Disintermediation Does Not Always Help OEMs

“Disintermediation,” the removal of “middle man” or “distribution” stages in a value chain, has been a major outcome of the internet, leading to flatter distribution chains with a new emphasis on “direct to customer” strategies. 

As a rule, that should reduce costs for goods and services suppliers.  Perhaps oddly, that has not been true for parts of the video content industry. You might expect “direct to consumer” video streaming services to provide competition and a substitute product for linear video subscriptions. 

So cable TV and telco linear video subscription businesses arguably are damaged by direct-to-consumer video streaming services, as they are distributors or “middle men” in the value chain.

But it remains unclear whether most direct-to-consumer video streaming services actually benefit so much from the flatter value chains and disintermediation. 

For starters, content owners have traditionally earned affiliate fees from their distribution partners. Disney, for example, has earned about 17 percent of total revenue from affiliate fee payments. Warner Brothers Discovery and Paramount have tended to earn about 21 percent of their total revenues from affiliate fee payments, while NBC (Comcast NBCUniversal has earned about 22 percent.

Revenue Source	Linear Model	Streaming Model	Change in Marketing Cost
Subscription Revenue	High (Bundled with other services)	Variable (Can be higher or lower depending on platform strategy)	Potentially Higher (Need to directly compete for subscribers)
Advertising Revenue	Low (Limited ad inventory)	Variable (Can be a significant source of revenue)	Potentially Higher (Need to build audience and ad platform)
Affiliate Fees	High (Revenue from cable/satellite providers)	Low (Little to no role in streaming model)	Not Applicable

Ironically, cutting out a major part of the distribution chain also has reduced revenue for content owners. 

Nor is it so clear that “direct to consumer” has actually reduced marketing and other distribution costs. Selling direct means building a fulfillment process including retail billing and lots more marketing. 

The point is that disintermediation is "supposed"to reduce costs for supplers of goods and services (original equipment manufacturers). In the case of video content owners, going "direct to consumer" has yet to do so, consistently, if at all.