Monday, June 12, 2017

Pay TV Industry – Beware of the “Seven Ways to Fail Big”

One of the industries that is in the midst of a revolution is the Pay TV industry. The advent of digital content streaming, higher broadband internet speeds and the evolution of digital and non-linear business, have created the conditions for new entrants to disrupt this industry. New entrants as Netflix, Amazon video, Hulu are challenging the status quo and the hesitation of existing player to cannibalize their existing offerings for new digital offerings.

Traditional players have been trying to protect their main source of revenue, affiliate revenue, and trying to protect the relationships with their key clients, the cable operators. For many years, the risk of jeopardizing their main revenue stream made them loose the opportunity to act in the direction the consumer demand is shifting towards. Many programmers were very conservative about launching their own OTT (Over The Top) services and have direct access to the final viewers, as they were afraid of the reaction of cable operators. Lately, we have seen efforts within the Pay TV traditional players to start migrating from linear to digital non-linear motivated specially by the fact that linear TV is not growing as fast as it used to, especially in some markets, like Latin America, where year over year growth experienced in the last decade is showing a big slow down.

On the other hand, content still rules. As mentioned in Gartner’s Hype Cycle for Media and Entertainment in 2013, “Content is King”. Tim Hastings, Netflix’s founder, was also aware of this fact when he expressed to GQ Magazine in February of 2013: “The goal is to become HBO faster than HBO can become us”, a clear indication that Netflix strategic direction was to keep producing content. This is giving content producers big power. In an effort to counter this situation and to increase their negotiating power combined with a stale in their sectors, telecom, satellite and cable providers have started a wave of consolidation and acquisitions. In some cases to increase their subscription base and increase their bargaining power at negotiation tables, and in other cases acquiring content/media companies all together. Comcast acquired NBCUniversal and DreamWorks a few years ago, and AT&T had acquired Direct TV and it is in the process of acquiring media giant Time Warner.

In this context, I believe that the article “Seven Ways to Fail Big” should be a very important reference for those parties making strategic decisions in this industry. As companies make decisions about acquisitions, consolidations, new markets, new lines of revenue, etc., they should be very aware and pay special attention to the seven indicators presented in this article to learn from the past and avoid repeating mistakes.

For example, the “Synergy Mirage” indicator is very relevant in this case. As we mentioned before, many telecom/satellite/cable companies are merging or acquiring companies that offer complementary strengths, as is the case of media companies. As they merge or consider the acquisition, they have to be very aware of cultural differences, among other indicators, that could potentially prevent the combined organization to reap the full benefits and synergies of the merge.

Another powerful indicator is the “Staying the Course” indicator. As we have also mentioned above, many traditional players, had hesitated to make the digital move, and had stayed the course. Some may have consciously made that decision and show profitable results to position themselves as good targets for acquisition. Others may have “Stayed the Course” due to their hesitation and may have lost the opportunity to pioneer in the digital arena. Only time would determine winners and losers.

Finally, I believe that the Coherence Premium article is much related as well. As companies in this industry make strategic decisions, they should consider their capabilities and expand only in the direction most aligned with their capabilities to obtain higher profits in the long run. 

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