With the rise of over-the-top streaming services such as Netflix and Prime Video, in addition to Hulu, Disney+, Paramount+, ViX and Peacock, viewing has seen a tremendous shift from cable and broadcast television to these platforms.
As 2024 begins, discussions ranging from the high cumulative cost of subscriptions to OTT services, to the churn factor and “subscribe, binge and cancel” nature of the platform when a hot show arrives, have gained much attention. Now, MoffettNathanson, the respected Wall Street financial house focused on media and technology, is examining the concept of “re-bundling” – specifically, the possibility of breaking the biggest video-on-demand services out of their silos.
Interestingly, the assessment of the current state of the OTT landscape from MoffettNathanson begins with a sour assessment of “how such a once-great business — for
consumers as well as for the companies involved — was supplanted by a model that wasn’t
nearly as good. For anyone.”
The team of analysts at MoffettNathanson comprised of Craig Moffett, Michael Nathanson and Robert Fishman are referring to linear TV, and write about its past in a way that suggests there is no turning back. But, when one reads their comments, it is clear that they are discussing cable television services and not specifically broadcast television, which is arguably entering an important consumer renaissance.
“The linear model worked as well as it did – for both consumers and providers – for a variety of reasons,” the trio of analysts write. “For consumers, having everything served from a single menu meant that there was always something good to watch (we’re referring here to the golden age when linear also included near-infinite reservoirs of library content on demand).”
They continue, “Fallow periods for one or another network went almost unnoticed; another network would pick up the slack. For providers, the linear model meant almost vanishingly low churn. Low churn meant year-round subscriptions – no seasonality – and no treadmill of subscriber acquisition costs. Marketing expenses were also vanishingly low.”
Then came Netflix, and the arrival of platforms that would allow consumers to watch programming they truly desired without having to pay for programming they rarely, if ever, consumed.
With The Walt Disney Co. and Charter Communications’ Spectrum reaching a new carriage agreement after a bitter 11-day impasse in September 2023, to the surprise of many industry observers who believed it could upend the MVPD business, one key agreement was reached. In the coming months, the Disney+ Basic ad-supported offering will be provided to customers who purchase the Spectrum TV Select package, as part of a wholesale arrangement. Additionally, ESPN+ will be provided to Spectrum TV Select Plus subscribers while the ESPN flagship direct-to-consumer service will be made available to Spectrum TV Select subscribers upon launch.
This fueled conversations about the “re-bundling” of OTT platforms, as Verizon put together a deal that offers Netflix and Max for a single low price for its customers. Then, there’s the transformative merger of Warner Bros. and Discovery, which erased Discovery+ following a costly, marketing-heavy launch by merging it with HBO Max to create today’s MAX.
What’s next? “At one extreme is full-on integration, including fully integrated search,” MoffettNathanson says. “At the other extreme is simply an app store with the odd discount. And, of course, there are myriad variants in between. To be sure, any of these variants would help address the fundamental problem here: churn. But the magnitude of the churn benefit will depend on the degree of integration.”
