Confessions of a TV network distribution executive

Does this mean you charge them a higher carriage fee than traditional distributors?
Yes, but it has nothing to do with the fact that they are digital services. It’s scaled economics. If you’re in the packaged goods business and you’re working with Walmart, Walmart’s going to get a better per-unit rate than some mom-and-pop shop in Detroit.

What happens if some of these services get the type of scale in subscribers where they can come back and play hardball in negotiations?
I don’t know if I agree that these services are waiting to get bigger so they can come back and ask for cheaper rates. The truth is, these rate cards are still pretty flat. People seem to think there’s a huge difference between the rate we charge Comcast and the 20 million-plus subscribers it has versus some new entrant with zero subscribers. And rate is just one component of these deals, which can include market penetration commitments, marketing agreements, data and more.

What kind of leverage do distributors — both digital and traditional — have?
If I’m a distributor, I’m constantly saying, “You guys are killing me. You’re raising your rates, but your ratings are going down. And you have all these networks that no one is watching. Why are you requiring me to pay for channels that no one watches?” You see that dynamic playing out right now, and that’s what is going to have to change.

Streaming TV services are referred to as skinny bundles, but many of them aren’t so skinny anymore. YouTube TV alone offers 50-something channels.
I like to call them “athletic bundles.” The problem is that people have a portfolio of networks that they would like to get distribution for and some of the networks within the portfolio have very small audiences. We would like to see the industry move to a place where the networks that aren’t performing are no longer required to be carried.

Do you see the industry going to an à la carte model, or are the bundles here to stay?
The direct-to-consumer business is a tough business. You’ll continue to see a wide variety of package sizes and pricing, and you will see them bundled in interesting ways. The Comcasts of the world — the folks that own the broadband pipes — that side of the business is much more lucrative than the packaged-video side. That’s why you see Comcast integrating Netflix and YouTube and other digital services into their X1 platform because they want to lock the customer into the broadband service and the X1 set-top box. The bundle won’t be just the size of the programming package that people will pay for but also the other things that you can bundle into the service.

What does that mean for digital and traditional TV distributors?
If you’re not part of a big company, you might not be sustainable. Being part of a larger company means there will be a higher tolerance for investment and long-term thinking. If you are Amazon and you know that Amazon Prime members who consume video buy more products, that’s why you’re going to continue investing in video. Same thing with Apple and Google and AT&T. The standalone packaged-video business can do well, but what positive impact can these services have on the broader enterprise?