Digital strategies: The direct approach

A+E plans to follow up its Lifetime Movie Club services with a similar History offering.

Faced with growing demand for content to be available on multiple devices and in different formats, pay TV channel providers are increasingly looking at direct-to-consumer digital distribution. Most, however, remain wary of destabilising their existing businesses. Stuart Thomson reports.

Pay TV channel providers, keen not to break a model that works, have until recently viewed digital distribution warily. Content companies know the value of established relationships with pay TV distribution partners such as cable, IPTV and DTH providers and the affiliate carriage fee model has served them very well.

For this reason, digital distribution initiatives on the part of channel providers have typically dovetailed with the strategies of their distribution partners. This has meant – in the US context – TV everywhere, or making content available on multiple screens, but only to ‘authenticated’ pay TV subscribers. In Europe too, pay TV operators have developed their own multiscreen, catch-up and on-demand services and channel provider partners have supplied the necessary content rights.

There are, however, signs that the ground is beginning to shift. While content providers remain keen that pay TV partnerships continue to deliver a strong, predictable revenue stream, some perceive that viewing among the younger generation may rapidly begin to shift away from big bundle pay TV offerings. They also believe that digital distribution could offer an additional revenue stream that will not necessarily cannibalise the existing business.

At the heart of this is the question of whether or not to go direct to the consumer, bypassing the traditional distribution partnership. In many cases, of course, international channel providers have been going direct to the consumer for years, offering free-to-air linear channels in addition to their core pay TV offerings to build an advertising funded business to complement distribution fees. But launching an OTT service, perhaps with the kind of functionality that pay TV operators increasingly see as a way to differentiate their own services, is a bigger step.

Integrated approach

Big channel groups are in any case certainly looking at digital distribution as a core part of their overall strategic focus. Companies that have targeted the OTT space include premium content providers such as HBO, with its HBO Now service, and factual giant Discovery, which recently said it was on track to hit a million OTT subscribers by 2017 through services such as DPlay and Eurosport Play. NBCUniversal, meanwhile, recently launched reality-themed SVoD service hayu in the US, UK and Australia.

A+E Networks, for its part, recently combined its international and digital activities in a single structure under Sean Cohan, now president, international and digital media.

While conceding that the combination of international and digital “may seem unconventional”, Cohan argues that both businesses share many key characteristics. Digital, he says, now has an impact on everything and digital distribution is global, making traditional territory-specific distribution less relevant. He says that digital initiatives provide lessons that can be transferred from the US to A+E’s international businesses and vice versa. “You do need local knowledge, but because of scale and the need to innovate, internationalising [digital] makes sense,” he says. “We want to take what we have done in the US and leverage that internationally.”

According to Cohan, A+E’s experience in developing an international business is directly relevant to building a global digital business. “A lot of the last decade for us and other US players was spent integrating ‘international’ into everything we do across the company, making it feel like a global entity. That is what we need to do in digital. It is all about integrating ‘digital’ into everything we do,” he says.

Furthermore, says Cohan, international and digital development are the two areas where A+E – like other media companies – has the greatest opportunity to grow. Cohan says that while the environment is becoming more challenging in some areas, there is still growth to be had in linear channel distribution and in advertising sales, and there are still markets where A+E will also launch free-to-air channels.

In the digital domain, however, A+E is looking at direct-to-consumer initiatives to complement its partnerships with pay TV distributors. In the US the broadcaster has launched Lifetime Movie Club, which Cohan describes as “a complementary niche product for TV move fans”. Based on its success with Lifetime Movie Club, A+E is now moving ahead with plans to launch a similar product around its flagship History channel called History Vault. “This is a complementary niche offering for real history junkies that they will take in addition to our linear channel,” he says.

Cohan says that both Lifetime Movie Club and History Vault will be launched outside the US “in a handful of markets where it makes sense”. He is clear, however, that these offerings are “not a substitute for linear channels but a complement”. A+E does not wish to cannibalise its existing linear channel business and does not see digital offerings of the kind it is building as a threat to its traditional channel distribution model.

