While cable and telco TV providers continue to distribute original series that are more effective than stale movies in landing viewers, the case could be made that the race is already over – with OTT power and content owner Netflix the winner, and non-movie channels FX and AMC placing well.

That’s largely in part because pay-TV providers charge a hefty premium above and beyond first and second-tier packages for the once “movie” channels (HBO, Showtime, Starz, Cinemax, The Movie Channel, etc.) that carry some of the most-watched original series. As a result, those at lower levels miss out.

Enter Netflix, which has won viewers and acclaim (Emmy nominations) for its $100 million “House of Cards” series with Kevin Spacey. The much less costly subscription OTT service has other series in the pipeline such as “Orange is the New Black” and “Hemlock Grove,” and plans to up the spending ante in original series going forward.

The streamer could pick up potential cord-cutters drawn to original series, as it’s a time of churn in the pay-TV world and not just because of lower cost alternatives. Churn is a factor right now, with Showtime’s “Dexter” almost done for good, HBO’s “True Blood” gearing up for its final season and Starz having ended “Spartacus” last season and recently cutting “Magic City” after only two. It doesn’t necessarily matter what genre original series you have, as long as you have them.


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Strategy Evolution

The Netflix strategy has already made the company more than a content distributor such as cable and Telco TV providers and much more of a content creator, which was underscored last week when provider Virgin Media picked up its series as part of its pay-TV service for properly equipped customers. But this was no surprise.

Did anyone in technology, media and entertainment seriously think innovator/pioneer/disruptor Netflix would stand pat in the content ecosystem and continue to stream content it didn’t create to its subscribers? We’ve seen how that works for pay-TV subscribers.

Netflix is hardly alone in its direction as Hulu Plus and Amazon Prime have followed suit begun to focus on creating original series or acquiring ones in progress that already have a big following.

So by coming in at a small fraction of the cost of pay TV packages with movie channels and with original series, how can distributors compete? I seriously doubt even those with most or all of the premium channels (another name for movie channels) watch more than a few series per season.

Original Series, Non-Movie Channels

Combine this with non-movie channels that have original series that don’t require buying extra tiers and you have additional competition from below (and within) the pay-TV system. To get Showtime and The Movie Channel from Verizon FiOS via triple play, you need to buy the highest of four programming packages or add a premium channel package subscription.

FX and AMC are two solid examples of channels with a captivating lineup of original series – FX with “Justified,” “Sons of Anarchy” and “The Bridge,” and AMC with “The Walking Dead,” “Breaking Bad” and “Mad Men.”

The latest but not the last step in the evolution of Netflix – creating its own original series – was foretold for the masses when the innovator announced plans for “House of Cards.” To think Netflix would remain an OTT distributor of other companies’ content and renting CDs by mail ran counter to common sense. Why stay and slug it out even as a low-priced subscription provider of others’ content via the Web?

Economically Speaking

And, more importantly, with the price of acquiring content from owners headed skyward, it’s cheaper and wiser to create your own and have complete control over it rather than have your businesses beholden to third parties whose best interest might rarely be the same as yours.

And with the cost of making and marketing an average movie in 2008 at $100 million, an original series which draws loyal viewers for many seasons is far, far more valuable than a flick that’s essentially one-and-done as a viewer draw.

Not to be forgotten is viewing convenience, something pay-TV providers think they have solved with video-on-demand (VoD). When Netflix launches a new season of an original season, viewers are provided the entire season (all episodes) at once so they can watch as many or as few as they want, when they choose. That differs from the once-a-week process elsewhere and is seen as a big plus.

The Bottom Line

When it comes to services owning content – original series – that they call the shots on (unlike live sports), content truly is king. Original series continue to be powerful viewer draws, but only to those with the services and/or channels that have them.

Cable’s longstanding premium channel pay tier approach for “movie channels” with original series is counter-productive. The good news is their telco TV competition uses it too. The bad news is that OTT providers don’t.

And, with non-premium channels such as FX and AMC offering alluring original series, what is the allure of paying more and upgrading to higher tiers when you don’t have to? Pay-TV providers may be shooting themselves in the foot at time when OTT providers are embracing original series.

Finally, if the take rate on premium channel packages and the highest priced pay TV tiers concerns the content owners such as HBO, will they continue to help providers with their TV Everywhere strategies or go direct to the masses on their own? Look at Netflix – picked up by Virgin Media as part of its pay-TV offering.

OTT content distributor meet OTT content owner and pay-TV ally. The evolution continues.