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Sling TV Says Targeted Ads Are Key to OTT Bundles: IBC Keynote

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"That's the key enabler of the business model of OTT," said Roger Lynch, CEO for Sling TV. Delivering a keynote address at IBC, Lynch explained how the economics for pay TV and OTT bundles differs. Pay TV has high customer acquisition costs (around $850 per customer, he said) and high monthly fees (nearing $100 per month in the U.S.). OTT, on the other hand has almost no customer acquisition costs, modest monthly fees (Sling TV's basic package sells for $20 per month), no contracts—and razor-thin margins.

When parent company Dish launched Sling TV, people in the industry were shocked by the price, Lynch said. They thought content acquisition costs must eat up the whole amount—and they're right, he noted. The key to making it work is selling targeted ads, which are more valuable than broadcast ads.

Under its business arrangements, Slings gets a few minutes of ad space that it can sell itself for every hour of content. It's able to insert ads dynamically targeted to demographic segments. Lynch hopes to offer the model to partners soon.

"The first step for us is make the technology work so its seamless," Lynch said. Sling will prove the targeted ad model for itself and the content partners it sells ads for, then create a model for channel partners.

"This is really just the beginning of it, but we have big advertisers that our ad sales group has already done deals with," Lynch said.

Relying on targeted ads is crucial to making the OTT model work. The payoff, he believes, will be huge. "We think that just in orders of magnitude that we could make two to three times what we make on our satellite business on a per subscriber basis."

As a result, Lynch hopes to see the OTT ad model change even further. At the moment, Sling TV shows ads on paid content, a model that works for basic cable but that OTT viewers have shown a dislike for (which is why Hulu recently launched a higher-priced ad-free tier). While programming like live sports will still use the traditional ad-supported model, Lynch would like to see his company's on-demand content have fewer ads. Getting higher CPMs for would let Sling TV show fewer ads while increasing relevancy for viewers.

Responding to Apple CEO Tim Cook's recent comment "We believe the future of TV is apps," Lynch said that's been obvious for years now and he wondered why it took Apple so long to realize it. With it's recent Apple TV announcement, Apple is moving from a closed and templated environment to an app model that's much more open and flexible. Sling TV is exploring offering service on the Apple TV. "We want to follow consumers," Lynch said.

Sling TV has been available for seven months. Lynch wouldn't give subscriber numbers, but said it isn't taking many subscribers from Dish and that 90 percent of its subscribers also subscribe to Netflix. When the satellite TV market matured, it plateaued at about 35 million subscribers, he said. He expects the OTT market to reach the same level in about five to seven years. 

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