“These apps and direct-to-consumer initiatives are not substitutes for the channel,” he says. “They are about digging deeper into these curated categories.”

Cohan says that the digital services could be offered in partnership with pay TV distributors as part of their app store as well as through a pure OTT offering. He sees advantages and disadvantages in both approaches. “If you do it yourself, you get more data and own the direct relationship. If you do it with partners you get benefits from scale and visibility.” [icitspot id=”567292″ template=”box-story”]

Cohan says that the return on investing in digital platforms will be through a mix of things. Audience data will have, he says, “tremendous marketing value”. Digital distribution can provide incremental advertising revenue. Subscription revenues from OTT services can provide an incremental revenue stream. At the same time, the digital services will enhance engagement with the audience and bring people back to the linear channel.

“For me it about all three – learning, direct revenue and indirect revenue.” Cohan says that there are other, less immediately tangible benefits to investing in digital. One is the ability of channel groups to use digital platforms to bring on new talent. “You can incubate talent and intellectual property and content in a low-cost way. It’s less costly to produce something than would otherwise be the case, and there is a creative opportunity and a financial benefit from that,” he says, adding that A+E has been developing content and talent on digital platforms in a “below the radar way” but that it plans to take a more strategic approach to this in the future.

Cohan says that A+E is well-placed to experiment with alternative models because it owns the rights to the bulk of the content it airs on its linear channels – particularly on the unscripted side. More recently, the company has looked to hold the same rights to its scripted content, enabling it to provide content on its own platforms globally.

Adding value

Dan Reich, senior vice-president, multi-platform product strategy and development at Viacom International Media Networks, like Cohan, believes that there is still mileage in traditional pay TV growth – especially outside the US, where pay TV penetration remains far below the level of the US in many territories. However, he also believes that this growth will go hand in hand with investment in digital.

“We are still optimistic that there will be traditional pay TV growth, but this will be augmented by digital growth,” he says. Digital can involve tie-ups with existing distribution partners in an authenticated model or it can involve establishing new partnerships – for example with mobile operators, an area that Reich sees as having considerable potential.

The performance of Viacom, with its youth-focused channels, can be seen as a bellwether of change in video consumption patterns. In order to keep up with the pace of change, Viacom has undertaken both to commission content specifically for digital platforms, such as short-form content targeted at the Snapchat generation, and to launch a range of products that can be delivered globally. The company has developed Play Plex as a business-to-business umbrella platform to enable content to be made available on multiple services in partnership with pay TV operators, and it has also developed consumer-facing digital brands such as MTV Play and Comedy Central Play.

“We can let people customise these apps from a look-and-feel or content perspective. We are building things that area scalable across the whole world,” he says, citing the example of kids-focused Nick Play, which is available both in Europe and Latin America.

Viacom has focused on rolling out non-linear services in partnership with pay TV distributors and Reich says that “these products add value to our affiliate partnerships”, with pay TV operators benefiting from the ability to give additional value to viewers on top of the linear channel. He says this has a clear impact on carriage deal renewals for the linear channel.

Viacom recently launched MTV Play in Latin America with a promotion based on the channel’s Super Shore show – a variant of Mexican version Acupulco Shore featuring cast members of Spain’s Gandia Shore, which Reich says drove a million downloads of the app and three million streams in the first week. He says that users are spending an average of 20 minutes a session on the app, delivering value that can be conveyed to pay TV partners. Together with promotion on social networks, he says that putting content on the app helped drive up linear channel ratings by over 200%.

In addition to supporting pay TV relationships, Viacom has experimented with direct-to-consumer offerings. These can be advertising-supported initiatives like providing short-form content via Snapchat and other social media platforms. Having used Snapchat to “amplify and grow a buzz around the linear experience”, for example ahead of the MTV European Music Awards in Milan last year, Viacom is shortly to launch a Comedy Central Snapchat channel. The company has also launched straightforward OTT products such as pre-school subscription video-on-demand service Noggin, which also allows parents to download content for offline consumption.

