Content is king. Still.

Yves Gassot

Yves Gassot


Over the past few decades, TV service providers’ market power guaranteed them a certain leadership in production.

Vertical integration

Thanks to a steady relaxation of competition rules in the United States, the resulting vertical integration trend has seen production studios merge with TV networks and cable companies. In other markets, such as France, public authorities have continued to oppose such a trend, underscoring how vital production independent of the top networks is to sustaining diversity and creativity.

A new way of consumption

Here too the Internet is changing the status quo. We watch more and more videos. We watch them more on our own, and from increasingly global sources. Content providers and pay-TV distributors are being penalised both by their costs and their only national footprint, and are having to contend with two major threats: being cut out of the service equation and being cut off from customers. Market heavyweights like the ones found in the United States are having to weigh the pros and cons of working with a platform such as Netflix that is expanding worldwide, versus setting up their own over-the-top solution… and protecting what is still their main source of income, i.e. selling programmes to TV channels (including affiliate stations). But their dilemma is still less dire than the one facing Europe’s independent providers, who have a primarily national footprint and which are often restricted in the extent to which they can exploit the rights to the programmes they help finance.

Ecosystem and legislation

The European Commission likes the idea of having TV rights negotiated for the EU as a whole. It would provide an opportunity to introduce the idea of economies of scale in a lucrative sector, and one that has a tremendous cultural influence. Unfortunately, in its revised version, this plan, which is one of the pillars of the Digital Single Market proposal unveiled in early May, is coming up against Europe’s very disparate set of national TV ecosystems. As national laws – and especially the state of the industry – currently stand, very few companies in the EU can hope to come out winners in any negotiations for rights to all 28 European markets. Bluntly put, a very cut and dried application of such a scheme would more likely be a boon for outsiders such as Netflix, Google, Apple, Facebook, Amazon, etc.
Despite which, our desire to be optimistic leads us to hope that the steady and inexorable development of the OTT video model will drive a change in legislation across Europe, and lead to cross-border and possibly continental deals between Europe’s TV sector players.

For the publication of the last study about "OTT Regulation" and  the 15th edition of the DigiWorld Yearbook, IDATE is organizing a conference on the perspectives and key trends that will structure the digital economy for the next decade, DigiWorld Future

Register for the Conference in Paris the 16th of June     Discover the programme

More informations about IDATE's expertise and events :

www.idate.org      www.digiworldsummit.com      www.digiworldweek.com       www.gamesummit.pro


Comcast, Time Warner, Netflix, Verizon: redrawing America’s TV landscape

Gilles Fontaine

Deputy Managing Director
Director of TV & Digital Content Business Unit


Three recent deals are reshaping the video distribution landscape in the United States. The first is Verizon’s takeover of Intel’s media division, after the latter decided not to launch its own OTT service. The carrier will use Intel technologies to better integrate OTT solutions into its own internet plans, but perhaps and above all to roll out its own internet TV service, which would be available even outside the carrier’s service area.

The second is US cable market leader Comcast’s acquisition of Time-Warner cable, which still needs to be approved by anti-trust authorities. The deal would increase the new entity’s market clout in both OTT services and with American studios. The third major deal is the agreement between Netflix and Comcast, whereby the cableco would be paid to guarantee high quality network access for Netflix customers.

Cable High-Speed Internet and video subscribers in the USA

These three deals are milestones in that:

• They take net neutrality debates to a commercial negotiation between services and network operators. If Netflix and Comcast managed to reach an agreement, there is no longer a need for specific regulation, provided network access is still supplied under non-discriminatory conditions.

• They attest to the pressure that triple play operators are under to protect their place in the video distribution chain. Cable TV customers in the United States are a shrinking population, whereas broadband cable customers constitute the majority. As a result, securing good terms from the TV networks has become vital to video distributors’ economic well-being.

• They reveal that size does matter when going head to head with increasingly globalised internet companies. A portion of competition in video distribution today is playing out in the realm of technological innovation. Comcast has been spending heavily on R&D on new video services for the past several years – investments that need to be amortised over a larger number of customers than what it has now.

• Ubiquitous online distribution heralds the disconnection, first between video access services and, second, the supply of premium services, and could augur a future split in the companies that currently supply them both.


Cord-cutting: can Netflix revive the cable industry?

Florence Le Borgne-Bachschmidt


Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.


