Media giants launching over-the-top (OTT) services is all the rage right now, as the likes of CBS, HBO and others look to take on Netflix directly, while bolstering their advertising coffers.
And the move looks to enable consumers to create their own a la carte TV plan by cobbling together various digital services. One problem though: the economics don’t quite work.
Janney Capital Markets analyst Tony Wible has estimated that as much as $4 billion could move from TV network ad budgets this year into digital services. Networks thus "need to find ways that assure they can collect comparable revenue if the traditional ecosystem falters," Wible said. And accordingly, the waters are being tested for the proposition in offering consumers more flexibility.
But, tallying ratings, affiliate fees, ad revenue and other data, the amount that OTT bundles would need to charge to be profitable means that consumers would be paying more than they do for an average cable subscription if they put together more than two of them; a nine-network FX bundle without sports (but including National Geographic) would need to be priced at $29 per month; Disney, with four networks including ABC (but excluding ESPN), would cost $22 per month. And so on.
What about single-channel options? HBO, Showtime and CBS all announced the development of their very own single-channel OTT video services last month. But ABC News and the Associated Press took a look at things from a cost perspective, and totted up the monthly dues for Netflix ($8.99), Hulu Plus ($7.99), CBS All Access ($5.99) and the expected price of HBO's service (about $15), and came up with $37.97, a figure that is roughly half of the average price of a traditional cable or satellite subscription (the FCC pegs it at $64.41).
"The way things are priced, you won't be able to get more than four or five channels for less than your pay-TV bill now, and even getting two or three channels will be a significant portion of that bill," FBR analyst Barton Crockett told ABC News. "I think because of that there will be a strong incentive for people to sign up for a (cable) bundle."