For Reich too, offering direct-to-consumer products should not be irreconcilable with maintaining pay TV partnerships. “The key for us is strategic content windowing,” he says. “We spend a lot on different formats and some content is created specifically for different platforms. We can keep Super Shore for linear and pay TV partners and hold back library content or other short-form content and use that to support a direct-to-consumer business.” [icitspot id=”567322″ template=”box-story”]

In addition to using new content to offer an OTT product, Viacom has an eye on new distribution partnerships – particularly in the mobile arena – that may be focused on new categories of content. “We will work with traditional partners and also with mobile operators to get the structure right. Mobile operators are likely to be similar to pay TV operators in terms of distribution so those deals may not be very different,” he says. However, mobile operators may additionally be interested in products such as MTV Trax, which is a curated music offering that makes the 100 songs “you need to know about” available either as a direct-to-consumer proposition or as a service that is integrated into the mobile bill.

Other mobile-focused initiatives include The Ride, an MTV show that exists in one form as traditional 22-minute episodic content but which can also be cut into two-to-three-minute segments specifically for consumption on mobile devices.

“I think the mobile operators are the big opportunity that we will go for,” says Reich. “It makes sense for them as they look to deliver value from their data plans. Video is one of the biggest users of that data and we believe there is an opportunity there through Trax or Play Plex from a business-to-business perspective.”

Complementary service

Scripps Networks Interactive is another international pay TV channel provider that is addressing a growing demand to consume content in different ways while maintaining a well-established pay TV business.

While Scripps has developed a strong digital offering internationally in relation to its Food Network channel in the UK, the company has focused primarily on developing digital products and services in the US to date.

Tamara Franklin, executive vice-president, digital at Scripps, compares the company’s approach to that of sports network ESPN, “in that we have a connection with the consumer that we can speak to directly even without video”. Scripps’ focus on food and lifestyle content enables it to offer ancillary products and services that are complementary to its TV channels. “We are always thinking about complementing the video services and not competing with them. The main digital opportunity is not necessarily about video,” she says, citing the example of recipes that can be provided across multiple digital platforms to complement Food Network.

In addition to food-related content, Scripps has formed partnerships with retailers in the home space, which it serves via the Home & Garden TV channel in the US.

Franklin says that the goals of digital initiatives are “revenue diversification” and driving consumer engagement. “It is about driving people to the linear channels,” she says, citing the example of ‘Millennial moms’ whose “love of Scripps comes from getting food on the table”. While the non-video-based digital content is offered as a direct-to-consumer proposition – with the added benefit of driving viewers to the channels – in the video sphere Scripps has focused primarily on TV everywhere – catering to the appetite for multiscreen viewing via authenticated apps that require a pay TV subscription. Franklin says that of all video-based digital initiatives, TV everywhere is consistently the service that provides the best return. She is more sceptical about direct-to-consumer video and says that the need to set priorities means experiments in this area remain secondary to delivering multi-device viewing to pay TV customers.

“The economics of direct-to-consumer are not outrageously compelling – there is a lot of noise but not many people have been successful in this space,” says Franklin. “It is a crowded space.”

TV everywhere, on the other hand, can deliver additional viewing hours and new audiences. Scripps has worked closely with Nielsen to ensure that time spent viewing content on these platforms can be monetised, although Franklin admits that the industry is still “struggling a bit” with the so-called C3 window – the ratings agency’s now decade-old extension of audience measurement to include not only live linear viewing but non-linear viewing for the first three days immediately after the linear broadcast.

Overall, Franklin says, digital, and non-linear in particular, is “a tough business to scale” and broadcasters have to “place a few bets” that will not necessarily “yield fruit in the short term”. Addressing an issue that is on the minds of all mainstream broadcasters, she maintains that one of the key strengths those broadcasters have – brand recognition and association with quality – will retain its currency even if the distribution channels for content undergo deeper transformation.

“We would be foolish to say we are not concerned [about migration to non-linear] but it is not an immediate threat,” she says. “There is a question of do younger viewers exhibiting different traits follow them through life? Even with this disaggregation brands still matter. We will make sure we have strong brands on every platform and when the dust clears that will still be important.”