Now that the dust has settled on the big Viacom/DirectTV bust up, it is time to inspect the damage and consider the wider implications for the TV business. During the blackout, the war of words between these now-reunited frenemies suggest there are cracks emerging in the traditional pay-TV business model.
Up until now it has worked like this: Service providers boast to consumers about the number of channels they carry, consumers pay for the more varied buffet of TV delights, and the networks develop more and more niche channels to bundle together for sale to the service providers at ever higher carriage fees. In this way, the number of channels available has grown -- but so have consumer cable bills.
The problem with this is that consumers are not actually watching a larger number of channels. What consumers pay for each channel they actually watch is skyrocketing, according to a Credit Suisse report
. In the past, service providers might not have worried about this too much. When it comes to household expenses, cable and satellite are often the last thing people cut. But with online content aggregation sites like Hulu and Netflix now offering a cost-effective a la carte alternative to pay-TV, the realities of cord cutting are starting to keep the service providers awake at night.
This is the issue that Viacom and DirectTV took to the Web to debate. The CEO of DirectTV released an online video claiming that the disagreement
centered on the satellite provider not wanting to pay for Viacom’s more niche channels. In his words: “Viacom should be willing to give your family the choice to pay for only those channels that you actually watch”.
But is DirecTV willing to let consumers pay only for the channels they watch? Try finding a cable or satellite provider that will give you access to only Comedy Central, Disney Channel and TLC for a fraction of your current bill. Not gonna happen.
Another prime exhibit in this ongoing buffet versus a la carte debate is the Take My Money HBO website
. Turns out loads of people want just HBO, nothing else. According to the website, some said they would be willing to pay more than 50 percent of an average cable bill for just one out of the hundreds of channels they are forced to buy as a package. But is HBO willing to consider this? Looks like not, probably because HBO’s parent Time Warner, which also owns CNN, Cartoon Network and many other cable channels, wants to avoid the Viacom/DirectTV-style of carriage fee disputes.
And what about those cord-cutting darlings, such as Hulu, Netflix, Amazon and LoveFilm? It might seem like they are offering an a la carte service. But you can’t pick and choose what you want to pay for. You might only watch French movies from the ’50s on Netflix, but there is no option to pay for that but not the kids’ library.
New online video technologies will give content providers the opportunity to tailor subscription payments to viewing preferences, creating a sort of hybrid between pay-per-view and traditional subscriptions. They will also be increasingly able to predict what you want to watch, thanks to smarter recommendation engines. This could lead to more tailored a la carte pricing, or it could lead to broadcasters being able to predict your willingness to pay, charging you more to watch “Game of Thrones” than your slightly-less-fanboy best friend.
What do you think? Will we see more service provider vs. broadcaster show downs in the future?