In summer 2013, the American media made a steady diet of the record drop in pay-TV subscribers in the United States between mid-2012 and mid-2013 (-911,000 subscribers) – giving credence to the cord-cutting scare, whereby pay-TV customers were cancelling their regular plans en masse and turning instead to SVoD services, offering chiefly films and TV series for a very affordable price of less than $10/month.

Still no massive change in the American market

It is true that the second quarter of 2013 was marked not only by another drop in cable TV customer numbers (-159,000 for Comcast and -93,000 for Time Warner Cable, the market’s top two players), but this is not in itself an isolated event as American cablecos have been losing subscribers since 2001. What was exceptional was the drop in customer numbers for the country’s two satellite pay-TV providers, Dish TV and DirecTV, which lost 78,000 and 84,000 subscribers, respectively. If, at the same time, the two IPTV plans continued to enjoy an upswing in customers (+140,000 subscribers for FiOS TV and +231,000 for U-Verse), it was not enough to offset the loses being posted by the main broadcasting networks.

So third quarter results were eagerly awaited. The figures released on 30 September 2013 revealed that satellite subscriptions were back on the up, and IPTV customer numbers had increased slightly. Meanwhile, cable continued to lose customers but in a way that was consistent with third quarter results in previous years.

Video ARPU continues to rise

It should also be mentioned that while cable TV subscriber numbers have decreased, average per user revenue (ARPU) has increased. For Comcast, video ARPU has been rising steadily, standing at $161.07/month in Q3 2013 – which is $10 more than in Q3 2012 and $22 more than in Q3 2011. Charter Communications’ total video revenue rose by 7.4% over the past 12 months, despite a 3.3% decrease in its video subscriber base. While Time Warner Cable saw its video revenue shrink by 4.4% between Q3 2012 and Q3 2013, the decrease is smaller than the 6.1% drop in subscriber numbers during that time.

Equally noteworthy is that cable TV subscribers are also watching premium content supplied by vendors other than their traditional pay-TV provider.

A strategy of alliances with European cable companies

In the UK, where American-born Netflix is also present, it is just as hard to measure the company’s impact on pay-TV subscriptions. Market leader, Sky Digital, reported a slight increase in TV subscribers (+203,000 subscribers) between the time Netflix launched and Q3 2013, whereas cableco Virgin Media reported a slight decrease (-10,000 subscribers) in its pay-TV customers during that time, but an overall increase in paying customers (+200,000).

It seems unlikely that the partnership between Netflix and Virgin Media will drive existing Virgin customers to cancel their pay-TV plans. In fact, for an extra £5.99 a month, Virgin subscribers with a TiVo (i.e. 49% of them) have been able to access Netflix directly on their TV set since mid-November 2013.

Also present on Swedish pay-TV provider ComHem customers’ TiVo since 20 January 2014, Netflix could actually prove an incentive to sign up for a cable pay-TV plan.


The new territories of the TV market

Florence Le Borgne-Bachschmidt


Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.

Global TV market revenue to grow
at a steady pace: up 23% by 2018


At a time when video has become pervasive across all of our screens, most national TV markets are losing steam: shrinking viewership and pressure on advertising markets, especially in Europe. Although pay-TV seems to be holding its own, the fast-growing popularity of OTT offerings is shaking up the traditional pay-TV model, while the demise of physical media is virtually a foregone conclusion.

If the decline of physical media now seems inevitable, television still has a chance to reinvent itself in a way that takes into account changes in viewer behaviour and competition from new online vendors.

Accessing TV

According to IDATE, the number of TV households worldwide will reach 1.675 billion in 2018 (+9.6% in 5 years), with the number of digital TV households worldwide being 1.542 billion in 2018, which translates into 92% of TV households

Cable will the remain the chief access channel (592.3 million households in 2018) but will gradually lose ground to satellite and IPTV which will account for 32.9% and 10.9% of TV households, respectively, at the end of 2018.

• Despite the development of hybrid TV solutions, terrestrial TV should continue its decline on the first TV set and drop down to number three spot by 2018, with roughly 21% share of the global market.

• The development of hybrid solutions that combine live programming on broadcast networks (terrestrial and DTH) and OTT video services over the open Web is a key variable in the future development of the various TV access modes, and may well shake up current trends.

TV: top money-maker

Breakdown of audiovisual market revenue in 2013

Audiovisual market revenue worldwide

Source: IDATE, December 2013

TV revenue

According to IDATE, the global TV industry’s revenue will come to €374.8 billion in 2013 and €459.2 billion in 2018.

