Beachfront - leaderboard - 7-1-18
  • CBS-Comcast Deal Underscores Importance of Subscriptions

    Yesterday's 10-year retransmission consent deal between Comcast and CBS further underscores the importance of subscription revenue streams in addition to advertising. Under the deal, CBS is rumored to receive between $.50-$1.00 per subscriber per month from the biggest cable operator in the U.S., putting it in the top tier of cable network compensation. When combined with other deals CBS has previously struck, plus additional ones it will likely conclude in the future, CBS has laid firm claim to the same "dual revenue" (monthly payments + advertising) business model as cable TV networks have long enjoyed.

    The CBS-Comcast deal is more evidence of how dynamic the relationships have become between broadcast TV networks, cable TV networks, pay-TV operators and new distributors like Hulu and Netflix. The online/mobile/on-demand era has set off a scramble by premium content providers to lock in payments for their programming, while also remaining nimble enough to gain new distribution opportunities. Likewise, distributors are hungry for exclusive well-branded content.

    Consider what's happened in just the last 8 months:

    -Last December Comcast announced it was acquiring the majority of NBCU, which will place some of the largest, best-known cable TV networks under Comcast's subscription roof.

    -The rancorous retransmission consent battles earlier this year between ABC and Cablevision, Fox and Time Warner Cable and others are all part of broadcasters' urge to get a share of the subscription pie.

    -In June Hulu launched Hulu Plus, a subscription service based mainly on 3 of the 4 broadcast networks' full current and past seasons' programs (note CBS was missing). The service is unlikely to incent much cord-cutting, but it will surely prompt users to question their subscription choices, especially as connected devices proliferate.

    - Meanwhile Netflix, now with 15 million subscribers, has become a distribution powerhouse, trolling for Hollywood content with the benefit of its recent 28-day delayed DVD release deals with studios like Warner Bros, Universal and Fox that helped it garner streaming rights to numerous cable and broadcast shows (e.g. Nip/Tuck, 24, Prison Break, etc.)

    The common thread here is that everyone in premium video content and distribution recognizes how important subscriptions are to their economic well-being. Though broadband access has turned the Internet into a massive new video distribution platform (epitomized by YouTube), its disproportionate reliance on a free, ad-based model has sent shivers up the spines of both content and distribution executives. All are motivated to resist the Internet chipping away at consumers' willingness to pay for premium content. The recession and downturn in ad spending has only further heightened content executives concerns about over-reliance on the ad-only model.

    Cable's dual-revenue streams have been the envy of the media industry for years. Broadcast networks in particular have stepped up their efforts recently to horn in on the model via retransmission consent payments. No doubt the reality of today's still nascent online video ad revenues has only further deepened this desire. Now, with Comcast's willingness to make a long-term, preemptive deal with CBS, it looks inevitable that this will become the de facto business model between broadcast TV networks and pay-TV operators (cable/satellite/telco).

    Incumbent video distributors are enhancing their services to hang on to subscribers. Insurgents like Netflix and Hulu Plus are innovating around online delivery. And gorillas like Apple and Google have yet to throw themselves fully into the ring. No doubt we'll continue to see lots more mining for subscription gold.

    What do you think? Post a comment now (no sign-in required).

     
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