and ensuring that they’re ready for the next phase of the cable industry. Rogers led the market change with its individual channel offerings sold directly to consumers even before it was required by law. And the company is capturing the cord-cutter and cord-never subscribers with direct-to-consumer OTT offerings such as the NHL Game Center, Shomi and NextIssue (a kind of Netflix for online magazines).
What’s unique is that these OTT offerings are sold collaboratively with traditional cable and mobile phone services, not as a replacement. Rogers is making sure it isn’t losing customers and is simply moving them to a new type of modern, digital billing relationship.
While the television industry was slow to move a few years ago, the story is much different today. Every major content company is building a direct-to-consumer experience. What’s not clear is who will own the billing relationship.
New entrants like Apple, Roku, Google and Amazon are loosely defining themselves as modern cable operators and vying for control. These companies don’t need to create and build video delivery infrastructure, all they need is a subscription-based ecommerce platform to sell access to OTT video apps.
As sports content moves to an OTT world, cable companies have begun to realize the future is a battle for who manages the video billing relationship. The migration to these new, modern relationship business platforms will also help position the industry to succeed in the new world of network delivered services such as IOT, connected health and connected home. Pioneers like Rogers are moving quickly to update legacy business support systems (BSS) to simultaneously share data and unify the sale of OTT services.
The cable industry must simply embrace OTT, and make it a central part of its long-term BSS and commerce strategy. It’s time to regain control over this digital relationship and the viewer’s mobile wallet. Game on!