HBO, ESPN & Stand-Alone OTT Video Services - All You Need to Know

Media 2.0’s great unbundling! That’s what I call the new world of once pay TV bundle-only channels that have now freed up either to go it alone or be part of stripped down skinny bundles. Whereas Netflix, Amazon Prime Video, Hulu and the others discussed in my earlier articles offer an endless stream of content across multiple “channels,” stand-alone pay OTT services are the channel – frequently focused on a specific genre. You can now access them without being forced to pay for other channels or content you don’t want. 

Sounds so simple.  But it took so long to get here.  Now that it has, the number of these newly emancipated OTT services seems to expand almost daily.  Here are some key market leaders, each with very different D.N.A.

HBO

Pay TV darling HBO – renowned for premium high-quality storytelling -- really started this “great unbundling” in a big way in 2015 when it boldly stripped itself out of pay TV bundles to offer itself as a stand-alone SVOD service at a price-tag of $15 per month.  HBO’s move represented a major digital-first shot across the traditional media bow – the first domino to fall in a lengthy line of other individual premium pay TV channels that followed.  Just months before, many media and entertainment executives predicted that such a move by a major pay TV player wouldn’t happen for years.  After all, the major cable and satellite providers pay HBO handsomely for carriage.  So, why would HBO bite the hand that feeds?  

Because HBO saw Media 2.0’s writing on the wall, that’s why.  As discussed in my earlier posts, the accelerating number of cord-cutters and cord-nevers hit home as the industry realized what many consumers already had – why pay for the full content cow when you can buy the milk for free (well, not free, but certainly for a fraction of the cost)?  HBO risked losing an entire generation of digital natives who simply wouldn’t consider buying what many perceived to be overly filling, bloated pay TV packages.  HBO wanted to reach them -- and is reported to have reached 3.5 million subscribers as of mid-2017 (which still represents only about 3% of HBO’s 131 million worldwide subscribers, including 34 million in the U.S.).  Hence, the big, bold bet that threatened HBO’s relationships with its big cable and satellite partners who shelled out big bucks to carry it and made it the brand we all know today.  

HBO held the cards in this poker game.  As upsetting and unsettling as HBO’s game-changing play was to the major traditional MVPDs, they knew that consumers would bolt to the OTT streaming world even faster if HBO were missing from their traditional pay TV packages.  And, once HBO broke free from those pay TV ranks to go it alone, others followed in rapid succession.  CBS, Showtime, Cinemax, Starz, TNT, Nickelodeon and a growing parade of others.  Even slow-moving Viacom plans to join the SVOD club this year in 2018.  Toward year-end 2017, CEO Bob Bakish teased an upcoming new service at a monthly $20 price point.  If Viacom is doing it, you know virtually everyone else is.  Now the exception is not to unbundle.  

The great unknown, of course, is how many stand-alone SVOD services or stripped down pay TV bundles the market can bear.  After all, $15 here, $9.99 there -- pretty soon consumers end up being at the same place they tried to escape from in the first place when they caught the cord-cutting bug.

And, a new major threat to HBO looms in the form of the SVOD cabal discussed in my earlier posts.  HBO invented the Originals game “back in the day” to compete and win against traditional cable movie channels and broadcasters.  But, now all the SVOD behemoths have stolen that Originals page from the HBO playbook (more like the whole damn playbook!).  The students have become the masters (or, at least peers), as high-cost, high production value Originals are the weapons of choice to win in our new Media 2.0 SVOD cage match. 

So, with consumers awash in a sea of premium award-winning programming now from the likes of Netflix, Amazon, Hulu and others, even prestigious HBO feels the heat.  And, it boasts a relatively meager $2 billion budget for its programming when compared to Netflix’s $6 billion in 2017 ($7-$8 billion in 2018), Amazon’s $4.5 billion, and even Hulu’s $2.5 billion budgets for 2017.  

