ESPN has now joined CBS, HBO, WWE, Showtime and a few others that have blazed a trail to deliver their content directly to consumers.
Others, including Fox News, and Discovery (with Scripps), have also announced plans to also pursue the direct-to-consumer model. While CBS and WWE are finding this model compelling, others should carefully consider both the opportunity and the challenges. Many of the challenges are the same as outlined in my column on skinny bundles.
First and foremost, they need to analyze the market, potential demand, cost of acquisition and revenue for their services. Content creators must evaluate if their content is strong enough to go it alone or if they should join forces with other content creators.
One example of a successful go it alone entrant has been WWE. To date, they have been successful in changing their model from one dependent on traditional MVPDs to primarily going direct. Keep in mind, they have a global brand/market and a very passionate audience.
In most cases, programmers must consider the risk to the existing distribution through MVPDs.
CBS, with its tremendous leverage, has been successful in not losing distribution and truly building an incremental business.
As a result of the number of networks now available via OTT or announced, it is somewhat less risky and they’re unlikely to be dropped as result. Still, content creators must take into account that going direct may, in fact, weaken their leverage to protect both licensing fees and carriage, given risk of being dropped (perhaps temporarily) and/or moved to less favorable tier positioning.
Content creators must ensure they have streaming rights for the content or determine what content to replace. Further, to boost subscription some programmers are adding original or exclusive content increasing required investment. Content creators need to either build or outsource both the technical and business infrastructure including streaming, App development, marketing, billing and fulfillment. Most content creators do not have experience in marketing direct to consumers and instead have relied on distribution through traditional MVPDs.
Finally, content creators must understand and manage churn. Many direct-to-consumer providers are experiencing more than 100% churn in a year, meaning they have to replace current customer base just to stay even. Churn becomes even more challenging as initial demand and sign-ups wane.
In the years to come, it is foreseeable that most content traditionally delivered via MVPDs will be available direct-to-consumer as well as by virtual MPVDs. Navigating these changing business models will require not only intestinal fortitude, but new capabilities, willingness to take risks and less certain revenue streams than the old traditional business models.
Glen L. Friedman is president of Ideas & Solutions!, a Los Angeles-based firm helping media and technology companies transform to respond to the changing business landscape. This is the first of a three-part series. Click through to read Part 1, OTT: The Exciting, Scary Wild West, and Part 2, OTT: Challenges and Opportunities.