BOSTON – The rising presence of over-the-top services and skinny bundles is forcing pay TV networks to take a hard look at their business, a panel of top media analysts said at an INTX Show session here Monday.
Morgan Stanley media analyst Ben Swinburne said in the past 12-24 months there has been a dramatic shift in how content companies perceive themselves, adding they can no longer force distributors to take the full suite of their networks or nothing at all. Instead, the conversation has shifted to “how can we make this work so I can keep most of my economics,” Swinburne said.
The Morgan Stanley analyst pointed to Discovery Communications CEO David Zaslav, who in a recent earning conference call said that six of Discovery’s network account for about 70% of its earnings.
Swinburne said that is forcing programmers to make compromises, which could lead to more flexibility for MVPDs in bundling networks in more genre-specific packages.
Distributors, the other analysts on the panel noted, have managed to hold their own in the changing landscape. MoffettNathanson principal and senior analyst Craig Moffett said operators still are in a good spot, with one caveat.
“Real regulation has suddenly become much more pressing,” Moffett said.
Wells Fargo media analyst Marci Ryvicker also was a distribution bull, noting that programmers, especially sports programmers, are in a difficult spot, with high content costs and the fear of not being included in skinny bundles.
“I would choose cable over media any day,” Ryvicker said.
Moffett added that fears that programmers would go direct to consumer and leave the operator in the lurch don’t make sense from either side. Moffett argued that even if a programmer were to drastically reduce prices and maintain its current profit margin, the industry’s practice of raising prices 10% or more every year could be a problem.
“Are they going to be a Netflix that raises its prices every three years?” Moffett asked. “These things sound good as long as you don’t poke at it.”
Citigroup media analyst Jason Bazinet said the direct to consumer model works because other costs are taken out of the mix.
“I don’t think it’ a challenge,” Bazinet said.
Still, Moffett said the current model is too lucrative for programmers to totally destroy.
“Find me another model that is better than ESPN, where I can get $7 [a month] for every family in America who chooses not to take my product,” Moffett said.
