Column: Cable's History Lesson's: Niche SVOD'S Trajectory May Follow That of Niche Cable 20 Years Ago

 

 

By Bruce Tuchman

As the world of SVOD expands beyond the pioneering work of Netflix, Hulu and other big platforms around the world that offer a similar wide range of content, a multitude of more targeted and focused niche or vertical TV apps have also begun to proliferate. The jury remains out on how these specialized products will fare, and for every success story--WWE Network, Crunchyroll, etc.--there are also many failures and cautionary tales. But from my experience, this bumpy road to widespread consumer adoption and, ultimately, profitability, is nothing new. We need only look back to the rocky trajectory of niche cable services a couple of decades ago to see a very familiar pattern starting to form.

The recent shuttering of Otter Media's Fullscreen, coming not long after the closure of NBCU's Seeso, has inspired many in our industry to write off the great potential of vertical SVOD services, pointing to a handful of breakout niche brands as anomalies and believing that the niche business model is ultimately unworkable. They argue that the costs of running these services, and the great challenge in accumulating subscribers, are out of sync with each other and offer little chance of reaching profitability in what most would consider a reasonable time frame. 

That said, is it fair at this juncture to draw a conclusion as to the sustainability of these niche apps based on these examples? I don't think so. I think vertical apps (whether stocked with on-demand content, linear or both) will ultimately not only dominate the SVOD landscape, but also largely supplant the existing world of branded cable channels.

When I hear this rush to judgment about niche SVOD services, especially the ones promoted by big players like NBCU and Otter, it reminds me of a very similar time in the international TV market 20 years ago. Indeed, that time was a bit of a watershed for a lot of existential musings about niche subscription television brands internationally, and it foreshadowed almost to the word the reasons articulated for Seeso's and Fullscreen's closures. Back then, after several years of giddy expansion into the many newly emerging pay TV markets outside of the US, a number of the pioneering networks hit a wall. In a relatively short period of time, several very prominent channel brands shut down some of their foreign outposts, sending shock waves across the business, which led to a painful reset for many players.  

Among others who packed up and went home were Nickelodeon Germany, MGM Gold Asia, European versions of the Weather Channel and CMT, as well as NBC's Canal de Noticias in Latin America. My boss at the time, Nickelodeon COO Jeff Dunn, summed up the thinking back in 1998 when he said: "What we have seen is that many of these markets are really developing countries, which will take a longer time than anyone imagined to develop the kind of cable and satellite business that is going to be a meaningful contributor to the bottom line." When he said "developing countries," he was referring not to the overall standard of living, but to the nascent, if not embryonic, developmental state of the German pay-TV industry at the time.  

As we know, the story didn't end there. Global TV took off in the 2000's as hundreds and hundreds of millions of new subscribers plugged in their set-top boxes and leaned back to enjoy. In fact, both Nickelodeon Germany and MGM Asia were reborn and relaunched in this boom and rode a long and nice wave as pay TV continued to expand. 

Looking at the International subscription TV market today, we see virtually all the major US cable brands not only pervasive abroad, but having served for many years as one of the most robust and dependable sources of continuous growth for these companies. In fact, not only were the launches of their flagship channels ultimately great successes, but so too were the new brands they created or spun-off as they tapped into local cultures and vernaculars. A good example of this is Colors in India, a joint venture between Viacom and Mumbai-based Network 18 Group. Now celebrating its 10th anniversary, this is just one of those big success stories. But without the launches of MTV and Nickelodeon more than a decade before, there wouldn't have been a platform of both experience and success from which to launch a channel like Colors.

But the words of Nickelodeon's COO then are the spitting image of the concerns today about niche SVOD channels. Their infrastructure or "stacks" are very expensive to operate, there are too few subscribers to allow for critical mass to be readily achieved, and it's impossible to market to consumers who, in all likelihood, don't even know that these niche SVOD services even exist.

What turned the misery of failed channels and services two decades ago into the aggregation of global subscribers to over one billion today (with just a tenth of these in the US) is simply the rising tide of what history has proven to be an incredibly scalable and popular technology. Two decades of growth into its headiest days, and until the storm clouds of cord-cutting blurred the picture, it would have been ludicrous to say that niche channels like Nickelodeon, Discovery or History were not sustainable international businesses.

Thus, when we hear the debate and succumb to the negative inferences today about niche SVOD, just harken back to the thunderous growth of pay TV over the last generation. Given everything else with the Internet, the rising tide of scalability and popularity is happening right now; and what has taken two plus decades for pay TV may take just two plus years for SVOD and OTT. Already, SVOD subscribers top 200 million worldwide. Two-thirds of them are outside the US and growing at double-digit increases year on year. In the US, two-thirds of all pay TV homes are also subscription video-on-demand homes, and the latter number continues to grow while the former's declines are accelerating.

I expect this "melting" of pay TV into SVOD/OTT viewing to also continue apace outside of the US, and I imagine that within a handful of years, not only will the number of SVOD subs outside the US match the number and proportion of cable subs that there are today, but likely exceed that. This simply owes to another winning attribute of the Internet--and that is you don't need to pay someone to invest a fortune into running cable into your house, rent you a set-top box and, for many, have you buy a satellite dish. You can merely connect to your nearest WiFi hotspot and enjoy the show. Put another way, the pay TV infrastructure reaches its marginal limits when confronting the inevitable physical, legal or economic obstacles blocking the end of its growth curve. These limitations aren't really such a big deal when it comes to SVOD.

So back to Seeso and Fullscreen. Maybe we will see them reappear someday soon like we did Nickelodeon Germany and MGM Asia. But what we will certainly see is the number of niche SVOD services continue to expand, and the number of successes grow along with it, as the rising tide of SVOD penetration lifts all boats along for the ride. This will happen, and happen quickly, as the costs of the "stack" required to run an SVOD service becomes more and more scaled and commoditized, as younger "cord-nevers" come into their own as money earners, as the seamlessness of access to Internet TV continues to improve, and as the discovery and navigation tools for Internet TV apps become smarter and smarter by the day.

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Bruce Tuchman is a media investor and executive at Tuchman Global Ventures. He has spent the past 20 years in the international television distribution business as president of global channel businesses for AMC Networks, Sundance Channel, and MGM, as well as spearheading the international expansion of Nickelodeon. He will be speaking on the panel, "The Emerging OTT Ecosystem and Its Challenges" at TVOT NYC 2017. Purchase your tickets here.

 

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