Nov 12, 2013

Backdoor Saviors: Why Virtual MVPDs May Be Just What The Industry Needs To Stay Relevant

To no one’s great surprise, Intel’s attempt at creating their version of the mythical Apple TV didn’t pan out. The OnCue service - a streaming set top box and 21st century pay TV service that would replace the viewer’s current service— never came together and now Intel is looking for someone to buy it.

This week’s rumors are about Verizon and Liberty Global, with the former possibly wanting OnCue as their answer to Comcast’s X1 platform… or as a launchpad for their own VMVPD: Virtual Multichannel Video Programming Distributor-- a web only version of their pay TV service.

The allure of a VMPVD (for operators, anyway) is that they it would allow them to expand their footprint beyond their current geographic restrictions and reach a whole new set of customers. Which is why many in the industry view them as potential time bombs that could lead to all out warfare.

I’m much less concerned about that and actually see them as potential saviors for the industry, providing an outlet for all those 20something “cord nevers” much in the way that iTunes provided an outlet for millions of Napster users.

Allow me to explain.

Who is the prime market for a VMPD? Not the family of four with three big screen TVs, a home hub set top box and little inclination towards early adopterdom. Rather, it’s the 23 year old young professional who’s never home to watch live TV (outside of sports) but who understands that the only way to watch HBOGO/ESPN Live/FoxNow/The Olympics is to have a valid pay TV log-in and he’s tired of using his parents credentials to gain access.

Which is why a low-cost, low-hassle virtual package is going to prove to be very appealing.

Low cost is going to be a big factor here,  and so the Intel box, designed to be a premium product with a beautiful interface, is not going to be all that necessary. Because our target really doesn’t need a set top box of any sort as very little of his viewing is going to be live. So an app that lives on Roku or Apple TV (as well as an iPad) is going to be enough, particularly if it comes with a cloud-based DVR capable of storing about 10 hours worth of programming. (He doesn’t need more as the DVR is just a way to fill the 24 hour gap between live broadcast and VOD availability.)

What he will then have is a valid pay TV log-in for all his favorite channels along with the zero-hassle ability to tune in to CNN or NBC to watch election results, disaster coverage and the Super Bowl.

He will also go from being a “cord never” to being a loyal paying customer of Comcast, Uverse, Verizon or whoever it is he also gets his broadband service from.

Which is part two of the equation.

While there will be some initial agita over competitors launching VMVPDs in new territories, there won’t be much long term poaching of customers: you still need a broadband connection to access your virtual MVPD, and since that’s not something potential interlopers can provide, it gives the incumbents a huge advantage

Because short term deals aside, it’s always going to be cheaper and more efficient to get your service via a double or triple play package. (And don’t rule out the appeal of a single bill, which, while it may sound trivial, is actually a nice selling point.) And when it comes to pay TV, our prospect is always going to be all about cheaper and more efficient.

If the MVPDs are smart, they’ll negotiate a different set of rights for their virtual offspring, one that allows for a more Netflix-like device agnostic experience along with different package configurations, like the one Comcast rolled out last month that lets customers sign up for broadband plus HBO.

There’s still a lot to be worked out as technology changes are embraced by the masses, but the virtual MVPDs will provide the industry with a back door into the sorts of device agnostic, (partially) unbundled, forward-looking solutions consumers on the cutting edge have been asking for.

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