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Will Connected TV End Up Looking Just Like Cable?

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Connected TV is the fair-haired child of the TV business. From the “war horses” Netflix, Hulu and Amazon AMZN Prime Video to already-recognized brands such as Disney DIS + and Peacock, to new kids like Discovery DISCA +, Connected TV (“CTV”) is lavished with the attention and investment dollars of its corporate parents, investors and consumers weary of the long-lasting constraints and perceived arrogance of the traditional multichannel video - aka “cable” - world.

But even as it disrupts linear TV, the early development of CTV is already beginning to resemble the traditional media marketplace that it seeks to replace. As the great philosopher Mel Brooks once said, in his guise as the 2000-year-old-man, “We mock the things we are to be.” Will that be the path for CTV? The signs are there.

Direct to Consumer? Try Direct to Distributors

The great promise of the streaming world was for content producer/owners to go directly to consumers with their services without relying on cable or satellite gatekeepers. Websites and CTV apps do provide the technological ability for consumers to directly access streaming services on mobile phones and internet-connected TVs. But you still have to have broadband and you can’t launch or sustain a CTV service without being carried on all of the major CTV device outlets including Roku, Amazon Fire TV, Apple TV, and smart TVs such as Samsung and LG.

The battle for carriage has been an underlying characteristic of multichannel video for decades. Early on, you couldn’t launch a new channel without carriage on TCI, Time Warner Cable or the “Killer Cs”: Comcast, Cablevision, Cox Cable and Continental Cablevision. Satellite could compete with cable only because Congress guaranteed them the right to acquire programming owned by cable operators. Rupert Murdoch transformed the cable news landscape by paying huge sums to cable operators if they carried the new Fox News Channel. We still have knock-down retransmission consent battles between broadcasters and cable and satellite providers.

We already see CTV carriage skirmishes as new, more powerful players enter the market. HBO Max and Peacock, despite (or perhaps because of?) ownership by Warner Media and Comcast CMCSA , are still not carried on all of the most popular CTV devices. The smaller independent CTV services have relatively little problem getting “on” these devices, but what happens when those distribution platforms, looking for CTV growth under the pressure from their own corporate ownership, start squeezing the little guys for equity investments, more ad revenue or direct payments for “distribution cost recovery” or “marketing preferences”? Will we be hearing a cry for “CTV Neutrality”? Sound a little familiar?

Who Needs A Bundle? Er…Everybody?

Individual CTV services are often portrayed as the antidote to the “cable bundle.” Certainly the multichannel video business helped turn that term into a poisonous one with too many new and increasingly obscure channels that no longer justified increasing monthly rates. But the consolidation already taking place at such an early stage of TV streaming makes one wonder how many true “a la carte” CTV offerings will be big players in this world.

Initially cable channels came from a variety of independent media players such as the Providence Journal Company (Food Network), MCA/Universal UVV (USA), Scripps SSP (HGTV), Discovery, Hearst (A&E, ESPN and Lifetime LCUT ), and of course Turner Broadcasting (CNN and more). But eventually almost every major cable network came to be owned by one of just a handful of major media companies such as Disney, Fox, Comcast, Viacom VIAB and Sony.

You’ll find upwards of 14,000 different CTV services on Roku, but the presence of a handful of major media players is coming to dominate CTV content in much the same way as in multichannel video. Netflix and Amazon are of course digital giants that never existed in the early cable era. They are joined by Disney, Comcast, ViacomCBS and Fox that not only have their own CTV services but have quickly gobbled up formerly independent ad-supported CTV services such as Pluto TV (ViacomCBS), Xumo (Comcast), and Tubi (Fox). The move away from pure a la carte is reinforced in Disney’s own “mini bundle” of Disney+, ESPN+ and Hulu for little more than you’d spend on Hulu alone. The just-launched Discovery+ will contain the content not only of the recently merged Discovery and Scripps companies, but that of A+E Networks (which in turn purchased Lifetime and Vice in recent years).

Even with corporate consolidation you still have to buy a lot of separate CTV services if you have a diverse set of entertainment preferences. Have you ever tried to explain to someone not in the media business why you now need to buy so many different services? Rather than rely on a la carte marketing and consumer choice, how soon will it be before it makes so much more sense to buy an attractively priced bundle of these services through Roku or Amazon Fire TV? Sounds like…hmm…cable?

Wait…Prices Are Rising and I Still Get Commercials?

Generations of Americans probably can’t remember when cable was a dirt-cheap way of getting clear broadcast pictures into your home. But it was expensive to wire the country, and cable kept raising prices to satisfy its capital lenders, investors and ever-needy programming suppliers. Many cable services had no advertising in the early days, either for brand image (commercials on IFC?) or simple cost-benefit analysis (not enough viewers to justify the cost of ad insertion). But ultimately the combination of rising consumer rates and expanding advertising proved an intoxicating business mix.

We’ve got a split today between no-commercials services such as Disney+ and HBO Max and a slew of free, ad-supported services, including those such as Pluto TV now owned by major media companies. Netflix has insisted it isn’t going into advertising and doesn’t need to. But how long will it be before CTV is playing the same game here as cable? The digital world is hardly immune from the familiar quarterly profit and loss pressures.

Digital subscription services such as SiriusXM Satellite Radio and Spotify have already regularly raised reasonably-priced sub fees since launch. Netflix has made its price increases a regular part of the landscape. Peacock launched just last year trumpeting how nothing beats “free” TV but just announced that if you want more than the first two seasons of The Office you’re going to have to subscribe to Peacock Premium. I would hardly be shocked to see different tiers of service and bundles of subscription services plus “free” programming from each of the major CTV players.

When it comes to more advertising, Netflix eschews this publicly, but has made behind-the-scenes moves that suggest otherwise, and they are still losing money even with 195 million subscribers worldwide. The CTV ad market is estimated to top $5 billion in 2020, but linear TV brings in nearly $70 billion. At some point you have to think investors take a look at potential advertising riches for Netflix and elsewhere and say…well, maybe just a little advertising, OK? Didn’t cable TV do that?

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