Mirror Mirror

Netflix’s content chief Ted Sarandos once famously quipped that his goal was for Netflix to become HBO “faster than HBO can become us.” By that he meant, for Netflix to establish itself as a high-end global TV content brand before the reigning high-end global TV content brand, HBO, could un-tether itself from the legacy pay-TV ecosystem.

So far, Netflix is winning that race. The streaming service now reaches over 100 million subscribers worldwide, more than the entire U.S. pay-TV universe, and will spend upwards of $8 billion in 2018 producing 700 original series.

What’s more, Netflix has successfully colonized HBO’s home turf in the living room. Although today you can watch Netflix on virtually any connected device nearly anywhere in the world, the company reported this week that 70 percent of its streams are delivered to a stationary TV set, either directly via smart TV app, via streaming box, or via its growing number of integrations with traditional pay-TV platforms. Read More »

Nothing Neutral About Disney’s Bid For Fox

It was fitting, albeit likely coincidental, that the Walt Disney Co. announced its $52 billion acquisition of most of the movie and TV assets of 21st Century Fox on the day the Federal Communications Commission voted to repeal its own net neutrality rules, because the deal is very much about the future of content delivery over the internet.

Disney CEO Robert Iger

Under the deal, Disney would absorb the 20th Century-Fox film and TV studio and its library, including the first three “Star Wars” films; most of Fox’s cable networks group, including National Geographic, FX, and 300-plus international channels but excluding Fox News or Fox Sports; and 22 regional sports networks (RSNs). The deal also includes Fox’s one-third interest in Hulu, giving Disney majority control over the streaming service.

Assuming the deal passes antitrust muster — highly likely given Rupert Murdoch’s closeness to Donald Trump — it will give Disney control over vast new libraries of content as it prepares to significantly expand its direct-to-consumer streaming business. Strategic control over Hulu will also give Disney a solid foundation from which to challenge Netflix and Amazon directly as an over-the-top content aggregator.

Yet, while the coming showdown with Netflix has grabbed most of the headlines about the deal, there is another important streaming dynamic likely to play out that has gotten less attention but which could be directly impacted by the repeal of the net neutrality rules.

Whether, or not, the bulked up Disney succeeds in challenging Netflix and Amazon, its growing direct-to-consumer ambitions give the Mouse a major stake in the coming contest between programming services and broadband providers over the terms and conditions of engagement on last-mile networks.

The over-the-top streaming business has so far developed very differently from traditional movie and television delivery businesses. In the traditional TV business, the owners of the last-mile pipes — cable and satellite operators, local broadcast affiliates — pay program providers for access to their content.

Disney, in particular, has been successful in leveraging that dynamic, earning ESPN the highest per-subscriber carriage fees of any cable network.

Unlike a cable TV system, however, internet access networks have utility and value independent of any particular content, allowing access service providers to build their networks — and subscriber bases — without having to pay for the content moving across those networks.

If anything, the monopoly or duopoly status most internet access providers enjoy within their footprints has raised concerns that ISPs could use the leverage of their control over their networks to compel content providers to pay for access to their subscribers.

The FCC’s original Open Internet Order was designed in part specifically to deny ISPs that leverage, by prohibiting the blocking or throttling of data based on its source, or accepting compensation for favorable treatment of data from a particular source. Those rules left the status quo in place, at least for the time being. But they left open the possibility that the streaming business could eventually develop more like the traditional TV business, in which access providers are compelled to

The FCC has now voted to lift those rules — their ultimate fate awaits the outcome of inevitable litigation — potentially upsetting the current balance of power.

Determining who will ultimately holds the leverage in that balance remains a work in progress, however. One way to read Disney’s bid for Fox is as an attempt to position itself not only against Netflix but against last-mile network operators for the inevitable battles ahead.

From that perspective, the real trigger event for Disney was AT&T’s (still pending) acquisition of Time Warner. Assuming that deal goes through, it will mean that two of Disney’s (and Fox’s) major competitors — NBCUniversal, now owned by Comcast, and Time Warner — will be owned by major broadband providers. That could leave Disney at a disadvantage in the struggle for leverage over the terms of OTT distribution.

One option would have been for Disney to sell itself to a network operator. But the only one out there with the scale to do it and not already betrothed is Verizon, and Verizon execs have made it clear they’re not in the market for a major studio.

