CBS earlier this week went dark across AT&T’s U-verse and DirecTV services, days
after the seven-year contract between the two companies expired.
As the two couldn’t come to new terms, CBS
and its related channels — including CBSN, CBS Sports and The
Smithsonian Channel — were blacked out.
This latest disruption in service affected viewers in major markets
across the United States, including New York, Los Angeles, Chicago,
Philadelphia, Dallas, San Francisco, Boston, Atlanta, Tampa, Seattle,
Detroit, Minneapolis, Miami, Denver, Sacramento, Pittsburgh and
Baltimore. In total, 117 CBS stations have been affected.
As with other service blackouts, there already has been finger pointing
between the two sides. CBS has accused AT&T of proposing unfair terms,
while AT&T has said that CBS is at fault for being a repeat blackout
offender. CBS in fact has pulled its stations from DISH Network and
Charter Spectrum in the past.
AT&T also accused CBS of unprecedented fee increases, warning that they could soar nearly 60 percent in the next 18 months. CBS maintained that the previous deal, which was signed in 2012, was not close to today’s fair market terms for the content provided.
Blackouts Are the New Normal
This showdown between AT&T and CBS — and the subsequent blackout of content — is just the latest high-profile impasse between a pay-TV service
and a content provider. Just 20 years ago it was almost unheard of for
such a thing to occur, but in the spring of 2000 Disney-owned ABC
briefly pulled content from Time Warner Cable.
At the time the blackout of content was seen as the “nuclear option,”
but today it is far more common for content providers to, in essence,
pick up their marbles and go home.
“That is undoubtedly the case,” said Dan Cryan, principal analyst at
MTM London.
“This has become the modally standard part of the strategy to
negotiate in public,” he told TechNewsWorld.
“Most of the negotiations happen behind closed doors, but once these
break down it moves to the public arena, and the threat is to
withdraw — and that has become part of the standard playbook,” added
Cryan.
Once the blackout occurs it affects the viewer directly.
Back in 2000 the only recourse for those who couldn’t miss the
then-hit series Who Wants to be a Millionaire? was to grab the rabbit
ears and get ABC over-the-air.
Fast-forward to 2019, and disputes between the service providers
and content providers have only escalated. HBO went dark for
the first time ever on a pay-TV service last fall, after it and DISH Networks
failed to come to terms. Ironically, HBO is
owned by AT&T — so the dynamics and grievances have flipped somewhat.
However, there is still some independence between Time Warner Media
and its parent company AT&T, explained Cryan.
“This tactic does seem to be more common than it used to be,” he noted.
From ‘Please Carry’ to ‘Pay to Carry’
One reason that blackouts of content weren’t really a thing until
about 20 years ago is that in the early days of pay-TV
services the local stations wanted to be carried, as did the
broadcasters. It provided a way for more eyeballs to view the content.
“The times change, don’t they?” observed Cryan.
“There has been this incremental shift where we moved from ‘please
carry’ to broadcasters being widely carried to the downturn in ads,
and suddenly that was made up with carriage revenue,” he explained.
“Those fees have gone up significantly as ad revenue has fallen,” Cryan pointed out. “What we’ve seen is a shift to broadcasters getting paid for the
retransmission, but it has come at a cost.”
This isn’t just the cost that pay-TV services are paying. In other markets — notably in Europe — broadcasters have not been pushing technological development vigorously. This is changing in the U.S., as broadcasters see opportunities to reach audiences via
streaming services.
OTT to the Rescue
One significant difference between the first major blackout of content
in 2000 and this week’s blackout is that viewers have more alternatives in 2019 — even if some are costly. One solution is to go with an over-the-top
streaming service — something DISH actively promoted to its subscribers
who simply couldn’t miss HBO’s Game of Thrones this spring.
It solved a problem. AT&T/HBO demanded DISH pay a
fee for every one of its subscribers, even those who didn’t want HBO,
which DISH refused to do. HBO Now, a US$7.99 a month streaming
service, is an option for cord cutters who have ditched traditional pay-TV services.
This is viewed as a disruption to the pay-TV business. It’s possible AT&T could be hurting its own business model by driving CBS viewers to CBS All Access, the network’s own streaming service.
“The question is the degree to which consumers value content other
than CBS, and whether CBS will be missing permanently from the AT&T
lineup,” said Brett Sappington, principal analyst at Parks Associates.
“Those consumers that subscribe to pay-TV primarily to get CBS have
probably already cut the cord for CBS All Access,” he told
TechNewsWorld. “The remainder likely value the rest of the content in
their channel package. This remainder will likely pay $5.99 per month
along with their pay-TV subscription if they believe the situation is
short term. The longer it lingers, the more likely they will be to
switch to a different provider that has CBS.”
The Price and Cost of Streaming
When Netflix launched its OTT streaming service, it initially was seen as a
replacement for its DVD-by-mail business, but it soon began
producing original content.
