Why U.S. MVPDs Shouldn't Do A Deal With Netflix (And What They Should Do Instead)
Instead of a deal with Netflix, U.S. operators should form a joint venture (JV) that offers a free ad-supported version of Netflix, available on TV platform video-on-demand and as part of online TV Everywhere services.
I think this would be hugely popular with subscribers. Netflix has proven the popularity of TV/movie content on-demand, and Americans absolutely love their free TV (ironically for most of them, free includes MVPD subscription fees).
So what are the friction points? It isn't a question of technology. Online video distribution, UI/search/discovery, and advertising support are in market right now. For TV VOD, operators would link the online servers with the VOD systems, and this is technology that companies, including Clearleap, are eager to provide. As to VOD search/discovery, most operator STB program guides would be completely overwhelmed by all the JV’s content choices, but that’s so bad. Tell subscribers they have to use second-screen program guides. The consumers that advertisers most care about already own a remarkably large number of tablets and smartphones.
Regarding business friction, the JV model shouldn’t be an issue, because cable operators currently have three related JVs: in-demand for VOD content packaging and distribution; NCC for national-into-local cable advertising sales; and Canoe for VOD advertising sales and services. The model allows big operators who own the JV to create scale and control the enterprise, while also allowing small to mid-size operators to buy services. These cable-owned JVs are today used widely. Even AT&T, Verizon, DirecTV, and DISH have used the cable-owned NCC to sell ad inventory.
Two big potential friction points remain. First, U.S. operators must get over individual plans for OTT domination. Second, there is the challenge of proper execution.
So let’s get that big pile of money set aside and start build, buy, and hire decisions. If I were an operator, I’d be in love with this idea. It could be nicely profitable and would strengthen the native TV platform by making VOD a better product. Not to mention, it would serve as a competitive “blunt object” against Netflix, Amazon, Google, Aereo, virtual MSOs, and other OTT TV entrants. Operators might be working on this now, but they also may still harbor individual OTT domination thoughts.
So there it is. A compelling and workable business plan for free, in return for your exposure to the advertising units MediaPost is placing with this opinion. Isn’t free ad-supported content a wonderful value proposition?
Postscript: Why was it good for Liberty Global-owned Virgin Media to do the Netflix deal? First, Virgin Media, with four million million TV subscribers, on its own likely doesn't have the scale for a fully realized Netflix-like service. Liberty Global worldwide has 24 million subscribers, but it is probably giving Netflix a try in one market to experiment, as digital media companies should. Meanwhile, its Netflix deal doesn't draw internal resources Liberty Global can apply to its innovative Horizon integrated hybrid TV/OTT service, which is being rolled out globally. Given that Netflix has only 7.7 million international streaming members (vs. 28.9 million domestically), Liberty Global can afford to sit back and wait a few years.