By buying Fox, Disney is hoping to gain enough scale as a content provider to treat with network operators on equal or better terms.

 

What UI Voodoo Will Hulu Do In Linear Debut?

One of the more interesting subplots to Hulu’s apparently pending rollout of an over-the-top bundle of linear channels will be what it does with the user interface.

As I’ve noted here previously, the traditional programming grid that still drives navigation on most pay-TV systems today is at the core of the current tussle over Federal Communications Commission chairman Tom Wheeler’s proposal to “unlock” the set-top box to allow third-party devices and applications to interoperate with pay-TV services. And apart from pay-TV operators themselves, the loudest objections to Wheeler’s proposal have come from programmers, who fear those third parties will not honor the agreements networks have with operators concerning their position within the traditional pay-TV UI.

“ArmHulu_homepage’s length agreements between MVPDs and programmers provide the necessary licenses to transmit the content, and in exchange the MVPDs agree to a range of license terms, including security requirements, advertising rules, [electronic programming guide] channel placement obligations, and tier placement requirements,” the Motion Picture Association of America wrote in comments submitted to the FCC. “These terms are material to the grant of the copyright license, and to copyright holders’ ability to direct the exploitation of their works in a manner that enables them to continue to invest in the high-quality programming that viewers expect. ..The only terms the proposal would explicitly recognize are copy, output, and streaming limitations. Extensively negotiated terms on matters including “service presentation (such as agreed-upon channel lineups and neighborhoods), replac[ing] or alter[ing] advertising, or improperly manipulat[ing] content,” are all left unaddressed by the FCC’s proposal.” Read More »

Netflix Is A Ratings Winner

NBCUniversal president of research and media development Alan Wurtzel got a bit cheeky with Netflix this week, leaking some preliminary data from Symphony, the network-backed rating system (still in beta) that uses audio-recognition technology to measure viewership of unrated OTT channels like Netflix.

According to Wurtzel, Symphony measured the average audience in the 18-49 demo for each episode of Netflix original series within 35 days of their debut on the service between September and December, and over that time Netflix’s most-watched show was “Jessica Jones,” which averaged piper-orange-is-the-new-black4.8 million viewers per episode. “Master of None” was second, with an average audience of 3.9 million, while “Narcos” pulled in 3.2 million per episode. “Orange is the New Black” remains Netflix’s most-watched series, according to Wurtzel, but the current season was released in June and most of the viewing happened during the summer. During the period covered by the study, OITNB averaged 644,00 viewers per episode.

In comparison, the most watched scripted series in the 18-49 demo on linear TV channels during the 2014-2015 TV season, in the live-plus 7-day window, AMC’s “The Walking Dead” averaged 13.2 million viewers per week, followed by Fox’s “Empire” at 9.0 million and CBS’ “Big Bang Theory” at 8.3 million. Read More »

The Bills, Jaguars And Peak-NFL

Given how little good news Yahoo has had to share with investors lately it’s no surprise that the company is trumpeting the results of Sunday’s first-ever globally live-streamed regular season NFL game, between the Buffalo Bills and Jacksonville Jaguars, which attracted 15.2 million unique viewers and 33.6 million total views. Those numbers make it one of the biggest live-streamed events to date, and compare favorably with the TV audience for  a typically Thursday night or Monday night regular season game, according to the NFL.

“We’re thrilled with the results of our initial step distributing an NFL game to a worldwide audience and with the work of our partner, Yahoo,” NFL senior VP of media strategy, business development and sales,Hans Schroder said in a statement. “We are incredibly excited by the fact that jaguars-billswe took a game that would have been viewed by a relatively limited television audience in the United States and by distributing it digitally were able to attract a global audience of over 15 million viewers.”

Yet as others have pointed out, the reported numbers don’t tell the whole story. Yahoo had to resort to some trick plays to score some of those points, like putting a muted auto-play video of the game on the home pages of several of its properties, which means your Aunt Minnie, who has never watched an NFL game in her life but uses Yahoo as her personal home page, is somewhere in that 15 million. The comparison with broadcast TV viewership is also overstated. As Brian Stetler of CNN pointed out, the 460 million total minutes of football Yahoo claims to have streamed, over the course of a 195-minute game, implies an average of just 2.36 million concurrent viewers, the streaming metric most comparable to TV ratings. Read More »