Aug 15, 2015

Are We Getting A Little Over The Top About OTT?

Originally published at TDG Research on August 13, 2015

HBO, Showtime, and CBS have launched their own standalone OTT apps, and there’s been much discussion about whether ESPN is in a position to make that move too. Subsequently, eyes are now turning to the hundreds of other broadcast and cable networks, with fans and industry observers wondering when they will take the plunge and launch their own standalone OTT apps. Many predict the action will begin any day now.

But don’t touch that dial. The Great OTT Migration isn’t happening just yet. There are many reasons most networks will not (and can not) make the leap to OTT, either now or in the short-term future.

The first reason has to do with who owns the distribution rights to the network’s programming. In most cases, it is often an outside studio. Take AMC, for example: Lionsgate owns the rights to Mad Men, while Sony owns the rights to Breaking Bad. These sorts of deals are the norm in Hollywood, as the studios develop the shows and incur the costs of winnowing down scripts and creating pilots. And the reason they shoulder this expense? So they can then sell distribution rights to a show once it becomes a legitimate hit, raking in millions upon millions of dollars.

The second reason OTT may not be right for broadcast and cable networks has to do with who they sell those rights to–online distributors like Netflix, Amazon, and Hulu. While these distribution deals can generate a great deal of income, they also limit the amount of content the network has available to populate their own freestanding app.

This is why we’re seeing genre apps appear, like the NBC Comedy app, Shudder (a horror app), and the SundanceNow Doc Club from AMC. This is the only programming they have available for OTT distribution and, as many networks are discovering, it’s not enough to fill up an entire OTT network app.

HBO and Showtime are unique in this regard, as they produce much of their own programming and thus own the rights to it. CBS is unique among the broadcast networks in that it’s not a part of Team Hulu, and thus still has rights to most of its programming (or at least the ability to work with the studios to secure those rights). That’s why they were the first networks into the OTT pool, and why the pool is remarkably uncrowded.

For now, anyway.

Networks are also starting to rethink their distribution deals with Netflix. They have come to realize that the streaming behemoth is actually drawing their viewers away from rather than driving them back to live network broadcasts. As the breadth and quality of Netflix’s offerings—both licensed and original—continues to grow, viewers have even more reason to stay in the app. That’s why we predict that more and more networks will choose not to renew their Netflix deals when they expire, understanding that easy money today is not worth the losses they’ll incur down the road.

In addition to pulling back from Netflix, networks are creating more of their own original programming, while making sure own the digital distribution rights no matter who makes the shows.

Once their content libraries have reached critical mass—a combination of new shows they have rights to, and older shows they’ve reclaimed from Netflix—more and more networks will finally be in a position to take the OTT plunge.

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