Despite Online Video's Massive Growth, Startups Like Back9 Network Still Seek Old School Pay-TV DealsWednesday, April 16, 2014, 11:40 AM ET|Posted by Will Richmond
Signs of online video's growth and vibrancy are everywhere these days, but certain startup content providers still believe the surest road to success is by landing old school distribution (or "carriage") deals with large pay-TV operators. That was the message at last week's Senate Judiciary Committee hearing on the Comcast-Time Warner Cable merger from Jamie Bosworth, Chairman and CEO of golf lifestyle focused Back9 Network.
When asked at the hearing why Back9 Network couldn't just operate as an online video service, Bosworth said that "while online viewership is increasing, the average American still watches 20 times more video content via television and the advertising rates mirror that as well." Bosworth's issue is that because Comcast's NBC Sports group owns and distributes Golf Channel, the big cable operator has little incentive to add another golf-oriented network. Further, if the TWC merger were approved, it would stifle TV competition to a vast part of the American population.
On the one hand Bosworth's position resonates - in whatever category Comcast owns a channel (like Golf), it is essentially "judge and jury" with regard to whether a new, potentially competitive or overlapping channel will get on the dial. At the hearing Comcast's David Cohen replied with a forceful case about how proactive the company has been in launching "independent" networks (i.e. those not affiliated with major programming groups like Viacom, Disney, etc. which have negotiating power to launch their own new networks), especially those owned by minorities and geared to these audiences.
But listening to the back and forth, I found myself thinking how truly backward-looking the dispute is. Until not that long ago it WAS the case that startup video content providers had no choice but to try negotiating carriage deals with powerful pay-TV operators in order to be seen by viewers. With little leverage, these networks often gave up large chunks of equity and received relatively low carriage fees (if any) and Siberian outpost channel positioning (if they were lucky enough to not just be relegated to VOD-only access).
All that has changed now with online video, which has democratized the landscape, allowing everyone from individuals (e.g. YouTube talent) to special-interest providers (e.g. Vice, VEVO, WWE, etc.) to build exciting businesses. Rather than rely on traditional pay-TV distribution, these online providers drive their own destinies with great content, clever marketing and branding, and flexible business models optimized for passionate audiences.
To be sure, it's not easy, and certainly not as guaranteed a revenue stream as receiving a nickel or more per month to be carried by pay-TV operators into tens of millions of homes, as early cable networks achieved. But the mere fact that it is now possible has ignited a wild explosion of choice in online video.
Every trend in the video business suggests online distribution is where the future growth will be: changing viewer behaviors, continued introductions and adoption of connected TV devices bringing the online experience into the living room, sophisticated ad technologies to help monetize every single view, and so on. Meanwhile, video margins for pay-TV operators keep shrinking, putting ever more pressure on costs, thereby further limiting the opportunity for new channels like Back9 Network to get carried. And that's before getting into the whole cord-nevering and cord-cutting debate.
If I were advising Mr. Bosworth, I would respectfully suggest doubling down on Back9's content quality, maximizing the viewer's online/mobile experience across popular devices, refining the marketing/promotional plan to raise awareness and trial, and targeting specific golf-centric advertisers with creative packages and branding beyond what's standard on TV. When all of that's clicking - and with substantive results to show - cautiously ramp up the dialogue with big pay-TV operators, knowing that even if no carriage deals are ever concluded, Back9 has still built a viable business online anyway.