Wednesday, April 29, 2015

(The Big Disrupt) ESPN: Verizon Just Heated up the Coming Battle Between Cable Providers and Networks

While it is no surprise that ESPN are suing Verizon, it is a surprise to see Verizon actually take action in the battle between cable providers and TV networks over the future of television.

In truth, the real surprise is why Verizon is the first cable provider to take such an action after powerful and popular networks like HBO and ESPN have launched standalone services (ESPN became part of a smaller sling TV package) separate from the cable bundle while benefiting from the ever increasing re-transmission rates cable providers have to dole out to keep them there. What ESPN is really mad at is that cable providers like Verizon are now doing what they should have been doing years ago: making their bundles smaller.

Cable providers are not stupid and know that consumers have gotten sick with the travesty of paying ever increasing cable bills for channels they don't watch which makes Verizon's FIOS service a masterstroke as it shows consumers that cable providers are paying attention to the consumer while calling the bluff of networks like ESPN launching standalone services while still in the cable bundle.

While Verizon's new service won't exactly check the growing demand for an a la carte model of television, It sends a clear message that cable providers can no longer play defense. It also shows cable networks that other cable providers may be preparing to make the same move as cable providers are surely not in love with networks dangling their feet in the a la carte pool while nestled in the safe harbor of the cable package.

Cable providers (as well as cable networks) are well aware that if the a la carte model was as lucrative as staying in the cable bundle was cable and broadcast networks would leave the cable package en masse and put cable providers like Comcast and Verizon out of business. Comcast may well be the next cable provider take a hint from Verizon and start making their cable package a little smaller after they gave up on a merger with Time Warner and have been subject to astronomical re-transmission rates over the last decade.

However, this process might have the effect of making already powerful and popular networks even more powerful as smaller bundles give popular networks like HBO and ESPN in a better bargaining position than they already have. We're already seeing this trend already with cable operators like Comcast and Verizon but it's more pronounced with services like Dish Networks's Sling TV where ESPN can choose to leave Sling TV's smaller bundle if the service gets too popular and takes away from their cable bundle base. In effect, this shows that cable networks and ESPN in particular are trying to have their cake and eat it at both the cable providers's and Sling TV's expense.

This type of scenario won't last forever as congress and the FCC are both behind making the a la carte model of television the new normal in the pay TV market. If it should happen, Cable providers and a host of networks are going to have to adapt or die a slow and horrible death as the balance of power in the pay TV market has swung from the traditional distributors to content creators and it's hard to see distributors getting it back .

However, this would be the cable networks worse nightmare the last thing they want to see is cable providers die out as the big cable providers is how they get their bread buttered. Without cable providers, cable networks would have to either build their own standalone over the top service and fight for an audience in the open market or partner up with a smaller streaming services who can't (or won't) cough up the large re-transmission deals a great deal of networks rely on.

So what we will see is networks doing their best to straddle the lines between the cable package and the a la carte model but with Verizon making their packages smaller and their rivals sure to follow suit, cable networks are going to find this balancing act harder to pull off.

In any case, 2015 is going to be a truly interesting year in the pay TV market with a host of networks either launching standalone services or joining smaller bundles via online streaming services as we get to the first draft of the future of television be written right in front of our eyes.

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