Pay-TV revenue will grow by 21.3% between 2013 and 2018, or by an average 3.9% annually, to reach €220.2 billion in 2018.

Ad revenue will enjoy even stronger growth of 27.3% between 2013 and 2018, to reach €201.1 billion in 2018.

Public financing/licensing fees will continue to increase significantly (+7.7% in 5 years) to reach nearly €38 billion in 2018.

Video revenue

According to IDATE, physical media sales will total €16.3 billion in 2018, when video on demand (VoD) revenue will reach €35.4 billion in 2018, which is 90% more than in 2013.

• This means that the global market will have shrunk to more than a quarter of what it was in 2013 (-27.2%).

Blu-ray will be the most common format and help temper plummeting physical media sales.

OTT video will continue to be the biggest earner, generating 51% of total revenue.

VoD will still be the dominant model on managed networks. It will generate €6.9 billion in 2018 versus €2.3 billion for subscription video on demand (S-VoD).

American OTT video providers' footprint in Europe as of 31 December 2013

American OTT vendors in Europe

Source: IDATE, December 2013

American OTT vendors already have a solid foothold in Europe

Netflix is already present in seven European countries: Britain, Ireland, the Netherlands, Denmark, Norway, Finland and Sweden. The service had 1.6 million subscribers in the UK and Ireland at the end of 2013.

• LoveFilm was reporting 1.9 million subscribers in the UK and Germany at the end of 2013.

• At the end of 2013, iTunes’ VoD rental service was available in close to 110 countries, and permanent downloads in 14 countries, chiefly in North America and Europe.

• More information on TV and new video services market report & database


Cutting the Cord: Common Trends Across the Atlantic

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Joint Interview between Gilles FONTAINE, IDATE and Eli NOAM, Columbia Business School

Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.

Columbia Business School, 
New York, USA

 Joint interview with

 Montpellier, France
 Eli NOAM, Columbia Business School
 New York, USA

C&S: How would you define cord-cutting, from a US or European perspective?

Gilles FONTAINE: Cord-cutting, in Europe, is seen mainly as a USA phenomenon, where consumers would trade-off their pay-TV subscription for over-the-top Internet services. The last years, in Europe, have rather seen the rise of powerful cable and IMPTV operators competing in the pay-TV market with legacy satellite packager.

Eli NOAM: Cord-cutting is the dropping, by consumers, of expensive cable TV subscriptions in favor of online access to TV programs and on-demand films. Drawbacks for consumers are less certain quality (bandwidth), less availability of live programming such as sports, and absence of some channels. Advantages are cost-saving, no need to pay for undesired channels, better search, less advertising, greater choice, more control. In a broader sense, cord-cutting is a transition of TV from a broadcast/cable push model to an individualized pull model. So this is not just about switching to yet another delivery platform. That's the easy part. It is much more fundamental. Looking ahead, one change will be that by going online, TV will move from a slow-moving, highly standardized technology controlled by broadcasters and consumer electronic firms to a system where multiple technical approaches compete with each other and propel video delivery into an internet-rate of change and innovation. And that's just the technology. Equally important changes will take place on the content level, and in the structure of the media industry, in the advertising and business models, and in the policy.

Do you see any evidence that cord-cutting is really happening?

Gilles FONTAINE: Cord-cutting, in Europe, is not happening, or is not happening yet. Several reasons account for this: on the one hand competition is intense in Europe between networks, and is driving Internet access and television prices down, therefore limiting the incentive to "cut the cord". On the other hand, Internet services are far from having the same level of offer as US ones, even if catch-up television is increasingly available throughout Europe. Also, the video-on-demand market is very fragmented, with still limited catalogues and interfaces that could be improved and subscription video on demand is nascent, and mostly pushed by US-bases players, even if some European players have launched first services. Finally, the penetration of connected TVs and connected set-top-boxes is probably also lower in Europe than in the USA.

Eli NOAM: In the short run, there is less cord-cutting than media reports and hype suggest. For a variety of reasons, almost all participants in the media industry have an interest in dramatizing the issue. Broadcasters are making investments in ‘second screen' distribution, partly to be prepared for change, and need to justify them. ISPs are expanding bandwidth to position themselves as providers of mass entertainment options. Telecom companies, similarly, need to upgrade their networks. New providers of bypass service to broadcast and cable, such as Aereo in the US, create buzz to their market-disruptive activities. Media cloud providers such as Amazon or Netflix present new options. And even cable TV operators, who are the ones negatively affected, have an interest in presenting the problem as a crisis, at least to policy makers, in order to gain regulatory relief.

