Sony, Dish Hit OTT TV Pricing Wall

It looks as if Sony's much-anticipated online TV service won't come cheap. The New York Post recently reported that programming costs have driven up the price of Sony's proposed new over-the-top video service to somewhere between $60 and $80 per month.

Similarly, Dish Network LLC (Nasdaq: DISH) is struggling to keep the price down for its upcoming online TV service. According to a report by Variety, Dish would like to separate broadcast channels from its basic TV bundle and have consumers use antennas to access those networks for free over the air. Eliminating broadcast channels -- if Dish can swing it -- would cut the company's licensing fees, which would in turn allow it to cap subscription fees at a lower rate.

The dilemma that Sony Corp. (NYSE: SNE) and Dish are confronting is the same one that every other pay-TV provider has faced for years: how to keep subscription fees down while still offering enough content to keep viewers happy. The industry is littered with companies that have already tried to do this and failed. Microsoft Corp. (Nasdaq: MSFT) abandoned its TV efforts early in 2012 because of content licensing difficulties, while Intel Corp. (Nasdaq: INTC) sold off its assets from the development of its OnCue TV service to Verizon Communications Inc. (NYSE: VZ) earlier this year because of troubles with programming deals. (See Microsoft Puts Pay-TV Plan on Pause and Verizon Snatches Intel Media Assets.)

The situation has only gotten worse recently. Some smaller cable companies are now de-emphasizing video in their service bundles because of mounting programming costs. And both Verizon and Comcast Corp. (Nasdaq: CMCSA, CMCSK) discovered that consumers aren't willing to pay for even a cheap OTT offering on top of their existing video services if it doesn't come with a compelling library of content. (See Is Dumb Pipe the Smart Move? and Gone in a Redbox Instant.)

Keep up with the latest in OTT video developments on our dedicated OTT video content channel here on Light Reading.

Even Google (Nasdaq: GOOG) is having a tough time. The gigabit network provider told attendees at the COMPTEL telecom conference this week that the cost of TV programming "is the single biggest impediment" to the company's fiber deployments. It's hard to sell Internet access without TV service, and traditional TV programming is supremely expensive.

IP video services are growing, but they can't and won't offer a cheaper alternative for the same content that consumers are used to seeing on TV. Netflix Inc. (Nasdaq: NFLX) and Amazon.com Inc. (Nasdaq: AMZN) have shown that it's possible to get creative by combining long-tail movies and shows with some popular newer releases, and original programming. It may not look like standard TV, but it's likely the only way service providers will be able to offer a cheaper bundle.

Sony and Dish are learning that lesson the hard way.

— Mari Silbey, special to Light Reading

gconnery 10/9/2014 | 2:13:19 PM
Re: un-televised revolution... Yeah, if all of the "must carry" channels like ABC, CBS, NBC, Fox, WB, Disney and ESPN are part of gigantic packages that the companies won't license "unbundled" then this is the same story over again. 

These guys are making too much money with this kind of offering, and unless there is a regulatory change requiring unbundling or something (seems very unlikely), the only way this changes is the long slow attrition of customers as the pricing goes up faster than its worth compared to salaries/inflation.  Eventually enough people cut the cord/switch to OTA plus that something will happen. 

But its gonna take a long time. 

The only thing I wonder if they could try would be allowing you to buy packages along the lines of what they are being offered--ABC/ESPN/Disney/A&E for $X, CBS/CW for $Y, NBC/Comcast Sports/USA/E!/Universal/Bravo/Telemundo for $Z, etc.  I wonder if anybody would actually be happy to buy just some of these, like write off CBS to save $5 or $10 a month say.  Or if you're not a big sports fan drop ABC/ESPN/Disney/A&E to save quite a bit more.  I don't know if it would be successful.  But it might create a chink in the armor.  Make the smaller bundles consider offering themselves a la carte?
sam masud 10/8/2014 | 2:31:07 PM
Re: un-televised revolution... Like you, I ain't gonna shell out 80 bucks for OTT video. It's great that some OTT players are into developing their own content, but I fear we'd then be headed toward an OTT video walled garden, which means a sub would have to subscribe to multiple OTT video providers in order to have access to that content.

I understand that content is expensive, but if content providers can or are channeling their content via multiple OTT players, and hence reaching a larger market, shouldn't the cost of content be going down with the economies of scale...?

Ariella 10/8/2014 | 9:49:33 AM
Re: un-televised revolution... @kbode I can't fathom it either, but I'm not a sports fan. You can even hear such discussions pre-game, post-game, and post-post-game on the radio.
KBode 10/8/2014 | 8:55:47 AM
Re: un-televised revolution... I really think it comes down to live sports, really. And the gatekeepers are loosening their grip on that front slowly but surely, even though I think a lot of sports junkies really like to watch ESPN talking heads yelling at one another for some reason I can't quite fathom. :)
kq4ym 10/8/2014 | 8:43:05 AM
Re: un-televised revolution... DVR manufactuers are now selling units that will pick up those over the air channels which should not help the satellite and cable companies keep customers. But, I've always wondered by providers don't keep subscription fees low by offering ala carte channel choices. That might pursuade customers from cutting the cord.
Smoochy18 10/7/2014 | 8:40:42 PM
Re: un-televised revolution... Another issue for Dish... if people have local channels through an antenna, they are going to want a DVR for that.
Ariella 10/7/2014 | 5:52:12 PM
Re: un-televised revolution... I never did get why people shelled out so much money for cable. The Netflix approach makes a lot more sense: choosing what you want instead of paying for a whole package with loads of stuff you don't want. 
KBode 10/7/2014 | 1:07:30 PM
un-televised revolution... I cut the cord several years back and I'm just not sure I have any interest in paying $60 to $80 for a bundle of channels, most of which I won't watch. Wasn't the hope that these OTT services would shift us away from this model? I like that Netflix, Amazon and Hulu are focusing heavily on developing their own content -- this seems like the most logical path forward to help us escape this programming pricing dead end.
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