Will AT&T fill HBO’s Original coffers once it closes its Time Warner deal (assuming that deal ever closes)?   According to HBO’s CEO Richard Pieper, that won’t be necessary.  Speaking on CNBC in October 2017, he indicated that he has all that he needs.  Quite a confident, contrarian view amidst the growing premium OTT video cacophony.   

ESPN

Apart from HBO, ESPN of course will be another major stand-alone player in this hyper-competitive SVOD game once it launches its fully realized OTT sports vision.  I already discussed ESPN (and its parent Disney) at length in one of my earlier posts. Feel free to revisit.

VICE

Vice is a different kind of digital-first media company – really more of an increasingly video-focused portal a la Yahoo! and AOL than a stand-alone OTT service (although it does offer video channels to other OTTs). Vice launched first as an underground print publication, but later fundamentally changed its stripes. If ESPN’s new and soon-to-be significantly expanded SVOD is the jock, and HBO the artiste in the Media 2.0 video world, Vice is the rebel -- the dangerous bad boy.

Vice launched “angry,” featuring counter-culture, frequently shocking news stories that turned the traditional news world on its head.  And it worked.  The company’s unprecedented middle finger-ian approach appealed to an entire generation of young millennials, many of whom felt nothing but apathy or even contempt for traditional news outlets.  And, since Vice was where the coveted young audience was, Vice was where both Madison Avenue and Hollywood felt they needed to be.  Even family-friendly Disney couldn’t help itself, investing hundreds of millions of dollars in Vice over the past few years (which couldn’t have been easy, given that Vice’s form of storytelling isn’t exactly told from “The Happiest Place on Earth”).   

But then something equally unexpected happened.  Vice put on its best suit and tie (did we even know it owned one?), mellowed out, and launched a traditional linear channel on HBO in 2016.  It chose the road less traveled – digital first, traditional television, second.  That strategy worked – at least enough to attract a whopping $450 million cash infusion in 2017 from mega private equity firm TPG at an even more whopping $5.7 billion valuation, in order to accelerate Vice’s own video-first and Originals strategy.  According to CEO Shane Smith, Vice’s goal right now is to create “the largest millennial video library for content out there.”  

So, after toying in late 2016 with the notion of filing for an IPO in 2017, Vice remains private for now.  

That will change no later than 2019.

WWE NETWORK

Since we’re talking about being bold and brash, how about bobbing, weaving and body-slamming? Professional “wrestling” (if you can call it that) SVOD service WWE Network is a surprisingly successful worldwide SVOD hit – with 1.63 million paying subscribers as of mid-2017. After all, a body-slam is a body-slam in any language, which means that the WWE Network’s content travels well internationally. That’s why these performers now find themselves in over 180 countries and announced in August 2017 that they will soon enter the ring in China with a major Chinese partner.

WWE’s $9.99 monthly SVOD service proves that targeted specialized programming can be lucrative and succeed on an international scale.  

VEVO

Music-focused Vevo is premium OTT video’s privileged high school musician who gets accepted to Juilliard because of mommy and daddy’s connections (Vevo shares similar pedigreed roots as its cousin, Hulu – i.e., big traditional media DNA). Two of the three major record labels own Vevo -- Universal Music Group and Sony Music. The third, Warner Music, is not yet an actual owner, but finally did join the party in 2016 by licensing its music to Vevo for the first time.  Like Hulu discussed earlier, Vevo used its parents’ deep pockets to begin to spend aggressively in 2016 in order to be taken seriously as a premium OTT video contender.

