Executives at Comcast, Verizon and Dish Network are not dumb. They know there is a high likelihood of disruption of the linear video subscription business. Precisely what form any new model takes remains a matter of some speculation.
At a high level, there are three fundamentally different visions. There is the model of HBO or Netflix, where “channels” are not the foundation, programs are.
Then there is the Sling TV and other similar coming models where channels still are a building block, but the bundle is stripped down to perhaps 20 or 30 channels.
Finally, there is the completely unbundled model where single channels “go direct” to end users.
There likely is room for some forms of all three models, though it is highly probable not all three models will be of equal importance, in terms of revenue or subscribers.
The odds of a “going direct” (over the top) model are less robust, for the simple reason that the business model is the toughest. Going direct requires a huge new investment in marketing, billing and customer support that traditionally no networks possess.
One of the attractions of the traditional bundle, or even the new OTT bundles, is that the content provider can rely on the distributor for the heavy lifting in terms of marketing and support, while avoiding the issues associated with retail billing relationships.
So consider a few of the reasons Apple might eventually be a significant provider.
Apple has a customer base of nearly 90 million iPhone users just in the U.S. market.
The whole linear video business serves about 95 million households.
Apple also is among the market participants that would benefit the most from a major shift to smartphone-centric viewing. That might have seemed a foolhardy notion two decades ago. It is anything but foolish these days, at least as a potentially huge new model.
What remains unclear is what mix of “channels” and “programs” various contestants will emphasize. So far, Netflix is the leading practitioner of the “programs” model, while Sling TV is an example of the “channels” model.
Some of us would bet those are the leading future models. The “direct to consumer” approach, unbundled, might be a factor, but faces huge challenges, mostly around the business model.
Most content owners likely would agree the bundled model--either whole channels or programs--is most feasible, financially.
One unresolved issue, should the mobile model gain big traction, is how distributors will handle the capacity demands, and how they will price bandwidth. The wholesale cost for a firm such as Netflix is one thing; Internet access sold direct to end users is quite another matter.
Retail mobile Internet access costs vary, but might represent retail end user charges of between $7 per gigabyte and $15 per gigabyte. The per-gigabyte cost of a fixed network connection is more statistical, and depends on how much data a given account consumes in a single billing period. But fixed network costs in U.S. markets can be as low as a dollar a gigabyte or even less.
If video entertainment goes "mobile" to any significant degree, video bandwidth is going to be an issue, since no mobile operator likely can sell bandwidth at $1 a gigabyte or less. The obvious solution is to encourage or even require consumption only on Wi-Fi connections.
To a far greater degree than will be the case for OTT video consumed on fixed networks, mobile consumption is going to be a huge issue for ISPs.