There is a growing sentiment, from the water coolers to the web, that the traditional broadcast and broadcast distribution model (cable, satellite) is dead or living on borrowed time. This view is predicated on a number of observations that are as applicable to the US as Canada:
- Consumers are frustrated with packaging and cost within the traditional system
- The Internet and underlying digital technologies have enabled consumers to choose programming on demand and to watch shows, or movies, when and, increasingly, where they wish and on whatever platform they choose
- Over-the-top services like Netflix are providing lower cost alternatives outside of the regulated system
These observations drive debate to a conclusion that everything will increasingly be on-demand and consumers will gravitate to that model. While it is hard to argue with any of the above, it is worth asking the question as to whether a la carte will replace traditional models or change the economics of the business in such a way choice will be more complicated and perhaps, for some, more costly. I tend to suspect the latter rather than the death of broadcasting scenarios. But there will be a lot of unintended consequences, many of which may be negative for consumers and producers of original content. That said more a la carte choices are inevitable.
First though let’s step back and consider what a la carte really means for broadcasters.
- A lot of debate about a la carte focuses on providing consumers more ability to choose only the channels they want but what about programming on-demand
- But is a la carte only going to be about more flexible packaging or are we talking about the death of channels? Certainly some channels will disappear and packaging flexibility will increase
- Yet at their core TV channels aggregate and curate content and in that respect are not so different from Netflix
- And broadcast channels are also based on an a la carte model in the sense that consumers/audiences choose what they watch on a per show basis not a per channel basis
- The trick for a broadcaster is to aggregate sufficient popular content to make its channel and therefore the production of original content viable because at the end of the day consumers want a constant supply of new programming
- A la carte obviously undermines that model in terms of its ability to sustain original production at current levels
- So a big question is does a la carte lead only to content on-demand or does it result in different ways to aggregate and curate?
I suspect that for a majority of consumers having an intermediary providing aggregation and curation remains of value. That is why Netflix is popular. Few consumers of content really want to have a meter always running whenever they turn the TV on, even if they are happy to pay a premium to watch some shows or movies at their convenience. The bigger question is, in a world of increased a la carte, what is required to make curation viable?
Does full a la carte result in lower costs for consumers?
- The average consumer watches approximately 25 hours of TV a month (not counting web video)
- If all programming was available only a la carte even at a cost as low as $1 per hour that would cost up to $100 a month to watch the same amount of TV but $1 an hour is probably way too low a cost
- A la carte fragments audiences dramatically so for broadcasters to license or produce the same quality of shows consumers favor, costs must rise dramatically. (Selling shows like Game of Thrones only on-demand for $1 an episode is not a viable proposition)
- Pure a la carte either puts the cost of TV through the roof or kills the amount of high quality or original content and shows we watch today. That is why it is more likely to be a part of the broadcast model not a full substitute
- And it is not sufficient to suggest that web content of lower production quality will fill the void. (There is a reason Game of Thrones is the most stolen content online)
- That suggests a different model that will include aggregation channels like cable, satellite or Netflix which continue to provide a library of content for a monthly fee
The issue with aggregation becomes how many aggregators will there be and which are they?
- Cable and satellite have an advantage of incumbency and scale given their existing subscriber base even if that base shrinks and through their affiliates control the vast majority of rights to do TV on-demand
- Netflix provides a good example of a new type of aggregator that provides an extensive library of content for under $10 a month(for now)
- But is this a viable model as a substitute for broadcasting today
- Netflix’s model is based on renting content in bulk at very low cost and that model is stressed
- Recently Netflix lost the rights to 2000 hours of content back to studios looking to offer their own VOD services.
- This highlights a hard reality for new aggregators that studios are going to ensure that they do everything in their power to protect the content the own and create and maximize the value of content, particularly original content
- Now Netflix may get this content back at a much higher cost but that means higher monthly fees and a less attractive value proposition for consumers
- Netflix is also trying to increase its own original programming but ironically that makes it more like a broadcaster and it’s hard to imagine it can produce a lot of original content under its current model
- Alternatively Netflix increasingly becomes less attractive in terms of its library because studios decide to pursue their own strategies and that means almost certainly that consumers will need to subscribe to multiple aggregators/channels (and increased subscription costs) to get access to all the content they want
- As that happens the cable/satellite value proposition, which will increasingly include on-demand, improves in a relative sense
What happens to the quality of original programming under a la carte?
- The current broadcast system maximizes the opportunities to produce massive amounts of quality original content (thousands of hours of series like House of Cards)
- That system however depends first on high penetration of individual channels such as must-carry local channels like ABC or CTV or high penetration packages that include services like Discovery or Space because high penetration drives advertising and/or subscription revenues that support licensing and production
- Pure a a la carte or even pick and pay, damages the penetration model and therefore seriously erodes the subscription and advertising revenues that make original content available at current quality and scale. This applies to broadcasting in the US, not simply Canada, although scale is obviously a greater issue here.
- It seems unlikely that the Internet can replace high-end quality content in the 1000s of hours produced today
- So the big question is where will original content come from and how will its value be recovered so it can continue to be produced and licensed? It’s hard to imagine how this works without higher cost to consumers
As stated above this blog is not suggesting that there won’t be a shift to more a la carte. There already is and will be a much bigger shift. Rather this blog is simply intended to encourage debate as to what really happens to consumer cost and the availability of high quality original content as the market continues to shift in that direction. Clearly it’s not as simple as it sounds nor necessarily as good a deal for consumers as suggested. But it will still move in that direction regardless, because consumers will demand it and make it happen, regardless of the potential impact on the current system.