Vevo has always been a free AVOD service like YouTube.  Its user base is massive – about 100 million U.S. viewers watching 21.4 billion videos every month as of July 2017, and with 300 million more viewers internationally.  But, in a little known fact (except to industry insiders), historically, over 90% of Vevo’s traffic actually has come from YouTube.  That means that YouTube first monetizes Vevo’s content via advertising and gives back only a fraction to Vevo, although a better fraction than YouTube’s typical 55% revenue split that it gives to video creators.  Vevo must then give the lion’s share of its fraction to the music labels and publishers (it says that it has paid our over $1 billion in royalties over time).  That doesn’t leave much for Vevo, which claimed about $500 million in revenues in 2016, a relatively small sum for a service that is so big.  Not surprising, then, that it is widely understood that Vevo’s economics are deeply challenged, a recurring theme for pure-play video services as we have seen.

In 2016, then-CEO Erik Huggers (who recently departed the company) very publicly announced that Vevo would launch its own paid SVOD service later that year in order to accelerate its monetization path.  But, that SVOD launch never happened, as Vevo slammed on the brakes to those ambitions in order to focus instead on international expansion. At the time, Huggers insisted that Vevo’s SVOD ambitions were still “completely still in the cards.” Yet, even with its SVOD dreams on ice for now, Vevo continues to move forward to develop its own slate of mobile-first Originals that it hopes to monetize not only on its own service, but also across all social channels including Twitter, Snapchat and Instagram (you know, those without the YouTube middleman).  Vevo’s primary goal is to wean itself off its YouTube heroin addiction (its mass traffic high) and take back control of its own destiny in its bid to be profitable (directly monetize its content so that it doesn’t need to share with its pusher).  

Vevo’s label parents are paying up big time right now for this rehab to at least slow down what they believe to be an increasing YouTube music menace  (something that I just discussed in my last post).

SPOTIFY

Since we’re talking music, we gotta talk Spotify, the world’s biggest stand-alone music streaming service.  “But, Spotify isn’t an OTT video streaming service,” you insightfully say. Well, that was true up to 2016 when Spotify announced that it too was moving full throttle into the world of Originals. And it wasn’t just talking good old-fashioned music videos at the time, but rather real, expensive premium scripted series. Sure, Spotify had featured clips from ESPN and others for quite some time, but these mobile-first Originals were announced as being a whole new direction.

As 2017 marched on, however, Spotify’s video ambitions got fuzzy.  Narrowed.  Significantly.  And at summer’s end, Spotify’s global head of content Tom Calderone exited the stage amidst new Spotify pronouncements that its once grand ambitions would re-focus on smaller, simpler videos for playlists brought to you by new content DJ Courtney Holt, former head of Maker Studios.  Spotify undoubtedly realized that it would be virtually impossible for it to break through the collective noise of premium OTT video competition and dramatically change its audio stripes in our eyes (er, more accurately ears).  We use Spotify to listen.  Would we really choose Spotify to satisfy our more video-centric urges in any meaningful way?

Quite a departure then, which became further apparent when Spotify announced a major strategic partnership with Hulu to deliver the premium video content it craved via a heavily discounted $5 per month premium audio/video bundle.  Smart and savvy?  Or just a sign of self-awareness and resignation that video will never play a leading role in Spotify’s long-term strategy and must be content to be a supporting cast member?  No matter what scale and scope, Spotify hopes that video will serve as some kind of meaningful differentiating and monetizing force that will lead it to profitability, a reality that continues to be far off in the distance as 2017 ended and as it approached its long-trumpeted IPO (although, in fairness, Spotify's executives insist that they can become profitable anytime if they invested less into their business for further innovation and growth ... a la Netflix).  

Stakes are extremely high.  Place your bets on which services have a real chance of winning amidst this all-out premium OTT video war.  Odds are long, and that list of winners will be short.  But, at least these players are taking action.

[For a much deeper dive on these and other OTT video issues -- and delving into the worlds of streaming music, VR, AR, eSports, blockchain and more -- check out my new "Media 2.0 (18): An Insider's Guide to Today's Digital Media World & Where It's Going" that is available now on Amazon in both print and Kindle editions. I also discuss where the world of digital media is going -- and give concrete strategies and actions you can take to help take you to the promised land and be a hero in your own company.]