A Curious Catch-22 for TV fans

by Aaron Schmidt

A recent trend in broadband cable, called Over the Top (OTT) viewing allows users to access and stream high quality video to their TVs without going through a multichannel video program distributors, or MVPDs such as Time Warner, Cox, AT&T, etc. The most popular options for OTT viewing are streaming services such as Netflix and Hulu, or using internet-connected TVs to view streaming videos from websites (legally or otherwise).  This is creating a problem for advertisers and cable companies, and will eventually cause a huge problem for TV fans.

OTT is seen as a threat to the MVPDs, who rely on subscription fees in order to maintain their feeds and provide content. The MVPDs in turn pay some of those subscription fees to the content providers in terms of licensing and share ad revenue. This arrangement creates a paradox for the OTT trend- that OTT users are taking money away from the budgets from the content they are watching. Right now, viewers are becoming so used to watching things on demand, that they are actively seeking out ways of watching TV whenever they want and for free, without wondering how the shows get their budgets in the first place.  

Currently, Netflix and Hulu have large viewer and subscriber bases that enable them to pay the licensing fees and provide on demand media at MVPD quality and speed. Users are increasing relying on these services, resulting in a phenomenon called ‘cutting the cord’ where homes go without a traditional MVPD connection. As stated before, this could lower advertising dollars and in turn budgets for the high-production value shows that attract viewers to Netflix and Hulu in the first place – which may necessitate the need for those services to produce original programming to make up for any loss in licensed content. And, in another paradox, this reliance on lower-quality original programming may cause a loss of subscriptions.

Basically, there is not enough money, and no good revenue plans in place, for content producers to embrace OTT over traditional MVPD. The real challenge will be finding a way to provide VOD through OTT that will make the customer, provider and producer happy. Right now, the system makes only the customer happy, but eventually, there won’t be any content to be happy about.

Is there a way to make all of the parties happy? Or will TV viewers need to cave to the need for advertising dollars to fund their shows?  If OTT wins out, how will advertisers reach audiences, and how will shows pay for their production budgets? No one seems to have any answers yet…