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The State of Media and Entertainment 2018

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How many skinny bundles can the market bear? Ireland says it depends on how consumers look at it. The catch-22 of skinny bundles is that, while they’re inexpensive, they offer limited choices, forcing consumers to cobble together a variety of services to get all the programs and channels they want. Pay TV customers pay one large monthly bill and complain that they have hundreds of channels but nothing to watch. For skinny bundle customers the situation is different: They’re paying a large amount every month divided over several bills, but get far too much great content to watch. It’s not a bad problem to have, he thinks.

“To some degree, consumers are re-allocating their spend,” Ireland says. “I wouldn’t be surprised if, for many consumers, they’re actually spending more overall on video entertainment. That speaks, again, to this golden age of content that we’re in, that there’s so much good content that we need a lot of services or a lot of channels in order to get access to all of that good content.”

Ireland sees a strong future for service aggregators, with Amazon Channels being the first, which allow consumers to select the services they want and then pay for them all with one monthly bill. Aggregators take the frustration out of juggling multiple plans. Consumers feel nickel-and-dimed when they have to pay $10 here, $20 there, he says. But when they get everything through one tidy monthly bill, they feel better about it.

Don’t look for a new, large-scale, cable-style bundle to take off online. Content providers don’t want to lose their direct relationship with the consumer, says Joel Espelien, a senior advisor with The Diffusion Group. The aggregator model succeeds with consumers because it offers simplicity, and because providers still enjoy a direct consumer relationship. He believes we’ll see more aggregators launch. Apple and Google, with their gigantic app store infrastructures, are the most likely suspects. Plus, as Espelien notes, they already have everyone’s credit cards.

While TV Everywhere had a strong year, the area was overshadowed by the rise of vMVPD services, and that’s really where the future is going. While TVE saw strong demand, Ireland sees broadcaster apps as a way for pay TV subscribers to explore back catalogs and for broadcasters to monetize that content. The area continued its evolution this year, but there was nothing to get excited about. Consumers are paying attention to vMVPDs, something that will continue in 2018.

With Apple and Facebook getting into the streaming video business, two questions for 2018 are how much will we watch their content, and how many new nontraditional players are going to enter the field? Ireland wasn’t surprised to see developments from Apple and Facebook, since there had been speculation for years that they’d do something involving aggregation and original content. Successes by AT&T and YouTube TV in gaining audiences and advertising show that the area is still young and there aren’t a lot of players competing. In 2018, he thinks Apple and Facebook will continue their original content plays and may even launch whole new services using original content to differentiate themselves. The big fish he’s been waiting on is Verizon. Perhaps 2018 will be the year it launches its own vMVPD.

As for subscription services, Espelien suspects Disney’s OTT play will debut this summer, when the kids are out of school and parents would prefer they watch noncommercial TV. He sees the service as being largely child-oriented, but considering that Disney owns Marvel and the Star Wars franchise, which have plenty of adult fans, that’s not a given. Putting all the Star Wars titles exclusively on a Disney-branded OTT service would be a great way to get attention, he believes, similar to what CBS did with Star Trek.

But the potential launch that has Espelien really excited is Amazon creating a free skinny bundle inside of Prime. This could be the big story of 2018, he thinks. Call it “free paid TV,” something that’s never existed before in television history. People would need to subscribe to Amazon Prime for $100 a year to get it, but many people think of that as paying for the shipping service. If Amazon bundles an ad-supported, ultra-skinny cable channel service within that, it feels like free. Such a move could even help Amazon’s channel aggregation business, he believes, as viewers might see the bundle as such a good deal that they decide to sign up for one or more premium channels.

In 2018, content providers will need to battle subscriber churn, which Espelien says is much higher than for traditional pay TV services, as well as what he calls “viewer inertia.”

“A viewer who consumes content on a particular platform will continue to consume content on that platform unless something of sufficient force diverts them from their path,” Espelien says. “YouTube for kids is an incredibly high-inertia platform, meaning they watch all kinds of random crap within YouTube and getting them outside of YouTube to watch anything is actually kind of hard. YouTube has platform inertia among kids. Netflix itself has platform inertia among the Netflix-and-chill generation. They’re so used to watching stuff on Netflix that when they finish something they grab a new show on Netflix or wait for a new movie to come out. Netflix for them has a lot of inertia. I think we have multiple sources of inertia now. In other words, it’s not that viewers are these magical free-floating electrons again, that early internet fan boys and girls thought was going to be the case. Viewers of all ages hunker down and nest in these different viewing platforms and develop a lot of inertia. It’s just that there’s no one platform anymore.”

That’s not to say that there won’t be players trying to attract those nested viewers. In fact, this year should bring investments from some of the biggest names in tech.

“Looking long-term, whether 2018 or beyond, any traditional content distributor from the MVPD side has to look at folks like Facebook, Apple, Amazon, Google, as huge competitors,” Ireland says. “Long-term, not only is it their focus on original content and funding original content, it’s what may happen in the years ahead with respect to sports licensing. Is the Amazon experiment with NFL this year sort of a precursor to some years from now, when sports rights contracts come up for renewal, whether a Facebook and Amazon, an Apple, become bidders for that content? Then, all of a sudden, that key piece of broadcast television migrates to those internet giants as well.”

Despite the unending hype on virtual reality (VR)—it seemed to be everywhere at CES this year—Ireland sees major obstacles blocking its path to mainstream consumer adoption. First off, there isn’t a lot of compelling content to watch with VR hardware. There still isn’t much to watch in 4K and HDR, for that matter. Next, there’s a lot of fragmentation in the VR market between headsets and platforms, and the better headsets often have large computing requirements. Finally, when viewers put a VR headset on, they’re no longer in a communal viewing experience. They can’t even check their social networks on their phone, as many do while watching TV. Wait till next year, he says, to see how VR devices develop. There’s no rush when there’s so much quality content to watch in 2D on the large, flat, communal TV screens people already own. There’s nothing broken with the 2D viewing experience, so VR is solving a problem that doesn’t exist.

So more content, more platforms, more players, more offerings. We’ll be getting a lot more of everything in 2018. The only thing we won’t be getting much of is, yes, sleep.

[This article appears in the 2018 Streaming Media Industry Sourcebook as "The State of Media and Entertainment 2018."]

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