Pay-per-view could stick around or go the way of the VHS

In 1985, a Los Angeles Times article explained that U.S. TV providers were planning to compete with “the burgeoning home-video business” that had “savaged” them by launching national pay-per-view (PPV) networks, which the Times explained was a “relatively new technology” allowing viewers to order programs much in the same way as “they buy movie theater tickets--or as they rent videocassettes.” Pay-per-view has continued chugging along in the three decades since, even as audiences moved from VCRs to DVDs to on-demand services like iTunes and Netflix. Consumers’ growing taste for accessing the specific TV content they want exactly when they want has led the industry to fight back with on-demand services of their own, from bigger video-on-demand libraries to TV everywhere services. So what happens to the original on-demand TV service in the streaming age? According to Alan Breznick, a media, telecom and technology analyst at research group Heavy Reading, it could become a relic in the next few years. “I think pay-per-view is definitely winding down,” he said. “It’s past its peak, its prime time, because there are other ways for people to get the content they want, faster, more effective ways and get a wider variety of things.” In Canada PPV doesn’t bring in as much money as it used to. Revenues for pay-per-view services declined 13.9 per cent in 2013, the Wire Report reported in April, following declines of around 10 per cent in the previous two years. In an interview at the time, independent broadcast consultant Kelly Lynne Ashton said that a likely explanation for the drop in revenues is “consumer behaviour turning more toward . It is cheaper and easier to get content from Netflix than it is from on demand.” In early July, BCE Inc. and Rogers Communications Inc. said they would be shutting down their jointly-owned pay-per-view service, Viewer’s Choice Canada, by Sept. 30 of this year. In the press release, the companies pointed to the fact that they both operate their own pay-per-view services as a reason for the shut-down. Following the announcement, Quebecor Inc. subsidiary Videotron applied to the CRTC to amend its French PPV service to allow it to, as the CRTC said in an Aug. 4 letter, “fill the gap left by the withdrawal of Viewer’s Choice Canada.” A couple of weeks earlier, the CRTC had approved a licence application by Telus Corp. to operate a pay-per-view service. So it’s not as though the TV industry is uniformly turning away from pay-per-view, which continues to be a profitable service: PPV pre-tax profits increased from almost $8.4 million in 2012 to $10.6 million in 2013 even as revenues dropped, according to the CRTC’s numbers. Breznick said pay-per-view services could avoid going obsolete by reinventing themselves. “I’m not sure it’s worth it, but they would have to improve the interface and accelerate the speed at which the transaction happens,” he said. “And they’d have to find some way to match the content offerings, to match the libraries, that are now available online.” He said one reason that the services continue to make a profit is by offering content viewers can’t get anywhere else, such as Ultimate Fighting Championship fights or professional wrestling events. On July 31, Rogers announced that it has signed a 10-year broadcast deal with wrestling promoter and entertainment company WWE that will make Rogers the exclusive distributor for the company’s pay-per-view events, in addition to a new all-WWE premium channel. “I guess that’s another way for them to compete, is to still have unique content and specialized content and be able to offer live events you can’t get anywhere else,” Breznick said. “But I suspect that distribution system is going to change and the kinds of things that are unique to pay-per-view will not stay unique to pay-per-view.” Brian Schecter, a media consultant with Puddle Duck Productions in Vancouver, agreed in an interview that “the traditional model is probably on its way out.” ”iTunes and other kinds of services like that have probably eclipsed the traditional pay-per-view offering, probably with the sole exception of live premium sports programming,” he said. He noted that even those offering that content, such as boxing or WWE, “are also probably looking at that model very carefully, as to how they can adapt to the realities of the technologies that are present in the marketplace,” including finding other ways to distribute content. Schecter said these changes could occur in the next couple of years. “The concept of pay-per-view, I think certainly in the sports area, is sort of long past the due date,” Shecter said. While it was dominant in the 1990s, “as teams looked to reach more and more consumers and drive more and more profits for their product, it sort of went by the wayside,” he noted, adding that at one time, a number of NBA teams had “sizeable pay-pay-view offerings … and one by one they all dropped it.” Breznick said content owners such as the UFC could start offering the content themselves online, or could make other partnerships. When it comes to movies, he said he expects “the studios and distributors are going to be under pressure to change the way the distribution windows work.” Under the current system, there are many levels of distribution windows, under which movies are available through different options, such as DVD or premium movie channels, at different times. “And it’s getting more and more complicated. There’s going to be pressure to simplify things and get rid of a couple of the windows,” Breznick added. A possible example of that simplification is a deal announced July 17 between Netflix and Walt Disney Co., which means that the steaming service in Canada will get access to Disney films during what would normally have been the distribution window for premium movie channels. Breznick said the studios could go directly to the consumer. “Somebody is going to try and go around the distributors at some point if they feel they can make more money … directly,” he said. “I think the old, third-party distribution system could very well break down.” U.S.-based SNL Kagan analyst Deana Myers, who covers television including VOD and PPV, said in a phone interview the reason pay-per-view is still holding on in the United States has to do with the demise of video-rental stores like Blockbuster. “It’s easier, if you have a set top box, to through the set-top box,” she said. “A lot of households still don’t have a separate connected device that connects their TV to the Internet, so they can’t easily watch that way.” Pricing for new movies on PPV is similar to that available on online on-demand services and people still prefer watching movies on a big TV set as opposed to a smaller screen, Myers added. She said the VOD and PPV market in the U.S. is growing, though it’s a pretty flat growth, with the revenues for the entire market sitting at $3.7 billion in 2008 and $4.06 billion in 2013. “There was one year that it went down and then came back up during that period. So it’s definitely not super-quick growth but not a real decline either,” she said. Between 2012 and 2014, revenues for the event category increased 4.1 per cent, movies were up 5.4 per cent, while adult content was down 12.6 per cent. In the same period the entire market was up 1.6 per cent, Myers said. “So adult’s dragging a lot of it down,” she added. Myers expects to see the adult category to continue falling, and the event and movie categories to grow slightly. “We don’t see any real category getting double-digit growth, but low to mid-single digit growth over the next two years is what we’re thinking for both PPV event and movies,” Myers said. “As long as you can continue to give the audience what they want in terms of how to deliver it and pricing and all that, that’s why I think operators will continue to be able to capture that VOD /PPV market.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Peter Henderson at phenderson@thewirereport.ca

Pay-per-view could stick around or go the way of the VHS

Broadcast | August 8, 2014

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