Friday, October 31, 2014

Starz to Create OTT Service?

Starz is the latest programming network to say it is looking at launching its own over the top service.

But Starz also is careful to say it will work with its linear video distributors, primarily focusing efforts on broadband-only homes and homes that do not buy any premium channels.

Separately, Verizon now is offering a free year of Netflix for new customers buying a $89.99 triple play service.

That offer includes symmetrical 75 Mbps high speed access service, a $150 Visa gift card and a full year of Netflix.  

BTIG analyst Walt Piecyk thinks the marketing message is noteworthy. Though a major supplier of linear video subscriptions, Verizon actually does not mention that fact as part of the promotion.

Instead, the new offer banks heavily on high speed access and over the top Netflix. What that means is that Verizon is dead serious in viewing linear video as a product with less relevance for future revenue than over the top video.

The recent decisions by HBO and CBS to launch their own branded over the top video streaming services naturally have refocused questions about when OTT services will start to challenge the linear video business model in a significant way.

At least so far, HBO and Starz are trying to walk a fine line, assuring their linear video distributor partners that the new OTT services are complementary, while also creating direct-to-consumer services.

It isn’t so clear how much longer that stance will be necessary.

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 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 market entry gets easier.

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