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Disney, Comcast And Why TV Everywhere Alone Is Not Enough

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Yesterday’s press release from Disney (NYSE: DIS) and Comcast (NSDQ: CMCSA), announcing a comprehensive new ten-year distribution agreement covering over 70 different services is a testament to the idea that improved access to programming is key to maintaining the appeal of the traditional multichannel pay-TV business model.

The deal grants Comcast sought-after multi-platform streaming and on-demand rights for 70 different Disney, ABC and ESPN programming services. This is the essential vision of “TV Everywhere” – anywhere/anytime/any device access to the full range of cable and broadcast programming, with the caveat that you have to be an authenticated subscriber to pay-TV services.

While I’m a long-standing proponent of TV Everywhere, yesterday’s Disney-Comcast deal flags an important fallacy: important as it is, TV Everywhere alone will not immunize the multichannel model from subscribers’ frustration with rising fees/limited packaging options or the appeal of new over-the-top competitive challenges. Yes, on-demand delivery to multiple devices is a must, however, it needs to be combined with significant innovation in packaging and pricing to meet consumers’ evolving expectations. While there are various lower-priced and more flexible programming options sprouting up around the industry, they either have important disincentives (e.g. reduced broadband speeds or elimination of VOD access) or lack serious promotion.

The essential element of the multichannel model is that a whole bunch of diverse channels are bundled together into a one-size fits all lineup. This approach was critical in pay-TV’s early days; by exposing viewers to various unknown channels and nurturing them with small monthly carriage fees, they got the sustenance needed to thrive longer-term. While there’s still merit to the idea of variety, the problem is that the overall cost of the multichannel bundle is now sky-high, and its affordability is further exacerbated when broadband, phone and other miscellaneous charges (e.g. HD, additional outlets, etc.) are added in.

The key driver of pay-TV’s affordability problem is the increased cost of all programming services. But, as I’ve written numerous times (links below), there’s no single programming category more culpable than sports. Everywhere one looks in the sports world, profligacy abounds: broadcast rights, monthly carriage fees, players’ and coaches’ salaries, team valuations, ticket prices, etc. And, as I’ve pointed out numerous times as well, the “skeleton in the closet” problem is that much of this profligacy is being paid for by multichannel subscribers who are only casually interested in sports or aren’t fans at all.

If you’re wondering how things got to this point, I highly recommend “Those Guys Have All The Fun: Inside the World of ESPN” the best-selling book which chronicles, through hundreds of interviews with principals, the network’s evolution from start-up to current powerhouse (I read most of it during the holiday break). The salient passage lies on pages 406-411. That is where the story of how ESPN won its first full-season NFL broadcast deal in 1998, as part of a broader package with ABC, is discussed. The multi-billion dollar bid was funded by an astounding 20 percent increase in ESPN’s carriage fee for each year of the deal (by Hearst CEO Vic Ganzi’s calculation, it took ESPN’s fee from $.40/month/subscriber at the beginning to $3.20/mo/subscriber at the end).

Of course, these higher fees were recaptured by pay-TV operators through their own higher rates. But it’s not fair to focus solely on ESPN; as the book explains, ESPN was perpetually bidding against Ted Turner’s irrational extravagance. Then came competition from Fox Sports, accompanied by the emergence of all the Regional Sports Networks (“RSNs”). And don’t forget the broadcast networks’ sports rights deals, which are lately being funded in part by expensive new retransmission consent fee deals with pay-TV operators. Put them all together, and as I’ve previously explained, a big chunk of what all pay-TV subscribers spend each month goes solely to cover sports-oriented channels’ fees.

That brings us back to Disney-Comcast and what’s likely to unfold in the video landscape over the deal’s ten years. For sports fans and entertainment fans, TV Everywhere’s multi-platform/on-demand access is terrific. However, Comcast and other operators must accelerate their efforts to address subscriber segments individually, so they can choose – and pay for – only what they value. For non sports fans that would mean eliminating expensive sports channels, but without impairing their broadband and voice services. Maybe for single male sports fans, it would mean eliminating unwanted kids’ programming. And so on.

I see signs that Comcast understands this, and a company spokesperson I talked to emphasized it does. Nonetheless, for most average subscribers who might call in to inquire about lower prices or programming flexibility today, the choices are very limited. Inevitably this will deter younger “cord-never” prospects from ever subscribing. And it will cause the economically-challenged – particularly non sports fans – to seek out and opt for cheaper entertainment-oriented OTT options. Importantly, it will also galvanize everyone outside the multichannel ecosystem (Apple, Google, Amazon, YouTube, independent producers, etc.) to become even more aggressive in their attacks on the incumbent pay-TV world.

TV Everywhere is a great concept, but if incumbents believe that it alone can preserve the multichannel model, they’re mistaken. What’s also needed is dramatically more affordable, specialized bundles that match consumers’ interests. If these alternatives don’t materialize and receive real promotion then we can expect a lot of disruption to the pay-TV world over the next ten years.

Will Richmond is president and founder of Broadband Directions LLC, a market intelligence, publishing and consulting firm specializing in broadband-delivered video, which he established in 2003. Will edits and publishes VideoNuze, a daily online publication widely read by broadband video decision-makers.

This article originally appeared in VideoNuze.

4 Responses to “Disney, Comcast And Why TV Everywhere Alone Is Not Enough”

  1. News Hound

    I work for a cable company that would LOVE to offer a la carte service. In a true a la carte model, we’d charge each customer a fixed monthly amount to cover infrastructure and operations (it’s not free to bring a strand of fiber optic cable to your house), and on top of that you’d pay ONLY for the channels you choose to get. 
    I also predict — out loud, to anybody who will listen — that it will never happen in my lifetime. For example, I’d personally leave ABC, NBC, CBS and Fox out of my channel list, but the RIDICULOUS, CONSUMER-ABUSING RETRANSMISSION CONSENT RULES make it impossible for a cable operator to sell you service without the increasingly expensive “free” local broadcast channels. Beyond that, EVERY programmer prohibits a la carte distribution in its carriage agreements with cable operators. Who can blame them? Give me one good reason why ESPN, or Fox Cable, or Discovery, or Scripps, would suddenly break the bundle by letting cable operators BUY programming a la carte, which is what has to happen before we can SELL it a la carte?  
    If you think Google or Apple or Amazon or anybody else is going to succeed in getting the content owners to break the bundle (thereby destroying their own business model), you’re going to have to show me how the programmers grow or even preserve their revenue stream if they do that. I can assure you they won’t do it because consumers want them to. If there is one thing at which cable networks excel, it is getting paid. 

  2. Morgan Rauch

    I have suggested in the past that the subscriber channels let customers bundle their channel choices and pay for each channel they select like people pay fees for the apps they want on their smart phones.

    I think the quality of programming would improve and it certainly would get rid of some cr*p that one pays for but never watches.

    • News Hound

      You have absolutely no clue how the content owners make money. If the conglomerates who own the networks allowed this, most cable companies in America would have done it many, many years ago.

  3. TheBrett

    It’s understandable why the Sports People get away with it, though – a lot of people really do want that sports programming, to the point where a survey a while back showed that ESPN and other sports channels were the biggest (and sometimes only) reason why they didn’t drop their cable package.