Wednesday, October 29, 2014

FCC Might Widen the Crack in the Dam Holding Back the OTT Video Business

You might get a robust argument about which elements underpinning the video business are "most" crucial for success. Regulators have to enable a framework, capital has to be raised, networks have to be created, end user demand must exist, services marketed and fulfilled and value propositions must be aligned with costs.

Still, ability to lawfully obtain content rights has been a problem for over the top streaming service providers, and the U.S. Federal Communications Commission might be on the cusp of making that a relative non-issue.

Some might say a crack has opened in the over the top video business, with the moves by HBO and CBS to create stand-alone video streaming services. But both those efforts are OTT services owned directly by the content owners, not third party distributors.

The challenge for would-be third party distributors has been the difficulty of getting content rights from the popular linear video networks. And that is what could change.

It isn’t yet clear what mix of streaming and on-demand access will be supported by the new services, but the big impact will come if HBO and CBS make available all the programming normally obtainable on linear versions of HBO and CBS.

There might be some argument about the relative value of linear over the top versus on-demand formats, but a linear format would be useful to at least some consumers, some of the time, as it allows marketing of either service on a “same product, less cost” basis than would be the case when either product is bought as part of a linear video subscription.

Up to this point, however, any number of would-be providers, ranging from Sony to Dish Network, have found content rights a barrier. Whatever the thinking about the long-term distribution market, any network widely carried on cable, satellite and telco TV networks would think very hard about jeopardizing the lucrative current business, for what most expect would be a smaller business, overall.

But the Federal Communications Commission might relatively soon move to make content rights less burdensome.

In Title VI of the Communications Act, Congress created rules to ensure that cable companies that own video content can’t raise artificial barriers to competition by refusing to let their video competitors have access to the programming they own. The rules allow apply to local TV broadcasters, who cannot refuse to license their content, if reasonable commercial terms are offered.

Those rules helped the satellite industry create a competitive offer, and now also telco TV providers. The FCC wants to include over the top streaming services within that framework, a move that would essentially compel cable-owned networks, and local broadcasters,  to license content to streaming providers, on relatively equivalent terms.

In other words, new streaming buyers would pay about as much as linear distributors would pay, at equivalent volumes.

Chaiman Tom Wheeler has asked the Commission to start a rulemaking that would update access rules pertaining to “multichannel video programming distributors” (MVPD) that would include over the top streaming providers, not just satellite and telco TV partners.

The result would be that streaming services using the Internet (or any other method of transmission) have the same access to programming owned by cable operators and the same ability to negotiate to carry broadcast TV stations that Congress gave to satellite systems and then to telcos.

That rule change, if adopted, would not directly alter the economics of the streaming business. But the change would mean would-be streaming service suppliers would be able to negotiate contracts giving the OTT providers much of the programming supplied by linear distributors.

In the past, a video service provider had to won access facilities to qualify, but the new rules obviously would have to eliminate that distinction, making content access equivalent for OTT app and service providers and facilities-based cable, satellite and telco providers.

In one way, any such rule change would eliminate a political (business) problem for the content networks, who have been reluctant to jeopardize their lucrative distribution agreements with cable, satellite and telco TV distributors.

Under the new rules, that essentially becomes a lesser problem, as many of the networks would simply be following the rules, and would have no choice in the matter.

In the end, the ability to create a sustainable business model does not change. But the challenge of trying gets easier.

No comments:

Sales Friction Creates Barriers to Buying Behavior

Sales friction occurs when a sales process is: too long (the line at the grocery store) too complicated (working with real estate agents) a...