Editor’s Note: Albert Lai is the CTO of Media at Brightcove.
Which would you rather do: pay for all available content or only the content you consume?
At first blush, this would seem like a simple cost issue: why not cancel your cable subscription in favor of Netflix, Hulu or Prime Instant Video – or all three? Instead of spending $70 a month for content you don’t watch, you could spend under $10 on just the things you do watch.
Unbundling – whether as part of a pay TV or a digital over the top (OTT) offering – has been suggested as the Holy Grail for the “future” of television and video.
In a simplistic generalization, unbundling would remove the subsidization of pay TV, banishing the requirement for every pay TV subscriber to bear the cost of content that only a portion of the subscriber base actually wants and consumes, e.g., sports content, typically the most expensive channels.
Ostensibly, the logic makes sense. But when you follow it further, the reality for many households is that their broadband Internet access is provided by pay TV operators.
Even if they decide to become cord cutters – or more accurately, pay TV cutters – their access to OTT content will still be dependent on the broadband pricing policies of the very same pay TV provider, who have incentives to “optimize” pricing, performance, and features around their offering, whether broadcast or digital.
The issue is not just about paying for content, but the dependency in how content is accessed.
Premium Content May Drive, But Pay TV Owns The Roads
Recently, FCC Chairman Tom Wheeler proposed redefining the term Multichannel Video Programming Distributor (MVPD) from its current meaning – which is limited to broadcast, cable and satellite-based TV providers – to be technology neutral, expanding to include Internet TV programmers. In an effort to make it easier for companies to offer new competitive broadband networks, the expanded definition would also “permit a new broadband competitor to offer customers the ability to reach a variety of OTT video packages without necessarily having to enter the video business itself.”
If the race is between new, alternative broadband providers coming to market and existing pay TV operators accelerating their digital innovation and business models, the latter has a significant head start. Companies like Comcast have already executed on their strategy to hedge the future of television through investments in both traditional (NBCU, Time Warner Cable) and digital (Xfinity, X2, RDK, ThePlatform, FreeWheel) initiatives.
But the underlying friction isn’t about lack of content restricting Internet access – it’s simply about access. Prior to its merger with AT&T, DirecTV CEO Michael White stated its need to “ride on somebody else’s highway”, highlighting the dependency of premium content on digital access.
While this recent proposal focused on the definition of the MVPD, the FCC’s assumption that this opens the door to new broadband providers ignores the challenges with existing access. With the growth of digital options, increased consumption, and the trend to higher resolution content (i.e., 4K), more and more bits and bytes are filling the existing pipes and airwaves.
President Obama also recently released a statement emphasizing that for the FCC “there is no higher calling than protecting an open, accessible, and free Internet.” The proposal stated that the FCC should “reclassify consumer broadband service under Title II of the Telecommunications Act — while at the same time forbearing from rate regulation and other provisions less relevant to broadband services.”
This would effectively treat the Internet as a utility. The proposal’s four stated rules emphasized the following tenets: no blocking, no throttling, increased transparency, and no paid prioritization. These are critical issues when viewed in context of Netflix’s recent paid peering arrangements with Comcast and Verizon.
Content Is Queen; Connectivity Is King
As traditional companies like HBO, CBS, and Sony deploy their OTT services and as new entrants take shape, the focus on access and connectivity will only intensify. Even HBO’s announcement of their OTT service was not a full break from the pay TV ecosystem, as HBO CEO Richard Plepler stated its OTT service is less disruptive to the existing pay TV relationship and more about cooperation to realize new revenues based on “their [pay TV’s] broadband. They’re going to make money. I think this is a great inflection point for all of our businesses.”
Cord-cutting may be the most talked about disruptive trend, but what we need to be watching is the evolution of access. Consequently, the future of OTT is not just about content unbundling but about access to consumers, and that relationship is dependent on moving digital bits across pipes controlled in large part by the pay TV ecosystem.