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All TV content bets are off

By August 26, 2015 No Comments

When it comes to negotiating TV rights with content providers not even the mighty Apple with a market cap of $750Bn can come to an agreement in a timely and cost effective manner.

The elephant in the room for cable operators is the cost of programming. On average programming costs account for 59% of Video revenue which is by far their largest operating cost.

Viewership levels for TV networks particularly in the US are falling but the price they achieve for their content continues to grow. One cable operator in the US saw video revenue fall 1.3% Q2 2015 YoY but programming costs are up 11% in the same period.

Cable providers are being held hostage by broadcasters and there is very little they can do about it! Let’s examine their options:

1.      The least palatable, pay the increases sought by content providers as the content is a must for their service.

2.1   Play hard ball and threaten to remove the channel from their service if a reasonable price is not agreed.

2.2   Go nuclear and remove the channel from the service, bank the cost saving and hope that customer outrage doesn’t lead to widespread churn. This tactic is often used to gain a better deal from the content provider and the service returns as per Direct TV’s battle with The Weather Channel in the US and ITV’s battle with UPC in 2011.

Option 1 is sometimes a necessity where the interest in a channel/content means it is a must for a cable provider. Options 2 & 3 are high stakes gambles where millions if not billions of dollars are at stake. Up until recently cable companies have relied on Nielsen ratings to inform them of viewership trends but these have a high margin of error particularly when it comes to smaller networks. Coming to the table without highly granular real-time analysis of viewership behaviour and patterns is like bringing a knife to a gun fight. There will only be one winner as seen by the viewership down, content costs up conundrum outlined above. If a cable company can identify poor performing channels with low viewership they can either renegotiate carriage or even drop the service if it’s unlikely to cause much customer consternation.

Bringing this real-time viewing measurement to the negotiating table puts cable providers in a far better negotiating position making that content gamble a little bit safer. All TV content bets are off, or at least they should be!