Here’s TV Networks’ Latest Scheme to Limit ‘Cord-Cutting’
NetflixNetflix was killing it in 2006. In fact, the DVD rental company had such an impressive business plan that in 2010 Fortune named CEO Reed Hastings Businessperson of the Year. Hastings was already hearing footsteps, he told us then, "The turnover in the S&P 500 is terrifying. Most of the time change in the world overtakes you." And it did. Netflix has been struggling to regain its traction since last year, when it announced a short-lived plan to split up its DVD and online services. Prices would increase, and the DVD portion of the company would be called Qwikster, the company announced. Consumers were livid, and Netflix had to retract the whole shebang immediately. The stock took a dive, and it still has yet to reach anything close to its pre-announcement levels.
U.S. pay TV customers will have more chances this fall to catch up on shows in midseason as networks increase video-on-demand offerings in their battle to keep audiences from jumping to streaming services.
The shift is part of the jockeying among television networks, cable and satellite providers, and online subscription services like Netflix (NFLX) to attract viewers and maximize profits in an industry undergoing rapid change.
Networks want consumers to stick with the cable and satellite services that provide their biggest revenue source. Cable channels, for example, will receive $52.7 billion in fees from pay TV operators this year, just more than half of total revenue, according to data from SNL Kagan.
To feed consumers’ desire for the binge viewing made popular with streaming services, the networks are promising a significant increase in on-demand access to episodes of current seasons through set-top boxes, websites, and mobile apps.
“Being able to catch up is clearly important,” CBS Entertainment president Glenn Geller said in an interview. “Fans want to watch the shows when they want to watch them.”
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Pay TV subscribers could typically watch only the five most recent episodes of a show while a season was in progress, while streaming services have usually not offered shows until after a season ended. That has left viewers with no way to watch some episodes within a current season, unless they bought them through platforms such as Apple’s iTunes.
Networks Offer More Access
Television networks have concluded that more access for viewers can be good for business, said Alan Wurtzel, president of research and media development at Comcast-owned NBCUniversal. In one survey, 54% of people said they would not start watching a current TV series if they could not watch all prior episodes.
“It’s a huge issue,” Wurtzel told reporters earlier this month at the Television Critics Association meeting, where networks promoted their new series. “This is what people want, and we have to figure out a way to get it to them.”
Networks and pay TV distributors are now pushing to make it the industry standard to “stack” each episode—after it airs—on video-on-demand for the duration of the show’s season.
Comcast (CMCSA), the largest U.S. cable operator, has been leading the push among distributors. During the 2016-17 viewing season, Comcast will offer full-season stacks for 60% of original scripted series on the top 10 broadcast and cable networks, up from 31% two seasons ago.
“The marketplace has finally hit the tipping point,” said Matt Strauss, Comcast Cable’s executive vice president and general manager of video services.
But which shows are stacked, and where, depends on a web of agreements among networks, producers, and distributors.
For example, most shows on Walt Disney Co.’s ABC, Freeform, and the Disney Channel will be stacked on Comcast as well as on AT&T’s DIRECTV, Disney recently announced.
Broadcasters NBC, CBS, and Fox said they had secured stacking rights for the majority of shows on their primetime lineups.
Networks say that making it easy to catch reruns strengthens the appeal of pay TV, which is battling “cord cutters,” or those viewers who switch to cheaper streaming services.
It also boosts overall viewership and increases audiences when a show is on live TV, executives said. One network saw a 3 to 11% lift after stacked shows were offered, according to a source who asked not to be named when discussing confidential data.
Bigger live audiences mean more advertising dollars, the networks’ second-biggest source of revenue. Unlike the commercial-free viewing offered by Netflix for a monthly fee, stacked on-demand network shows usually contain ads.
Full, in-season stacks of many broadcast series will also be offered on Hulu, the streaming service owned by Comcast, Disney, Time Warner and Twenty-First Century Fox.