The reality is more modest, at least in the short term, but not insignificant. According to a credible analyst, Craig Moffett, The "pay TV sector" – cable, DBS, and IPTV – lost 316,000 subscribers in a 12 month period mid-2012- mid-2013. Since IPTV has gained subscribers, cable losses must have been larger. That is a loss of about 0.3%. Another estimate for 2012 has the number at 1.08 million. In a 4-year period 2008-2011, anywhere between 3.65 and 4.75 million subscribers were lost. But that was in the midst of the Great Recession, and thus not all can be attributed to cord-cutting.

Do OTT services really challenge telcos and cablecos managed TV and video offers?

Gilles FONTAINE: Many studies seem to show that OTT services propose a better customer experience than the equivalent launched by the telcos or the cablecos. OTT services are Internet natives, customer friendly companies, with a rhythm of innovation that is difficult to compete with. Telcos and cablecos still concentrate on the "linear television model", even if they have developed their own on-demand offers, whereas OTT services specialize in on-demand services. But telcos and cablecos still benefit from a privileged access to the TV set through their TV set-top-box, a competitive advantage which is about to be undermined by low cost solutions to connect the TV set, such as Chromecast from Google.

Eli NOAM: Overall, the extent of video streaming has been quite large. In the evening hours, about two-thirds of internet traffic are video-bits. Netflix alone has added 630,000 streaming subscribers in the US in 3 months in 2013, to a total of 30 million. Thus, while the numbers of cord cutters is not huge yet, as mentioned, a steady loss of subscriptions is to be expected, and it is backed up by surveys in which cable subscribers grumble about staying with expensive subscriptions which they do not fully utilize. This is particularly true for the younger generation. 34% of the Millenials (cohorts born 1980-2000) say that they watch mainly online video and not broadcast TV. For Gen X and for Boomers the numbers drop to 20% and 10%.

With OTT available, the traditional business model of cable companies unravels. In the past, they were able to raise prices and to pass on the raises by channel providers. This becomes more difficult. Similarly, it becomes more difficult to offer only bundled channels ("prix fixe"). Similarly, the ability of channel providers to offer content to viewers directly reduces their bargaining strength considerably. If they want to keep up, they also need to develop expertise in online technology, social networking, and mobile communications.

UK cableco Virgin Media and Sweden cableco recently signed a distribution agreement with Netflix. Do you foresee any revision of the cablecos and telcos triple-play model?

Gilles FONTAINE: Building an IPTV service is not straightforward for a telco: network costs can be high to ensure a homogeneous quality of service. They also face high programming costs and the complexity of negotiating with the media world. On-demand services hardly prove to be profitable, because of the market power of Hollywood studios combined with the strong competition between telcos and cablecos, has for instance led to almost unrecoupable minimal fees to access programs. The situation can be similar for a cableco that would not have the resources to acquire exclusive, attractive content: the recent deal between Virgin Media or Com Hem and Netflix heralds a change of strategy for the smaller telcos and clablecos, which could favor to comfort their Internet access business by offering the best OTT services rather than pushing their own television packages.

Eli NOAM: Overcoming all of these challenges is possible but requires an acceleration of internal processes, major investments, and a willingness to give up some control. There are signs of change in that direction. Comcast, which has just paid $ 39 billion for NBC Universal, thus gaining vertical control from the camera lense to the eyeball, has now announced a trial of a cord-cutting offer to subscribers: if they take a Comcast broadband service (of a quality that is today an upgrade for most customers) they get at basically no additional charge HBO Go (HBO's archive of self-produced shows plus current other shows, available anywhere in the US from most devices), plus the free broadcast channels. The regular monthly price $ 70/ month, compared to a price of $ 135 for a full complement of 200 channels including HBO Go. So the viewer willing to skip regular cable channels saves a lot of money. The data cap for such a service is 300 Gigabytes. This is about 120 hours of HD viewing per month, which is adequate for single viewer but tight for a multi-device, multi-viewer household.

So this shows that cable companies are considering to embrace cord-cutting as an inevitablity. Another development in that direction is the US cable industry's considering to integrate Netflix into its operations. They are holding talks with Netflix to make Netflix an option on their set-top boxes. In such a scenario, Netflix would, in effect, become cable companies' major VOD provider and revenues would be shared. This, together with the cable MSO's own cord-cutting option, would in effect accelerate cord-cutting. However, cable companies would not be entirely bypassed. They would mitigate cord-cutting into channel cutting. Ultimately, cable companies' main asset is their transmission network. Its exploitation will undergo transformation.

