Even when there are segment winners and losers as industries are transformed, so too are there possible winners and losers within each segment that is changing. If video entertainment moves largely to an over-the-top distribution model, many have reason to ask what prices today’s legacy providers could command.
The expected retail price for content from any single channel--assuming one believes that will continue to be a relevant form of bundling--is the usual way the question is asked.
In that regard, an analysis by analyst Jason Bazinet at Citi Research suggests that “in a pure OTT world most firms would see their equity value fall,” Business Insider reports.
The exception: Disney, on the strength of its sports franchise (ESPN). He estimates other firms would lose.
Bazinet estimates that sports content is worth 3.7 times more than typical TV content.
In fact, the report estimates the optimal price for ESPN in an over-the-top format is $20 per month, by far the highest of the 41 channels Bazinet analyzed.
To the extent there is good news, it is that profit margins for distributors from selling linear service are dropping. In other words, the linear business is becoming less attractive, over time.
It is one thing if the business produces 25 percent free cash flow . It might be quite another thing if the linear video business produces just nine percent free cash flow margin, as analysts at Deutsche Bank predict will be the case for the larger video distributors by perhaps 2020.
And triple-play service providers already know where this all is going.They will earn more money providing high speed access, less money selling video entertainment, more money from business customers, less money from consumers.
To be sure, some distributors might create new revenue by offering mobile video, their own streaming services or partnering with third party streaming services to provide retail marketing and fulfillment.
But if history provides any guidance, the new markets will be smaller than the former markets, in terms of gross revenue.