Executive Trends: Programming costs may end linear pay television as we know it (June 2016)

While most of the industry's attention is focused on OTT's and cord-cutters, both issues are based on a common cause: the complaint about excessive monthly fees by linear television services. While "a la carte" programming has been flatly rejected by the cable MSO's and "skinny bundles" are being lukewarmly tested, there is agreement regarding sports and news being the genres that will remain the most popular for real-time watching in an era of delay. The problem with sports programming is that the prices of rights to the major (and therefore attractive) tournaments are skyrocketing.

Research shows that very few people usually watch more than seven channels. Family-viewing, despite the availability of 150 or more channels, rarely exceeds thirteen. So, at least in theory, why should you pay for 150 if you watch seven? Of course, the channel selection varies from person to person; still, according to the ratings lists no more than 30 channels usually account for 70% of the audience.

Of course, no channel wants to be among the 120 "leftovers", of which more than half probably carry dismal ratings figures. The per-channel strategy works when you have a well-defined captive audience; say, Brazilian people in the States watching TV Globo. But it's still expensive in terms of distribution and fee collection. On the other hand, the owners of the "must have" channels will try to get more money from the cable operator, even if they belong to the same company. And they will easily get an extra buck from Netflix if their shows have stored valuable vintage seasons.

How do you solve this? The degree to which a sports fan is willing to pony up extra bucks to watch a certain game or series of games is going to be tested... in Mexico, where soccer team Chivas from Guadalajara City will no longer be available on linear TV after a contract with Televisa has not been renewed. ChivasTV, a pay streaming channel over the Internet, has been announced as the future way to watch the Chivas games hosted at its home stadium. Jorge Vergara, owner of the soccer team, is betting some $25 million per year (the amount Televisa paid him for the rights) on this venture; his decision has been widely criticized by the local analysts, quick to remind him that Web penetration in this country is at some 35%. Yet, he seems to be up to something: nobody refuses $25 million from Televisa just because the network changed the time schedule of the Chivas' games. The Chivas still have a valid contract with Univision covering the US.

In Argentina, where all the top soccer games are currently being aired on free TV, courtesy of the past government, the Asociación del Fútbol Argentino (AFA) soccer league is nevertheless working on the launching of AFA TV, also a pay channel. According to tweets by Horacio Gennari, Business Bureau executive involved in the negotiation, the current contract will be terminated and a major cable network provider --Turner is specifically mentioned, others seem to be equally interested-- would become a minority part in a new deal controlled by the soccer league.

The writing on the wall reads like a warning: the owners of the contents rights are increasingly going after a larger piece of the action. Mr. Vergara is just doing so with the Chivas team rights. The AFA is following the same trail in Argentina. At the end of the day, this is the same drive that might displace Netflix from its "top of mind" current position, if Hollywood and the other large enough content producers manage to find a profitable way. They are trying hard, especially regarding those potential customers that have Internet access but not linear pay television; cord-cutters are also prospect customers to these moves.

Last but not least, it's not certain that the linear television market will be able to support the comparatively enormous amount of original fare being produced at this time, more than 400 titles rolled out in 2015. True, streaming channels are delivering content at a small portion of the cost admitted on broadcast television; but, legacy, salaries, union contracts and many other aspects may interfere if a serious cost-cutting drive is attempted.

See other EXECUTIVE TRENDS Editions:

OEntrepreneurs, not customers, drive technology
-May 2016
OTT vs. VR vs. Linear television
-April 2016
And the winner is...
-March 2016
Digital pennies vs. Analog dollars
-February 2016 
The owner of content is King
- January 2016 
What to expect the day after OTT 
-December - Part 3: Linear TV fragmentation
-November - P. 2: The dark side of "Content is King"
-October- Part 1: Some definitions, background
Digital platforms may be good to television 
- September 2015

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