TV channels also face another form of cord-cutting, as viewers may directly choose their on-demand programs. How do you see their future role, if any?

Gilles FONTAINE: TV channels, as aggregators, may lose their specific role if on-demand consumption develops significantly. However, they will evolve proposing more and more live events to continue gathering strong audiences at the same time. Moreover, there is still a need of arranging the on-demand catalogues, pushing the right content to the right viewer at the right time and on the right device. TV channels should be able to leverage their linear programming to play their aggregator role in an on-demand market. But they will need to heavily invest in IT and review their trade-off between linear and on-demand distribution.

Eli NOAM: TV channels gain and lose. They gain in bargaining power over cable and other distributors. They can deal directly with users, though more likely they will go through new types of intermediaries such as Apple and Amazon.com. In a profusion of content offerings, strong brands are a valuable way for users to search for content. And if they can identify users or user characteristics they can fine-tune and individualize advertising. The danger for channel providers is that the loss of cable MSOs hold over viewers means that they cannot share in the MSOs pricing power. Furthermore, content providers can disintermediate them by going directly to viewers. Sports leagues, for example, could deliver their events directly and cut out the networks. Most of the channels do not have major operational IT expertise, and this provides an opening for an entire industry of new service providers and video clouds.

Gilles FONTAINE's Biography

Gilles FONTAINE is IDATE's Deputy CEO and is also in charge of IDATE Business Unit dedicated to media and digital content. During its 20 years experience in the Media sector, Gilles Fontaine has become an expert of the media economics and of the impact of Internet on content. He directed numerous studies for both public and private clients, including the EC, governments and local authorities, telcos and TV channels. Recent assignments have included a participation in the future MEDIA programme ex-ante assessment, the analysis of new video internet services economics, a long term forecast project on the future of television. He has also monitored the impact of digitization and online distribution on other media, radio, press and music. Mr. Fontaine holds a degree from the highly reputed French business school, HEC (Ecole des Hautes Etudes Commerciales, 1983) and from the Institut MultiMédias (1984).


Eli NOAM's Biography

Eli NOAM has been Professor of Economics and Finance at the Columbia Business School since 1976. In 1990, after having served for three years as Commissioner with the New York State Public Service Commission, he returned to Columbia. Noam is the Director of CITI. He also served on the White House's President's IT Advisory Council. Besides the over 400 articles in economics, legal, communications, and other journals that Professor Noam has written on subjects such as communications, information, public choice, public finance, and general regulation, he has also authored, edited, and co-edited 28 books. Noam has served on the editorial boards of Columbia University Press as well as of a dozen academic journals, and on corporate and non-profit boards. He was a regular columnist on the new economy for the Financial Times online. He is a member of the Council for Foreign Relations. He received AB, AM, Ph.D. (Economics) and JD degrees, all from Harvard. He was awarded honorary doctorates from the University of Munich (2006) and the University of Marseilles (2008).

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Sophie NIGON
Managing Editor


Interview with Craig MOFFETT MoffettNathanson LLC, New York

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Video cord-cutting

Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.

MoffettNathanson LLC, New York
Interview with Craig MOFFETT
MoffettNathanson LLC, New York

Conducted by Raul KATZ,
CITI (Columbia Institute for Tele Information),
New York


C&S: Is cord-cutting affecting equally cable TV and telcos in the US?


There's a fundamental difference between the cord-cutting experienced by the cable operators, which is all about video, and that experienced by telcos, which is all about voice. Video is a high bandwidth service and voice is a low bandwidth one.

Low bandwidth services are the easier target, so up to now we've seen much more aggressive cord-cutting in voice than in video. The fact that the cable operators have a more robust physical plant than the phone companies has left the telcos losing share in broadband as well as in voice, making the losses all the more painful for the telcos.

Video is such a high bandwidth service that video cord-cutting is only just beginning. By our estimates, there are now as many as 2 million households that have cut the Pay TV cord in the U.S. That's only about 2% of the market, but it is a growing segment. In these early numbers you can see the beginnings of a bigger problem.

What are the different retention strategies deployed by each type of player to prevent an acceleration of cord-cutting trends?