Now OTT is an alternative platform from
cable, with numerous players getting on board. In addition to the
established competition from Amazon and Hulu, upstarts
including Sony Crackle and Acorn TV have entered the fray, and Disney and Apple soon plan to launch services.
Meanwhile CBS, AMC, FX, HBO and countless other traditional
cable/satellite channels also have jumped on the bandwagon. These channels don’t want to lose the eyeballs of people who cut the cord, so they are offering alternative methods for viewers to receive the content.
The issue for consumers/viewers — beyond the fact that there are only
so many hours in a day to binge on TV programs — is that each service
has its own fee. Cutting the cord and opting for even a few OTT
services could cost as much as a cable bundle!
As result, OTT services could see $9.1 billion in lost revenue due to
piracy and illicit account-sharing this year, and that number could
increase to $12.5 billion by 2024, according to a recent study by Parks
Associates.
“Consumers typically turn to piracy when there are no legitimate
options open, particularly free options,” warned Sappington.
Back to an Ad-Based Business
Some OTT services have opted to offer a more affordable option — in some
cases even free — that allows viewers to see ad-supported
content. In some ways this solves a problem that has affected
ad-supported channels and broadcasters since the late 1990s — notably
the use of DVRs to skip commercials.
Viewers still can get the benefit of time-shifting programs to suit
their needs, and even the ability to location-shift to watch shows elsewhere, but the tradeoff is that they can’t zoom past commercials. For
many consumers who want to pay less, this could be the best solution.
“Ad-based options from a legitimate source can be more appealing than
the potential risks of a pirate website,” said Sappington.
“Ads are a possibility to the same extent as they were before,” said
Pedro M. Ferreira, associate professor in the department of
engineering and public policy at
Carnegie Mellon University.
“Consumers have already shown that they are often willing to pay with
their time — watching ads — instead of money, so certainly some users
will prefer a lower fee and ads,” he told TechNewsWorld.
“The share of consumers that will
prefer so increases with the fee, which may indeed be significant in
the case of multiple ‘must see’ shows spread across several
platforms,” noted Ferreira, who coauthored an article, “The Impact
of Time Shifting on TV Consumption and Ad Viewership” for the journal Management Science.
Free is better than the alternative.
“Piracy will also increase because some consumers will pay one or two
fees and become affiliated with a couple of platforms and pirate
everything else,” Ferreira added.
Ads also could be less of an issue for younger viewers who are known
to multi-task.
“There is evidence that the younger generation watches several shows
‘at the same time’ and watches some shows at twice the speed,”
said Ferreira.
This could present problems for advertisers, especially if the
ad time is used to do something else.
“I anticipate that they may be doing something else on a second screen
while the ads come up, which decreases dramatically their efficacy,
lowering the click-through rate to a level that requires rethinking
ads altogether,” Ferreira suggested.
One-Show Services
The blackout AT&T’s service could help drive more viewers to CBS All Access — notably those who have thought about checking out the service for Star Trek Discovery or The Twilight Zone, but felt that one or two shows weren’t enough to justify the costs.
That has been a problem for streaming services. One show,
even a marquee title that has earned rave reviews and racked up awards, might not be enough of a draw — at least not when it means
another subscription.
Still, more than a quarter of viewers can be drawn
in by the right program.
“In fact, 28 percent of consumers said they have subscribed to an
OTT streaming service for a single title,” noted Parks Associates’
Sappington.
“The job of the streaming service is to show that 28 percent why they
should continue to subscribe,” he added.
However, that poses another problem.
“Original programming is a large factor in account-sharing,
particularly for tentpole content,” said Sappington.
“This differentiation strategy, in which each platform has its
own exclusive ‘must see’ show, may also backfire, reducing the
platforms’ ability to introduce ads,” explained CMU’s Ferreira.
Back to Bundles
The resurgence of ad-supported programming and the plethora of
streaming services could usher in a new era of bundling content.
Amazon already offers premium content from the likes of HBO,
Cinemax and other paid-TV premium channels. There is the possibility
that this could continue. Instead of cable or satellite, bundles could come via streaming services.
“It could still very much depend on the channel,” said MTM London’s Cryan.
“For premium channels there are already direct-to-consumer streaming
options, but that is very different from ESPN or even AMC, which —
while there are streaming versions — are still much more tied into a
core bundle,” he added.
What we could see instead are more a la carte options — but that raises the same
question. In the early 1980s, it was how many premium
channels a family could afford with a cable package. Today that
question is how many streaming services can one support, even in a
bundled situation.
“We’re still in the middle of a rush of direct-to-consumer
subscriptions,” said Cryan, “but there is a limit of what they’re willing to pay for, and what content each has to offer. There is still a real concern
that we’re going to face subscription fatigue.”
Peter Suciu has been an ECT News Network reporter since 2012. His areas of focus include cybersecurity, mobile phones, displays, streaming media, pay TV and autonomous vehicles. He has written and edited for numerous publications and websites, including Newsweek, Wired and FoxNews.com.
Email Peter.