Two very interesting studies came out this week. One, from Morgan Stanley, reiterated something we’d first written about back in November 2015—that the MVPDs are going to start selling subscriptions to streaming services like Netflix and Hulu and making them accessible via the set top box.
The second story was a survey from GFK that claimed consumers were very close to their tolerance level in terms of how much money they’d pay for these same services and that, as a result, said services were going to have to introduce ad-supported versions in the not-too-distant future.
If you triangulate the two reports, we think you’ll find the spot the industry is most likely to be a few years down the road.
Allow us to explain.
Yes it’s true that MVPDs are likely going to start offering streaming services to their customers. It’s a win-win for everyone, as the streaming services get free sales and marketing along with the chance to reach a new slice of the market, while the MVPDs get a chance to keep all those cord-cutters inside their ecosystems where they can then proceed to upsell them for years to come. (Added bonus: Churn rates for the streaming services may drop precipitously following this move, as anyone who’s ever tried to change their cable package can attest.)
This also allows the MVPDs to bundle the streaming services, offering them together or separately along with a skinny pay-TV bundle to people who don’t watch a lot of linear TV.
As for the streaming services being too expensive, we’re a bit skeptical on that. People tend to be poor judges of how much they’d pay for things and unlike that survey’s authors, we don’t see many people giving up on Netflix when it goes from $12 to $14/month. Given the wide array of TV shows and movies Netflix has available, we think the subscription price can go up to $20/month, and it will still seem like quite the bargain.
What’s more likely to happen is that people will start to look at their total TV bill—pay TV and the Big 3 streaming services—and realize that they’re paying a lot of money for everything even though they’re spending most of their time with the Big 3—Netflix, Hulu and Amazon.
Now imagine a scenario where the MVPDs are the ones selling you your Big 3 subscriptions, and where they can bundle those subscriptions, along with HBO, Showtime and a skinny-ish bundle, and charge a monthly price that’s somewhere close to what they are currently charging for their Platinum Plus package.
That’s a win-win for everyone. The consumer sees their monthly cost drop by about $40-45 and all they’re really giving up is a bunch of lesser channels they never watch. They’re still getting a sizable bouquet of cable and broadcast channels along with all the subscription services they want. The package won’t be cheap, but most viewers aren’t looking for cheap—they’re looking for something that reflects what they watch on TV. Throw in a well-designed interface—something that looks more like Roku and less like Atari, and you’ll have a sizable segment of your user base—call them “heavy users”—who are actually happy(ish) with the service they’re getting.
Imaging the Package of the Future
It’s also well within the realm of possibility to think about a system with a lot of options built in based on the amount of advertising you’d pay to avoid.
So that the new system’s “Silver Package” would be entirely ad-supported (even the streaming and premium networks, whose ad load would be pre-roll only) and would allow viewers to watch some cable and broadcast networks live and others on an on-demand basis only—viewers would not have access to the live broadcast but could watch the show 24 or 48 hours later via VOD (with non-skippable ads.)
The “Gold Package” would allow viewers to watch the streaming and premium networks with just a limited ad load and provide full access to all the cable and broadcast networks on both linear and VOD.
The “Platinum Package” would provide ad-free access to to premium and streaming services and a limited number of ads on broadcast and cable. A “Platinum Plus” package might even offer on-demand versions of certain broadcast and cable networks ad free along with a lighter ad load throughout
There’s a lot that would need to be ironed out (e.g. would networks be able to charge a premium for the pre-roll ads the Platinum audience saw) and it’s likely five or ten years down the road, but it’s also not a bad guess at how pay television service might evolve.
Even if we do say so ourselves.