TV Everywhere - CMCSA and a number of major TV Networks made it clear there is some progress, but a number of hurdles remain that stifle adoption - the fragmentation of rights, the painful authentication process, an inadequate ratings system, and limitations on what can be done on third party hardware (i.e. AAPL). Most characterized TV Everywhere as only being 20% to 50% of what they hope it will be; however, innovation around authentication (e.g. automatic authentication, using FB Connect, etc) and Nielsen's willingness to measure TV Everywhere will be key catalysts, but networks stressed that these numbers need to be aggregated into the linear ratings to be useful (not done currently). A number of TV nets aim to have sports and live streaming available inside the next year. Overall, this technology stands to help content owners monetize assets (both ad sales and affiliate fees) if adoption and measurement improves.
2nd Screen - There was a focus on the need to have 2nd screen integration as it is seen as a tool to: 1) increase show loyalty; 2) promote new seasons; 3) keep viewers engaged during off season; and 4) drive new opportunities around ad sales. This is all consistent with our thesis that brands and networks with higher 2nd screen engagement stand to gain market share. We believe VIA and DIS may be ideally positioned to monetize this trend.
Broadband Focus - The opening of The Cable Show heavily focused on broadband initiatives. We see this as another sign that broadband is quickly becoming the keystone asset for MSOs - displacing the legacy video business that struggles with the rising cost of content, slow sub growth, and minimal ARPU leverage. This could bode well for OTT platforms if the balance of conflicts inside MSOs settle in favor of the broadband business. This could be good for HBO, Starz, and NFLX if content is bundled into broadband.
Ultra HD - We see this as yet another opportunity for content owners to secure future price increases. The display is beautiful and we believe consumers will eventually move to the standard. However, the TV nets we spoke to implied they are not yet ready to monetize the new format. The set top companies also told us hardware in the home would need to be replaced, which will slow adoption. NFLX may benefit if this is the case as it will not face hardware limitations. While bandwidth constraints will be a key issue for OTT, we found that a new compression standard will be used with Ultra HD that cuts data use in half.
SVOD and AdVOD - TV nets continue to see OTT as a source of revenue and as a marketing tool. The executives continue to believe that windows will protect them from ratings erosion, but we believe this paradigm is dangerous as consumers may increasingly care about good content and not new content. DIS expressed optimism for ad supported VOD.
Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup Investment Research—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at firstname.lastname@example.org.
Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.
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