If you’re looking for cheery assessments on the future of the linear video business heading into the weekend, please do look much further than boutique research company The Diffusion Group.
Headline of the company’s latest report: “Sometimes the best move is not to play.”
As essay author Joel Espelien explains it, the business of bundling and distributing live networks—either through traditional managed networks or over the top—is not that good anymore.
“Linear TV is a totally different proposition today,” TDG said. “Content costs are high, continuously increasing, and largely out of the provider’s control. Don’t like spiraling retransmission fees from the broadcasters? Tough luck. At the same time, the customer’s willingness to pay is much more problematic. Consumers are being trained to expect a package of TV channels for roughly $40/month. Does that price point actually make sense from an OTT provider’s standpoint?
As TDG sees it, video is now a means to a much more indirect end as far as the bottom line is concerned. AT&T, for example, wants to use OTT to migrate the DirecTV brand away from satellite and towards selling data plans. Dish Network has similar aspirations for Sling TV. Hulu wants to use its livestreaming service to differentiate itself from Netflix and an “unwinnable” original SVOD content arms race. YouTube wants its vMVPD to differentiate it from amateurish user-generated content.
For its part, Amazon isn’t in the linear business, having decided—perhaps smartly—to simply package and sell programmers’ own apps. But again, its video business—no matter the iteration—is a means of supporting the much more core retail operation.
Amid this bleak scene-setting, Verizon two weeks ago came out and said it has scuttled its own plans to launch a virtual pay TV service and will instead partner with someone who has assumed the sizable burden of program licensing, marketing and technology.
“We made our bet several years ago, before we bought AOL and Yahoo and combined them together to do Oath, that we weren’t going to be investing in the linear TV model,” said Verizon Chairman and CEO Lowell McAdam in an interview with company’s Yahoo Finance unit. “I’ve said this a couple of times—I think the linear model is dead. It’s just going to take a long time to die. So we’re not out there buying these big content companies trying to achieve scale. We’re much more into the digital area.”
TDG agrees. And the so, probably, to the vMVPDs, which know that they’re in a death race to achieve scale.
“The vMVPD market is becoming a Fortnite-style battle royale with few long term winners. Acquiring customers and achieving scale is the difference between winning and losing,” TDG said. “Setting aside DirecTV Now (which has its own base of 140 million AT&T Wireless customers to go after), a successful partnership with Verizon could be decisive.”
In his interview with Yahoo Finance, McAdam also noted, “Our view is we should partner with those that are in the linear game, let them be very good at what they do. We’ll add digital content to that mix and we’ll position ourselves for where we become more of an over-the-top video culture versus the linear model that we have today.”
In his report, Espelien predicted that YouTube TV, Sling TV or Hulu might soon be “bidding against each other” for the “privilege” of burnishing Verizon with millions of dollars in revenue with nominal cost and risk.
Speaking alongside Espelien at our Pay TV Show event in Denver three weeks ago, TV[R]EV co-founder and lead analyst Alan Wolk suggested startup vMVPD fuboTV might be a “really ripe target” for either partnership or acquisition by Verizon.
McAdam said Verizon will have its lucky partner picked out by the fourth quarter.
“We will have a partner picked out and we’ll integrate our Oath assets into their linear assets that they have and bring the full package to customers,” he added. “We think that’s going to be a big hit from a customer perspective.”