IBC: Fuzzy Picture of Broadcasting Future

AMSTERDAM -- IBC 2015 -- For all the chatter about Ultra HD and other technologies that will improve the viewing experience, the big theme on the first day of this year's IBC show has undoubtedly been the impact of the Internet on the traditional broadcasting business.

That was probably to be expected. Light Reading's own coverage of this sector over the past few months has focused heavily on the rise of over-the-top players, such as Netflix Inc. (Nasdaq: NFLX) and Amazon.com Inc. (Nasdaq: AMZN), and how cable operators and other pay-TV companies have been responding to what some observers regard as an existential threat. (See Dish's Losses Are Sling TV's Gains, Study Sees OTT Revenues Soaring, Comcast 'Stream' Joins OTT Flood. Verizon, Sony Primp for OTT Debuts, Showtime Launches, AMC Tests OTT Services , Showtime Joins OTT Parade and A&E Launches Lifetime OTT Service for just a few examples.)

What is perhaps surprising is the lack of any agreement at IBC about the future look of this market. For every industry executive who thinks the traditional model is on its way out, another reckons broadcasters can roll with the punches and perhaps even beat the OTT players at their own game.

After all, is Netflix's business model really that secure? For just a few dollars a month, you can binge on your favorite programs and watch a few old movies, too. But what comes next? More bingeing on programs you missed the first time round? Or a return to the randomness of watching linear channels?

Netflix and close rival Amazon have been investing in their own shows for a while, but they still buy most of their content from others. And that makes them very dependent on the pay-TV providers they are fiercely undercutting on price. As noted by Andrew Neil, a highly respected UK journalist who was moderating a keynote session at IBC Thursday afternoon, if those pay-TV providers begin to suffer, Netflix will have to jack up its fees or kiss goodbye to a future supply of high-quality content.

Or will it? Bruce Tuchman, the president of AMC Networks Inc. 's international business, suggests that Netflix may be under no such pressure if it can continue to attract customers. "If it gets to 50 million homes it will be dictating terms to content providers and will be able to keep prices low because too many people will be dependent on it," he told attendees during the Thursday afternoon keynote. "Its challenge is to increase the number of subscribers."

Want to know more about the impact of web services on the pay-TV sector? Check out our dedicated OTT services content channel here on Light Reading.

Yet Rhys Noelke -- the senior vice president of strategy for RTL Group, which operates TV channels in a number of European markets -- remains dubious. Another issue facing the OTT player is that of "geo-blocking," with content rights preventing it from screening programs in certain countries. Earlier this year, Netflix CEO Reed Hastings emphasized the strategic importance of striking global content deals, presumably so that he can avoid having to face any disgruntled customers in markets like Australia and New Zealand. But such arrangements will naturally lead to a sharp increase in costs. "They do some content deals but they may need to return to the traditional model to refinance House of Cards [a popular TV series commissioned by Netflix]," said Noelke.

Clearly, OTT players have dealt a blow to the "expensive bundle," replete with low-quality content and little-watched channels. A number of pay-TV players have now launched OTT-like services and so-called skinny bundles. As noted in a recent Light Reading blog post, however, that does not mean the bundle is heading for extinction. From a revenue perspective, bundles can eliminate unpredictability and help broadcasters to fund the development of new shows. The question is whether skinny bundles will get fatter in future, pushing prices up once again. (See Resetting the Bundle.)

As Neil -- something of an industry veteran -- was quick to point out, this is not the first time commentators have predicted the death of traditional broadcasting. Cable companies were supposed to finish it off, but simply ended up providing another source of income for networks. In the UK, multi-channel TV would be fatal to the British Broadcasting Corp. (BBC) , said observers, and yet the public-service broadcaster remains relatively strong (even if it does face challenges of its own). The Internet is undoubtedly effecting a transformation, just as it has in so many other industries. But how TV markets will look after that transformation has run its course has yet to be determined. (See Broadcasters, OTT Players Clash at IBC.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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