HBO and CBS’s Move to Internet Subscriptions Spawns Fear of “Fragmentation” in Online Video Market

Is today’s cable subscription model about to break? Will cable companies find cord cutters destroying their lucrative model—the one where you pay for 100 channels and watch only 10? The company Piksel says yes—maybe, but the giant content holders have to be careful.

The recent moves by HBO and CBS to offer subscription versions of their service over the Internet has huge implications for the television industry. It’s a risky move that could be the beginning of the end for cable and broadcast television services, or it could boomerang and make each of the existing services even stronger.

“While it’s great we now have the momentum in the space that HBO and CBS’s move is providing, we have to be very, very careful about how these various types of services roll out. We don’t want to fragment the market and we don’t want users to pay as much if not more for them than they are paying for their cable service,” said Miles Weaver, lead strategist for the innovation group at Piksel, an integrated global business dedicated to helping clients maximize reach and return with video.

Miles Weaver, Piksel lead strategist

Piksel lead strategist Miles Weaver warns companies wanting to DIY their OTT to be careful.

Piksel, though only a year old, was formed by experienced executives from several other companies with a total 16 years’ experience in delivering video solutions. So far, the company has helped design, build and manage online video services for major media companies like AT&T, BSkyB, Celcom, Mediaset, Sky Deutschland and Televisa, as well as brands like Airbus, Barnes & Noble and Volkswagen. Headquartered in New York City, Piksel has offices located throughout Europe and the Americas, serving more than 1,600 clients in over 50 countries.

So far, the rollout of new high-profile online services have been slow to come. But what happens when so many new services are available by subscription that the cumulative prices begin to approach the cost of cable? This situation worries Weaver.

“If you look at the way most cable networks are set up at the moment, most people access between eight and 10 channels on a regular basis. The other channels are mostly ignored. For that you pay fifty or more dollars per month to get all those non-watched channels,” he said. “What you will see with this OTT movement is that while the price per month might be lower for the channels you want to see, the costs will add up. There is a risk of fragmentation of content in the market. Users could say I’m paying for Netflix, HBO, Hulu and several others. At some point they might just decide it’s easier to stick with their cable provider.”

While Weaver said the moves by HBO and CBS are good signals for the video industry, the transitions must be done with care. Companies like Piksel, he said, were set up to help companies intelligently move their services to a new medium. While these companies know their markets, he said, moving into OTT — the acronym that means “over-the-top” to signify television delivered over the Internet — can be a different animal with a new set of risks.

One major danger Weaver already sees is the intention of CBS to run commercials on its subscription-based service. “CBS is double dipping and that’s a danger area,” he said. “One thing we try to offer clients is some advice and counsel on how to approach this. It’s all about user engagement. Users are only going to put their money down for the service if they think that the content fits their interest.”

The typical HBO diehard is different from your typical CBS diehard, Weaver said. “Offering a single sort of platform for both those entities is the wrong way to do it,” he said.

As OTT gears up, so are expert companies like Piksel, who can offer the advice of long time experience. Its major competitors are The Platform for OTT, while Brightcove competes for the video player space. But a major “competitor” for these new companies is the tendency of clients who want to do it all themselves without outside help.

“We are always fighting against ‘why don’t we do this ourselves?” That question is always asked by large content-owning companies that have the resources to build the whole thing in-house. That has become a major competitor of ours,” said Weaver.

“If you’re an HBO and you can build it all yourself and you own all the IT and the rights to it all, there is a great attraction in that. Without wanting to step on the toes of these companies, there is the element of ‘we know our market’ — which is certainly true — but your market might be different in the OTT market. There’s an element of arrogance and an element of them just wanting to keep everything in house and have their content and everything controlled by themselves.”

In order to offer companies the services to speed up their move to OTT, Piksel offers its Piksel Palette, a services-oriented architecture (SOA) for fast delivery of SaaS-based video applications. From ingest to play-out, the palette is a series of pre-built modules with standard APIs for integration with leading third-party vendors and popular applications.

Piksel uses modules, shown here is the Pallet, to create entire structures.

Piksel uses various modules, which can be easily interconnected creating a custom solution to any content owner's needs.

These modules include elements like discovery, personalization, social interactivity and unified player applications; as well as core back-end solutions for content management and delivery to connected devices, cloud encoding, digital rights management, user analytics and managed services.

For companies with all their content ready to go, Piksel can stitch the appropriate pre-built modules together and take a client online in as little as six months at a very competitive price. Such speed is important when a trend is taking off, such as video on the Internet.

“For the potential of this business, we are now sort of at the top of the mountain. And we are about to head downward and pick up a lot of steam. HBO and CBS announcing their OTT services might just cause a big global move now by networks who own their own content to move into the space,” said Weaver.

“The big challenge is educating these companies about the dangers of the challenges they face ahead.”

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