IBC '17: Cheap SVOD Bundles Cannot Support Content, says Fox

Already in the process of removing its programming from Netflix, Fox took aim at the SVOD giant by warning that their pricing model was unsustainable. 

"Ultimately, anybody in the business of creating content will be fine but a $10 ecosystem can't support the content that consumers love," said Brian Sullivan, president and COO, Digital Consumer Group, Fox in an IBC keynote.

He suggested that if Netflix was allowed to monopolize, then channels and content creators will die away and consumers will be left with far less content at a considerably higher price.

Instead, he pointed to two trends happening in the U.S market: a return to aggregation of content by the major content creators and a price to consumers that better reflected the cost of production.

"Eventually things will balance out," he said. "It's painful and not everyone survives but we see all this content that has been disaggregated now coming back together into a new experience."

He explained how Fox has taken the 17 networks which it aired a few years ago and boiled them down to five—Fox, FX, National Geographic, Fox Sports and News.

"Viewers still had to go to all sorts of different places to get Fox content—some is on Hulu, some on Netflix, others on a TV anywhere service. So, since April, we began bringing all of that content back together under a single Fox-branded home. The aim is to marry the power of apps with the power of a TV experience—meaning full-screen video and simple navigation with machine learning capabilities for discovery."

He added, "Re-aggregation of content will be crucial going forward."

The second trend Sullivan highlighted was the rise of the digital MPVD—digital versions of cable and satellite services like Dish-owned Sling, DirecTV Now, Sony Vue, and Hulu.

"What they are doing is recreating the bundle – and pulling back from a total disaggregation of content."

Hulu—in which Fox has a 33% stake—is now taking its old SVOD service and building in 60 channels of live TV, he explained. "You have content on demand and live channels and the original SVOD archive. It's a rebalancing of the whole system with pricing closer to $40 (a month)."

"Previously, with all SVOD, prices have got way out of whack. It is a perfect utility for the consumer who pays $10 a month—but there is 90 dollars missing. That ninety dollars went back to the consumer. We went from a distorted business model that favoured business to a distorted business model that favoured the consumer.  The old model didn't work for the consumer and the new model doesn't work for business. We are seeing a rebalancing of that."

Business models created for the consumer are much more sustainable in the long term, he argued: "But some services and channels won't survive. The reason for them to exist has long passed."

Sullivan was part of the team at Sky which launched digital multichannel twenty years ago. "We created seven different versions of Discovery for example. It made sense at the time, but you don't need that any more. That content is becoming easier to access now.

"There is already lot of pain experienced by traditional media companies because the SVOD ecosystem is cannibalising and it is replacement money, yet new models are being created and those companies in the content creation business that have the right business models will survive."

He claimed not to be worried about players like Amazon and Twitter bidding for premium sports rights. Fox-owned Star India just outbid Facebook for global rights to cricket's IPL tournament, paying $2.6 billion.

"The leagues care about distribution, not just money," he said. "If they sign the biggest cheque (with Twitter or Facebook) and their content is seen by one tenth of the audience they know their sport will die."

Discovery is huge problem because the way the industry windows (distributes) content "is so bad right now that people can't find it."

He cited the NFL, which has seen a dip in viewing across its distribution network. "You can watch live games on CBS, NBC, Amazon and ESPN and their own network. How do you know which of those channels or days your team is on? There is a power in knowing where to go to follow your team. The NFL probably stretched itself too thin." 

He reiterated a policy begun earlier this year to pull Fox's content out of Netflix and stream it on Hulu and on its own OTT platform.

"Netflix delivered a fantastic experience at a fantastic price and we—Fox—helped them in that by giving them our programming.  We still sell programming to Netflix but we will look at it on a case by case basis. We won't just do blanket deals with Netflix and Amazon. Where we have shows with continuous storylines we will likely hold those back for ourselves. We want to get back to a place where consumers can follow a Walking Dead or a Breaking Bad from season to season from one provider."

Disney is making a similar move.

"We can't fix the TV everywhere world—there are too many operators doing too many different things. But we can deliver a direct-to-consumer experience that feels like TV," Sullivan said.

He said that Fox had already seen a 100 per cent ratings uplift in its programmes viewed through the network's aggregated experience.

"We think half the market wants an ad free experience and the other half wants the best price they can get but they want produced ads relevant to them and not old-fashioned linear ads."

He added that he was skeptical about long-form video migrating to social platforms in any significant way: "People are not going [to social networks] to watch longform; they are there to be social. The average viewing of most video on Facebook is 3 seconds. Our programmes are a little longer than that."