Putting his futurist hat on, Barclays analyst Kannan Venkateshwar predicts that the linear pay-TV business will lose around 31 million customers over the next decade.
Media companies that understand that the viewing experience itself is shifting—and not just simply ported over to IP—are going to fare the best, he said in a report sent to investors this morning.
“Eventually, we believe some OTT models will become indistinguishable from legacy media, while others will result in consumers watching TV without realizing that it is the activity that they are engaged in,” Venkateshwar wrote. “On the legacy media side, we believe CBS and Comcast are ahead of the curve in some ways. In terms of models that face the most challenges, it is tough for us to imagine a world where all the 200+ cable networks in existence today remain viable.”
Venkateshwar, who earlier predicted that the linear pay-TV sector will report customer losses exceeding 1 million for the second quarter, is bearish in regard to sustained cord-cutting.
“We likely just finished a quarter with one of the highest pay TV sub losses in the history of the industry,” he said. “However, we believe this process is far from done. We believe there could be a base of 31 million homes that could cut or shave the cord over the next decade, with some networks declining at an even faster pace. While our analysis indicates internet delivered bundles could gain ~17 million subscribers over this period, media companies could see a ~ $13 billion loss in affiliate fees over this period. This is in essence the potential cost of fragmentation.”
Media companies, to Venkateshwar’s mind, aren’t doing enough to adapt to the changing distribution models, other than simply recreating traditional distribution schemes over the internet.
“In our opinion, media companies are looking at all forms of distribution from the same narrow lens of affiliate fees,” he said. “However, there are significant differences in emerging OTT business models and incentives for new entrants vs legacy distribution. These differences are driven by the following factors (1) medium shapes the message and its consumption (2) quality is becoming less important than context (3) Shifts in consumer inertia becoming frictionless (4) TV is not about the Television screen anymore.”
Case in point, the analyst noted, is virtual MVPD YouTube TV.
“A dynamic platform like YouTube TV offers much greater potential for distribution and consumption than a static cable set top box based environment, but both are being treated similarly today by media companies,” Venkateshwar said. “Instead, we believe media companies should (a) adapt content to distribution instead of the other way around (b) use a barbell strategy for distribution and (c) tier services based on experience instead of content.”