The telcos seem to have concluded that they are fighting a losing battle to retain wireline voice customers. The residential voice market as a standalone business is vanishing before our very eyes. Unlike in Europe, bundling wireline and wireless therefore isn't really an option. In the U.S., the telcos have regional wireline footprints but also have national wireless ones. Naturally, they are reluctant to make a compelling integrated offering for fear that it will simply reduce the competitiveness of their wireless businesses outside their footprints.

Cable operators have an advantage in that they've got the best physical plant (at least where there is no fiber-to-the-home alternative). So they've been able to bundle video and broadband, and even voice, as a retention strategy. That has proven very sticky. And by tilting the pricing of their services – higher for broadband and lower for video, at least on the margin – they can make it less and less attractive to leave.

And the cable operators have another advantage. It is easier to defend high bandwidth services than it is to defend narrowband ones. The key is whether the cable operators will be able to begin charging for broadband usage. If they can, defending against high bandwidth video streaming becomes relatively easy. Or rather, it becomes a moot point, since a carrier charging the right price for usage is economically indifferent whether video is delivered via traditional Pay TV or via internet-based OTT (over-the-top) alternatives. The question here is entirely regulatory. Whether they will meet regulatory resistance to their early trials is unclear.

Would any changes in the content arena (e.g. sports content) accelerate the cord-cutting trend?

In many ways, sports programming holds the key to how the ecosystem will evolve in the U.S. Today, sports are exclusively available via the traditional model. Cutting the cord is therefore appealing to a relatively smaller segment of the population. If the most popular sports events were to be made available over the Internet you would suddenly begin to see a much more rapid migration to video over the Internet.

Conversely, if traditional cable and satellite operators are ever able to force the unbundling of sports networks by putting them on a separate tier, they would relieve what is otherwise a tremendous pressure point on the system. In theory, that would slow down cord-cutting. Today, cord-cutting is primarily about cost, not technology. And the biggest driver of cost inflation is sports programming. Taking it out of the basic programming tier would lower the cost to non-sports enthusiasts, reducing their incentive to cut the cord.

Would you see that cord-cutting would trigger additional changes in the content value chain (e.g. backward/forward integration, M&A)?

For distributors, the key question is whether the economic value of the video transport function can be preserved in an over the top model. If it can, the distributors will fare relatively well. Even satellite operators would benefit, since the economic benefit of cord-cutting would be mostly eliminated, which would naturally slow down the migration. Again, the real questions here are regulatory, not technological or economic.

For programmers, the key question is whether cord-cutting will necessitate unbundling. Most consumers think that content bundling is driven by the distributors. It is not. It is driven by the programmers. The programmers sell bundles of cable networks to the cable operators, and their contracts require that those bundles be kept intact.

Cord-cutting is typically assumed to entail a move to unbundling, or a la carte, programming, but that doesn't necessarily have to be the case. One can imagine a model where video is delivered over the Internet in the same unwieldy bundles that are today delivered by cable and satellite operators. If things evolve that way, the implications for the programmers will be relatively modest. On the other hand, if programming is ultimately unbundled as it moves to the Internet then the value chain as we know it will be upended. Value in that model would move further and further upstream, ultimately to the actors and artists, accelerating a migration we've been witnessing in slow motion for years. The value of the media conglomerates would radically decline as their revenues declined and as their costs of content acquisition and production rose. At this point, it is too early to say whether this will happen in video. It already has in music, and the results haven't been pretty.


Craig MOFFETT is the founder of MoffettNathanson LLC, an independent institutional research firm specializing in the telecommunications, and cable and satellite sectors. Mr. Moffett spent more than ten years at Sanford Bernstein & Co., LLC as a senior research analyst. He was previously the President and founder of the e-commerce business at Sotheby's Holdings. Mr. Moffett spent more than eleven years at The Boston Consulting Group, where he was a Partner and Vice President specializing in telecommunications. He was the leader of BCG's global Telecommunications practice from 1996 to 1999. While at BCG, he led client initiatives in the U.S. local, long distance, and wireless sectors, in both consumer and commercial services, and advised companies outside the U.S. in Europe, Latin America, and Asia. He was the author of more than 20 articles about the telecommunications industry during the 1990s. He published analyses and forecasts

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Sophie NIGON
Managing Editor


Video As A Service

Gilles Fontaine


Deputy Managing Director
Director of the Business Unit TV & Digital Content Business Unit, IDATE


Depending on the country, classic live TV programming accounts for 80% to 90% of users’ viewing time, and an even greater percentage of the sector’s revenue. But 2012 also saw Netflix triumph, along with the rise of the tablet as a viewing device and a surge in user numbers for the top TV networks’ catch-up services. Although live TV, which is reinventing itself as a producer of special events, will continue to be a major player, new video services are already having a sizeable impact on the TV landscape.

