Moody’s Says TV Biz Must Unite Vs. OTT

Subscriber revenue stream likely to continue to erode

As over-the-top subscription video on demand services expand, the traditional TV business must unite to take extraordinary steps in order to compete, according to a new report from Moody’s Investors Service.

“If the masters of big media and distribution were placed in a room and asked to start from scratch, to create a TV business model using the latest technology and providing a product most appealing to consumers and most efficient for advertisers, it would look a lot more like Netflix and Facebook, respectively, than today’s television ecosystem,” said Moody’s senior VP and analyst Neil Begley. “So, the best option is for the largest companies in content production, aggregation (networks) and distribution (pay-TV providers) to come together and agree on new contractual constructs supporting a new platform supported by the latest available technology that will underlie video distribution and the advertising that subsidizes its cost.”

“If such a grand bargain could be struck, smaller companies would be forced to follow along and the TV ecosystem could be much more competitive and potentially even more profitable in four or five years,” Begley said.

Among the steps the report recommended traditional pay TV companies take are:

  • End the linear distribution model
  • Offer all programming on-demand with full stacking rights
  • Implement robust search and recommendation interfaces
  • Offer real-time targeted ad placement focused on the viewer instead of the program

“We do not expect that leadership and consensus to materialize and therefore we believe that there is well under 50% probability that revolutionary change such as what is suggested above will occur. Therefore, we believe that it is probable participants will go it alone and face greater instability as a result, so disruption and headline risk will continue to be the default environment for big media in the U.S.,” Begley said.

“Media companies have not sufficiently embraced advances in technology and consumption preferences, clearly ignoring reality and only slowly and individually entering new distribution relationships. This path is certain to gradually erode the widely distributed and very stable pay-TV bundle and its escalating contractual revenue stream of subscriber fees because they are actually just consignment revenues,” he said.