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TDG: ‘OTT hype is over-the-top’

Despite the recent launch by major broadcasters such as HBO, Showtime, and CBS of their own standalone OTT apps, and speculation that ESPN is about to make such a move, Alan Wolk, Senior Analyst with The Diffusion Group (TDG), has warned that ‘the Great OTT Migration’ isn’t happening just yet.

In a Blog Post, he says there are many reasons most networks will not (and cannot) make the leap to OTT, either now or in the short-term future.

“The first reason has to do with who owns the distribution rights to the network’s programming. In most cases, it is often an outside studio. Take AMC, for example: Lionsgate owns the rights to Mad Men, while Sony owns the rights to Breaking Bad. These sorts of deals are the norm in Hollywood, as the studios develop the shows and incur the costs of winnowing down scripts and creating pilots. And the reason they shoulder this expense? So they can then sell distribution rights to a show once it becomes a legitimate hit, raking in millions upon millions of dollars,” he notes.

“The second reason OTT may not be right for broadcast and cable networks has to do to whom they sell those rights — online distributors like Netflix, Amazon, and Hulu. While these distribution deals can generate a great deal of income, they also limit the amount of content the network has available to populate their own freestanding app,” he advises.

“This is why we’re seeing genre apps like the NBC Comedy app, Shudder (a horror app), and the SundanceNow Doc Club from AMC appear. This is their only programming available for OTT distribution and, as many networks are discovering, it’s not enough to fill up an entire OTT network app,” he observes.

According to Wolk, HBO and Showtime are unique in this regard, as they produce much of their own programming and thus own the rights to it. “CBS is unique among the broadcast networks in that it’s not a part of Team Hulu, and still has rights to most of its programming (or at least the ability to work with the studios to secure those rights). That’s why they were the first networks into the OTT pool, and why the pool is remarkably uncrowded. For now, anyway,” he suggests.

Wolk notes that networks are also starting to rethink their distribution deals with Netflix. “They have come to realise that the streaming behemoth is actually drawing their viewers away from rather than toward live network broadcasts. As the breadth and quality of Netflix’s offerings – both licensed and original – continues to grow, viewers have even more reason to stay in the app. That’s why we predict that more and more networks will choose not to renew their Netflix deals when they expire, understanding that easy money today is not worth the losses they’ll incur down the road,” he says.

Wolk says that in addition to pulling back from Netflix, networks are creating more of their own original programming, while making sure they own the digital distribution rights no matter who makes the shows. “Once their content libraries have reached critical mass – a combination of new shows to which they have rights, and older shows they’ve reclaimed from Netflix – more and more networks will finally be in a position to take the OTT plunge,” he concludes.

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