A Succession Of Thrones: Distribution Vs. Content Vs. Distribution?

As the 20th century rolled to a close, the debate amongst media pundits about who owned the keys to the kingdom — content owners or distribution entities — intensified. The preceding decade was fraught with media consolidations and platform launches predicated on the concept that content creation companies, producers of professionally scripted TV shows and theatricals, would be at the mercy of distribution gatekeepers, and therefore needed to secure their future by merging assets.

The merger of Disney and ABC; the consolidation of Viacom, CBS and Paramount; the launch of new TV networks WB and UPN; and of course, the mating of AOL and Time Warner, are but a few illustrations. Even the government provided succor to Hollywood studios, owners of the broadcast networks, when it burst asunder the financial interest and syndication rules, allowing the TV networks to populate their schedules with new shows purchased from parent studios – previously limited to a small percentage of their prime-time schedules.

Concurrently, cable system operators meaningfully extended their reach into the American entertainment psyche with the support of dual revenue streams — monthly subscription fees and advertising; satellite platforms DirecTV and Dish skyrocketed; and broadband pipes, owned by cablers and telcos, ripped up suburban thoroughfares, entrenching or replacing coaxial wiring with fiber optics and hybrids.

The demarcated lines were drawn: Hollywood studios/production entities vs. distribution/pay TV platforms. Content companies continued their expansion through creation of spinoff networks and TV network acquisitions to amortize their content. Distribution entities firmed up their gatekeeping by expanding the size of their footprint, whether through build-out or acquisition of smaller and, in some cases, larger rivals.   

By the mid-2000s, the discussion abruptly abated. Apple’s iTunes and ABC concluded a licensing arrangement that provided access to select ABC prime-time inventory. Since that inflexion point, content providers have steadily gained momentum in their exploitation of the numerous avenues to circumvent the once monolithic pay TV gateways: the burgeoning growth of consumer electronic devices and video streaming services and their thirst for premium content; the competitive bidding for program exclusivity; the expansion of the number of licensing windows in a program’s lifecycle; and more recently, the billions garnered from retransmission fees.

Last summer, when the showdown began between CBS demanding an incremental per subscriber monthly license fee from Time Warner Cable for carriage of its programming and Time Warner’s adamant refusal, the MVPD was brought to its knees and forced to acquiesce. Not only would Time Warner Cable pay the monthly subscription increment, but it did not gain access to digital rights in its footprint for CBS content.

Content is king. Long it will reign.

So who in the distribution world will enjoy the coveted, lucrative perch below content’s majesty? One would have imagined that pay TV operators — now self-christened multichannel video program distributors (MVPDs), with their 95 million subscribers who pay monthly homage — would have secured that position.

Yet, given the amount of choices based upon programming, cost considerations, convenience (mobility and motility), social-ability, discovery, user experience and internet protocol delivery, there is a new meaningful rivalry budding between the established mandarins of the TV distribution community (cable, satellite, telco) and the evolving upstarts i.e., streaming video services, devices (smartphones, tablets, wearables), video game consoles, and smart TVs. The battle between mature and incipient distribution platforms/devices will only enrich the coffers of content producers.

In the past decade, the four big technology companies — Apple, Google, Amazon and Facebook — have been slowly encroaching in each other’s turf, representing a new challenge for distribution hegemony: hardware vs. software. Each has been ramping up hardware to augment customer loyalty and extend control over software services and the revenues that flow from them.

Professionally produced audio and video content is becoming another critical and strategic weapon in their quivers to attract customers, maintain loyalty and dominate the landscape. Weeks ago, Apple spent $3 billion to acquire Beats Electronics, a hip, upscale line of music products (headphones) and a nascent streaming music service (Beats Music) that launched in 2014, claims 250,000 subscribers, and is helmed by Jimmy Lovine and Dr. Dre.

Some media analysts envision that it will mark an important inflection point for the competitive impact on the growth of streaming radio service, category leader Pandora and that of lesser rival Spotify. Why? Because there is no need to download a standalone app on an iOS device or Mac computer. All that is required is updating to the latest software.

Over the coming years, distribution platforms will collide and disrupt the hierarchical order as we presently know it, creating a competitive environment whose fiduciary responsibility to shareholders is to garner the largest share of revenue derived from subscription, advertising, measurement, commerce, and along the way, cripple competition and maintain a convivial vassalage with content overlords.

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