What ‘Pay TV 3.0’ will mean for viewers and channels

The replacement for the traditional program grid might not be a smoother, sleeker table of channels and times. Instead, many viewers may navigate their way through an array of app icons.

Replacing linear TV services with personalized sets of apps offering a mix of linear and on-demand content--what some have taken to calling Pay TV 3.0--wouldn’t give viewers a full a la carte experience. But, it would still upend much of the existing structure of the video business, with consequences that those involved might not necessarily like.

Meet the marketplaces

Marketplaces like Amazon Fire TV’s Prime Video Channels, Roku’s Roku Channel, and Apple's Apple TV app bring the simple setup of a smartphone’s app store to a streaming-media player. Viewers don’t need to worry about creating new accounts or tapping in credit-card numbers with the buttons on a remote control.

In that respect, they amplify the usability virtues of streaming-media players plugged into TVs by making them a simple proposition for new viewers, not just those entering existing account info into a streaming player’s interface.

“It's definitely one of our longest-standing partners when it comes to app distribution,” said Min Kim, vice president of business development at FuboTV, of Roku’s platform. “It was one of the earliest, and one of the most important ones for us to secure.”

That linear OTT service elected to make its new, free-with-ads Fubo Sports Network available on the Roku Channel. “We wanted to reach as many people as possible,” Kim said.

But that convenient customer acquisition does not come without a cost. Channel marketplaces keep a share of the revenue that can run as high as a reported 30% cut for Amazon.

That’s one reason why the biggest streaming video service of them all, Netflix, has remained aloof from these marketplaces. And Disney’s upcoming, highly-anticipated Disney+ won’t be on Amazon’s Fire TV players either.

The steady movement of Amazon and Apple into making their own content can further muddy the waters. “Yesterday’s software/hardware partner could be tomorrow’s video service competitor (or vice versa),” said Michael Greeson, president and director of research at The Diffusion Group, via email.

Who’s on and who’s off

Meanwhile, major studios are following Disney’s example, moving to combine their existing properties into bundles that can easily fit into a channel marketplace.

“Selling a bundle of their brands is a very smart move,” Greeson said. “This will drive further consolidation among the studios as they compete for smaller networks”—for instance, he suggested, Discovery’s networks as a likely acquisition target.

Subscription fatigue may not be a serious issue, said Marci Ryvicker, managing director at Wolfe Research.

“We have found in our survey work that households are willing to pay for 3-4 OTT products,” she said in an email. But, she added, those top three or four will change: “I think people will switch among the different products.”

Sports, however, could be different, thanks to their steadily rising costs. Ryvicker said she doesn’t expect sports networks to migrate to direct-to-consumer apps, a transition that would end their ability to spread their costs onto sports-apathetic viewers. “The economics do not work for sports in a DTC-only environment,” she wrote.

Greeson, however, argued that sports networks might do just that if channel platforms took a smaller cut than traditional cable and satellite: “Going direct-to-consumer, however, offers cost advantages to the rights holders, as they can bypass the legacy gatekeeper.”

The picture for smaller content providers could be significantly worse, depending on how hard they are to find on a channel platform.

“That is a common problem for all electronic storefronts,” said Avi Greengart, founder and lead analyst at Techsponential. “The inventory is infinite; the home page is not.”

A programmer’s perspective

The head of one smaller network voiced optimism about the potential of channel platforms—but only as one of many distribution possibilities.

“I grew up on a lake, and I like to say, you’ve gotta fish where the fish are,” said Clint Stinchcomb, president and CEO of CuriosityStream.

That documentary network has made itself available on mobile apps, through its web site, on linear OTT platforms like Sling TV and PlayStation Vue, as a freebie for subscribers to Altice’s broadband service, via apps for connected TVs and streaming-media players--and on Amazon’s Prime Video Channels.

“Any partner than can help create a frictionless opportunity for consumers, we’re interested,” he said. “As it relates to pure a la carte distribution, Amazon’s at the top.”

But, he added, that doesn’t make platforms like that equally useful at all stages in a customer’s lifecycle: “They’re most important at the early stages.”

Stinchcomb’s own forecast: “The majority of our customers will come over time from bundled distributors, followed by our direct signups, followed by the channel store environment.”

But ,that doesn’t make any of them expendable; Stinchcomb described all those outlets as “vitally important.”

Amazon versus Roku versus everybody else

Amazon and Roku, the two biggest streaming-media vendors, seem best positioned to prosper in Pay TV 3.0

Greeson nodded to Amazon, which just said it had topped 37 million active users.

“The company sees Pay TV 3.0 as yet another way to build the depth of its retail relationship with consumers,” he said. “Others do not have this advantage, nor can they subsidize video losses simply to disrupt the established order.”

Greengart, however, noted Roku’s prime spot on so many connected TVs, a market in which Amazon has trailed: “Roku has its store integrated into the TV you just bought.”

He added that Apple retains an advantage on smaller devices to counter its weak living-room presence: “Over half of the U.S. has Apple's app store on at least one device in their home.”

Greeson, for his part, advised keeping an eye out for greater attention from Google: “Google could choose to compete with Amazon, Apple, and Roku in the 3.0 space and it could be a formidable competitor.”

It’s easier to identify the potential losers in this ongoing shift: the same MVPDs that have been bleeding subscribers for years.

Noting the existing trend and its possible acceleration by next-gen ATSC 3.0 broadcasting, which would make mobile over-the-air reception possible, Ryvicker offered a prediction that should cheer nobody working in cable and satellite video-subscriber retention: “35% of U.S. households will have cut the cord by 2024.”