Having control over the networks does not mean control over services

Transmission networks appear to be increasingly agnostic when it comes to video services. The dividing lines between managed networks and the open web are being blurred: the open internet is more and more managed, while managed networks are expanding into the open web to deliver TV everywhere services. Plus, putting telecom and broadcast networks in opposing camps seems counter-productive: TV broadcasters and telcos are even rolling out hybrid "broadcast + broadband" solutions to combine live and on-demand streams.

Content remains a vital asset

For a long time, television consisted of programming external events, sports and cinema. But it is now creating its own events, including live reality shows, alongside the many dramas and sitcoms. These make up the backbone of American networks’ line-up: over 50 series are broadcast every week on the top five US networks. The country’s pay-TV channels are investing heavily in production and, a new development, cable channels that originally showed only reruns from the top networks are now producing their own original content too. It is no doubt these more than 130 TV series produced each year in the United States that have become the juggernaut that far outstrips anything being produced in any of Europe’s national markets.

Prime TV series broadcast in the US (Q4 2012)

Prime TV series broadcast in the US Q4 2012

Source: IDATE

Services are becoming key ingredients

Among this glut of VoD content, live channels will keep a central role of curator. But their ability to analyse viewers’ habits to then recommend, deliver and invoice the right content on the right device, over the right network is vital. As in other sectors, the internet’s growing role in distributing video derives a great deal from expertise in IT, which is relatively lacking in the TV sector. Netflix thus spends more than $300 million a year on improving the user experience.

Netflix R&D spending

Netflix R&D speding expenses (mUSD)

Source: IDATE

Pay-TV vs SVoD

Florence Le Borgne-Bachschmidt
Florence Le Borgne-Bachschmidt
Head of the TV & Digital content Practice, IDATE.

Between competition and complementarity

IDATE newest market insight offers an overview of the pay TV market in the main European countries and in the United States. It describes the different models of subscription-based video on demand offerings (SVoD): supply-side strategies and description of main players’ services. It lastly analyses the SVoD services developments compared to the pay TV global market.

SVOD seems ready to compete with traditional VOD offerings

Brought to the spotlight thanks to the success of services like Netflix and Hulu, SVOD seems poised to compete with traditional VOD offerings, and even position itself as a true rival of pay TV, the audiovisual market's leading revenue generator.
Mainly originating in the United States, SVOD services are starting to gain ground elsewhere, in part through the expansion of the US services (note the growth of Netflix in Latin America and in several European countries), and in part thanks to the reaction of local stakeholders who are structuring their own SVOD offerings in addition to existing stand-alone services.

Comparison of changes in the number of subscribers to a pay TV offering, Hulu Plus and Netflix in the United States
(Millions of suscriber households)
Comparison of changes in the number of subscribers to a pay TV offering, Hulu Plus and Netflix in the United States

Source: IDATE, Market Insight "Pay-TV vs SVoD", March 2013, based on operators' data

Many video market actors are highly involved in the development of on-demand services

Although the pay TV operators themselves appear to be highly involved in the development of on-demand services, allowing them to broaden the range of services offered to their subscribers and/or reach out to new audiences, many other players are also positioning themselves in this niche, such as free-to-air TV channels, special-interest TV channels, content producers, DVD and Blu-ray rentals players, and Internet industry players.
These services stand out owing to the size of their catalogues, but also their accessibility closely linked to their role in operators' strategies.

Will SVoD offers create a cordcutting effect and replace traditional Pay-TV offers ?

Current discussions concerning the cord-cutting risk that these SVOD services could induce lead us to wonder about their potential to replace traditional pay TV offerings. But apart from the pricing element (which clearly plays in favour of SVOD services), the type of content offered and its positioning in the media chronology, the modes of accessing the content and these services' ability to hold copyrights seem to highlight the fragility of these offerings in comparison to those of linear television. Despite the popularity of these SVOD services and the soul searching they are inducing among traditional pay TV industry players, they still account for a very weak share of the market (less than 2 % of total pay TV and SVOD revenues). Between now and 2017, even if their market share does increase, it should not exceed 4 % of global sales, of which over half will continue to be generated in the United States market. The competition between SVOD and pay TV is undeniable; however, it hinges more on the new players' ability to induce traditional players to overhaul the sector than on their ability to threaten the sector in the medium term.

