Over-the-top (OTT) operators are proliferating—and offering consumers an ever-greater opportunity to cut the cord, i.e., to ditch their pay-TV subscriptions in favor of Internet-delivered video. But there’s one programming feather in the cap that has eluded most OTT providers so far: live broadcast TV.
The reason for the omission is simple: live broadcast arena is a thorny thicket of content licensing snags for distributors. Right now, OTT operators like Sling TV and Sony’s new PlayStation Vue service offer live cable network feeds—but broadcast feeds are few and far between, even if content from NBC, CBS, FOX et all may be available on-demand. And that means that as a replacement for traditional cable or satellite subscriptions, they’re going to fall short—no local news or weather, and no live primetime events like sports and awards shows.
The problem lies in the fact that OTT providers would need to license broadcast feeds on a per-affiliate basis, per market, and pay retransmission fees to the stations’ owners in order to show them. The FCC has not yet grouped OTT services under what’s known as must-carry rules, so broadcasters are not required to make a deal with them for carriage. And that means that broadcasters can hold their content over OTT’s head as expensive leverage, particularly since network ratings continue to show that broadcast fare is still some of the most sought-after in TV.
So, this is playing out in very real ways. As we explained in last week’s breakdown of the OTT marketplace, DISH’s Sling TV for instance has a deal with Disney that covers ABC's cable nets, but not the broadcast network. Sony has perhaps the most options in the way of live broadcast fare— access to FOX, CBS, NBC and Telemundo. But, it’s only live in three markets—New York, Chicago and Philadelphia. And, perhaps because of the premiums being paid for the content, the service costs $50-$70 per month.
All of that means that for now, perhaps the best option for cord-cutters looking for local news, sports, awards shows and other live events would probably be to buy a set of rabbit ears to get the feeds over the air. Or, resign themselves to going to bars and other people's houses for big broadcasts.
A Changing Situation
The FCC could offer a path forward on the OTT –broadcast front. It is considering reclassifying OTT operators to put them on parity with cable MSOs and satellite companies—giving them must-carry access to broadcast.
The idea is to create a technology-neutral definition of an MVPD, thus eliminating the requirement of having facilities-based transmission path in order to be guaranteed access to TV stations via must-carry rules and retransmission.
In a comment submitted to the FCC, FilmOn laid out a scheme to support authenticated subscribers in local markets consistent with FCC rules: "FilmOn intends to offer TV stations the right to elect must-carry or retransmission consent. FilmOn will also provide program exclusivity, emergency alerts and information, closed captioning, equal employment opportunity and to otherwise comply in good faith with all of the rules and regulations that govern MVPD service."
And certainly, Sling TV and others would be following that path as well.
Some are not pleased with the developments, notably Amazon, which has built its Prime streaming business on the back of an on-demand content proposition—one that it’s not looking to change. That means that OTT rivals with live channels—let alone broadcast feeds—present a competitive threat when courting the cord-cutters.
"As the commission noted in its [Notice for Proposed Rulemaking], MVPD status is attended by a large number of regulatory privileges and obligations, including the right to seek relief under the program-access rules and obligations relating to program carriage and good faith negotiation with broadcasters for retransmission consent," Amazon said. "However, many OTT providers have no desire to avail themselves of these rights and obligations."
It added, "In light of the excellent results achieved over the last several years, Amazon does not see why the commission would risk interfering with the OTT marketplace, which is still growing and changing, at this stage in its development.”
TV-like OTT Leads Market Traction
With the increasing number of linear options and truly TV-like content types, the OTT marketplace that Amazon refers to is without a doubt rapidly evolving—and presenting potential trouble for the likes of the Prime service.
Analyst firm Ovum said that live direct-to-consumer initiatives on the part of established players — such as CBS All Access and DISH's Sling TV —will mean a reassertion of the traditional TV value chain, pushing back against technology-led OTT specialists such as Amazon, Netflix and Hulu. As such, this will drive the global total of online streaming subscribers past 100 million in 2015, with a further 77 million more expected by 2019.
"Until now, watching the latest Hollywood movies and TV shows has largely been the preserve of downloads, discs and pay-TV," said Tony Gunnarsson, a senior analyst in Ovum's TV practice. "What we're seeing in maturing markets such as the U.S. is that the audience is shifting towards premium linear streaming, which is augmenting well-established, free on-demand services such as YouTube.”
Also, as subscription-based VOD services reach the mass market (Ovum points out that it is now commonplace to watch original productions like Netflix’ House of Cards, streamed to the main TV), the emergence of linear streaming propositions such as PlayStation Vue represent the next wave of disruptive services, which can truly substitute for traditional pay-TV. Broadcast is an important part of that.
Of course, it should be noted that even with broadcast feeds available for OTT, cable still holds a lot of cards. On an apples-to-apples programming basis, it may be possible to see the case for going exclusively OTT. But one still needs broadband to access it. There’s a significant opportunity for mobile broadband here— LTE home routers may have a market opportunity against this backdrop. But in most cases, consumers will still need to turn to their cable provider or telco for a pipe.
Parsing comparisons between pricing for the cable triple play and opting for naked Internet + OTT is exceedingly difficult, requiring a case-by-case analysis. Naked Internet pricing varies wildly neighborhood by neighborhood, and depends on whether the subscriber is brand new. In any event, Comcast, Charter et al have no incentive to make it easy to unbundle, for now.
Further, Ovum warned that an already “unforgiving” competitive environment will intensify and that there will be downward pricing pressure on cableco bundles—making OTT potentially less attractive, and more than likely driving innovation on the part of traditional providers themselves.
"We are on the cusp of the next major evolutionary growth phase in visual entertainment," said Ed Barton, Ovum's head of TV research and analysis. "As the industry hunts for opportunities to address slowing traditional TV subscription revenues, the major trends in technology, audience consumption, and service evolution offer glimpses of a brighter future. We see a shift in how TV is increasingly addressing individuals rather than households, and how the merging of online and broadcast advertising technologies and the on-going hunger for true 'martini TV' – any time, any place, anywhere – from the audience offers significant incremental revenue opportunities. The proliferation of linear SVOD from traditional TV is just one part of this shift which underpins our firmly held view: TV's best days lie ahead."
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