OTTAWA – Much has been made about the paradigm shift over the top (OTT) video services are going to bring to the broadcasting system, but a conference in Ottawa heard yesterday that it is still too early to determine if there will be a negative impact on the conventional broadcasting sector.
Speaking at the International Institute of Communications Canada conference, Ryan Victor, senior VP of business and legal affairs at NBC Universal Television Distribution, said the biggest near-term effect of OTT services will be to understand its impact on the business because it’s still not yet known how OTT services will evolve. “This challenge is made much more difficult by virtue of the fact that these services don’t really know what they are yet. They’re still in the process of becoming what they are going to be in terms of what window they will serve, the combination of windows they will serve, and at what price point,” he said. “And until we have a better understanding of that, it’s going to be extraordinarily difficult for us to figure out what our strategy is long term.”
The NBCU executive pointed out that there are benefits to be had from the emergence of OTT service providers. First, OTT fosters innovation and encourages video on demand, by meeting the delivery expectations of consumers.
There are, of course, drawbacks. Victor highlighted the mixed window environment of Netflix – a few films in first pay TV window, the rest in library, a few TV series in their initial year and then a lot in the library – as part of the problem because it’s all just mashed together. “When you lump all this together and don’t differentiate the content, it commoditizes the content,” he said. “This worries us, especially if you do it at a low price, [there’s] a risk of content commoditization and a lowering of value over time.”
Following his take on the Good and the Bad with respect to OTT, Victor also talked about the Ugly. His last point fit well with the Canadian context.
Will over the top services spur the end of the practice of territorial exclusivity for content licensing? The idea that OTT services are available everywhere all the time to all people using the Internet could usher in a new era where the idea of territorial licensing disappears.
Peter Miller, former broadcasting executive with CHUM and now consultant, said a territorial licensing for Canada is fundamentally important for the Canadian broadcasting system and acknowledged that early OTT trends would seem to put this into jeopardy. “I would submit that not only is territorial licensing in the form of a separate Canadian program rights market central to our business, it is central to the very foundations of the Canadian broadcasting system,” he said.
But OTT services threaten the concept of a Canadian program rights market. “OTT comes along and it threatens both. It threatens both the notion of a separate Canadian rights market and the notion of those rights being held by Canadian entities,” he added.
Over the top services are, however, only just part of broader trend towards more video on demand (VOD), and for Miller, VOD represents a much bigger problem. Just compare the revenue from Canadian programming and VOD services, 30% to 5%. “So that six-fold reduction in contribution to Canadian programming is, quite frankly, a far bigger change than the mere presence of OTT,” he said.
In the near term though, OTT won’t have too much of an impact on the conventional system. Five years down though, the story could be different, according to Miller. Referring to it as OTT 3.0, this is where it gets difficult “because at this phase if the level of OTT and the prevalence of it is such that it breaks down the rights market, then the broadcasting system is in jeopardy,” Miller said, noting this could happen regardless if the CRTC chooses to intervene or not.
The industry may not have to wait too long to get a sense of where OTT, and perhaps more specifically Netflix is going, said Victor.
“Because Netflix is spending far more on content than its subscription price times the subscriber basis to sustain long term, they’re going to have to make a decision at some point in the future. Are they a first pay service or are they a library service? Are they trying to replace certain things that people currently subscribe to? Or are they trying to fill in the cracks…at a low price point?” he asked. “Until these new competitors figure out what they are, what they want to do, and what they can afford to do in the long run, I think we’re going to take a wait and see approach and we’re going to do it as non-exclusively as possible.”
However, in the face of that, consultant Randall Rudniski (who has published a very good dive into the economics of the Canadian broadcasting business, which he referenced in a Cartt.ca column in September) showed that Netflix is already a significant player in the Canadian film business and is causing change now. His research shows that of the first run Hollywood movies available for first window viewing in Canada, Netflix had 25% of the titles, behind Movie Central (65%), TMN (48%) and ahead of Super Channel (13%). As well, Netflix has said it will double its spending on Canadian content in the next year, he added.
OTT’s end-game impact may be unknown, but change is certainly already afoot.