Florence Le Borgne-Bachschmidt, Head of the TV & Digital content Practice, IDATE. She joined IDATE in July 1998 and is now head of our TV & Digital content Practice. Florence’s prime area of focus is the development of digital media technologies (terrestrial, cable and satellite TV, digital cinema, video and TV on the web) and specifically the economic, strategic and micro-economic aspects of these sectors. Her analyses also cover media company strategies in general. Before coming to IDATE, Florence worked as the Head of Research in the Nord-Pas-de-Calais Regional Development Agency's Economic Observation department, where she devoted herself primarily to issues relating to the Information Society, the development of telework and the mastery of key technologies. Florence is a graduate of the Lille school of management EDHEC (Ecole of Hautes Etudes Commerciales).


> More information available at: www.idate.org


DigiWorld Summit: Key players

DigiWorld Summit
"Game Changers: Mobile, Cloud, Big Data"

They are the key players of the Digital news and the Digital World… they will be at the DigiWorld Summit !

Tivo launches its new box: "Tivo Stream". The device allows one to watch programming that has been record on the TiVo Premiere on any iOS device on the local network. An upgrade for the Android TiVo application is in the works so Android devices should be able to use the device soon. ..
How this type of Personal Cloud will coexist with cloud-based DVR solutions?

Jason WONG, senior Director of International Products, TIVO will participate to the session Smart Devices ecosystems vs. Open Cloud on November 14 at 11:00 am.
Netflix which is now involved in Europe, announced last week that the company added 1.2 million new US customers during the third quarter, bringing their subscriber total to 25.1 million -- almost a third of all homes with broadband… Nevertheless, Morgan Stanley analysts to insist that Netflix needs to raise prices: the company spends more on content as a percentage of subscriber revenue (62%) than cable networks,. They consider that Netflix’s $8-per-month Internet streaming service is too cheap. The problem of course is that Netflix cannot ignore the growing threats from Amazon, HBO and the coming RedBox/Verizon joint venture …

Ted SARANDOS, Chief Content Officer, Netflix, will be one the keynote speaker on November 15 at 10:20.
Verizon is very close to launch its joint venture with RedBox (CoinStar group) to compete with Netflix with a video streaming product…

Terry DENSON, VP, FiOS TV Content Strategy & Acquisition, Verizon will be present to the session From NGN to Next Gen Telcos on November 15 at 11:15am.
> More information on the website DigiWorld Summit 2012.


Le modèle Netflix est-il viable ?

Gilles Fontaine


Directeur Général Adjoint, IDATE


La société de location et de streaming par abonnement NetFlix vient de publier ses résultats pour le 1er trimestre 2012, 4,6 mUS$ de pertes. Outre les investissements liés au développement international, la mutation de l’activité de la société du DVD pour le streaming explique ces résultats.

Mi-2011, la société qui proposait un package DVD+streaming a scindé ses deux offres, en particulier sous la pression des ayants-droit. Elle comptait fin juin 2011 24,6 m d’abonnés à l’offre aux USA , elle en compte fin mars 2012 6% de plus soit, 26,1 millions. Ces 26,1 millions d’abonnés ont souscrit à 33,5 millions d’abonnements cumulés aux services de streaming ou de DVD, contre un chiffre théorique de 49,2 millions si tous les abonnés de l’offre packagée mi-2011 avaient souscrit à la fois aux nouvelles offres DVD et streaming. Une partie des abonnés a donc arbitré entre l’offre DVD et l’offre streaming. Ils l’ont fait majoritairement en faveur de l’offre de streaming qui représente deux-tiers des abonnements.

NetFlix a par conséquent réussi son pari de constituer un service de streaming qui compte plus de 21,6 millions d’abonnés aux Etats-Unis.

Mais le bilan économique est moins satisfaisant : L’ARPU par abonnement DVD représente 10 US$ contre 8 US$ pour le streaming. Surtout, les charges directes, c’est-à-dire essentiellement les charges de programme et le marketing, représentent 54% des revenus du DVD contre 87% des revenus du streaming. Un abonné Netflix en streaming génère 1US$ de marge brute par mois, contre 4,6 US$ pour un abonné DVD.

Le service de streaming souffre du renchérissement des coûts de programmes imposé par les majors : son succès commercial (+9% d’abonnés en 6 mois alors que les abonnés DVD baissaient de 27%) se traduit mécaniquement par une baisse des marges de la société.


Directeur Général Adjoint, IDATE