The so-called “Pay TV” industry was one of the most prosperous in the telecommunications segment at the end of the last century, it grew like foam around the world, seduced millions of people and significantly boosted the phenomenon of cultural globalization. However, by the second decade of the 21st century, this model seems to be running out of steam in an unprecedented crisis that could mark the end of an era.
Why did the Pay TV Industry enter into a deep crisis?
By: Gabriel E. Levy B.
In the same way that we blame Netflix for the sudden end of Blockbuster, we could blame the apparent slow and agonizing end of the Pay TV business. But while Netflix has a lot to do with it and could eventually be considered a trigger, the phenomenon is far more complex and involves a host of adverse variables, which individually would not be enough to undermine such a thriving industry, but which, as a whole, seem to be condemning it to a slow death.
The Streaming Video Phenomenon
At the beginning of the 90s, thinking about mass consumption of video over the Internet, i.e., a sustainable model of BROADBAND, seemed like science fiction. At that time, the Web was exclusively composed of text, photos, audio and occasionally a short video, but the deployment of a complete audiovisual content was simply impossible, video compression was in its infancy and streaming techniques were primitive, but the biggest limitation was the bandwidth of the time, which could hardly transmit smoothly, sequences of frames per second.
Additionally, the possibility of millions of users simultaneously consuming the same video, at that time, required economic investments in infrastructure and technological developments so advanced that it was simply a financial and technological impossibility at that time.
This reality consolidated other forms of video consumption massification, one of them was the Broadcast through private networks, most of them coaxial or HFC, that is to say, the wired Pay TV business was widely consolidated, alternating with Satellite Pay TV.
The entry of the new Millennium brought an exponential growth in Internet bandwidth capacities, both in international data channels via fiber optics, as well as the arrival of Fiber to the Home, allowing the transit of video through the network, a factor that was further enhanced with the so-called CDN, or Datacenters, which, by locally segmenting traffic, made online video viable.
The possibility of a two-way communication in real time, high capacity networks and local servers (CDN), materialized the video on demand and thus the Video on Demand Streaming VOD, even in previously unsuspected qualities (HD and 4 and 8K), creating an experience that transformed the audiovisual industry, which led to the exponential growth of YouTube in free format and paid Netflix. Years later the emergence of Prime Video, Paramount, Disney+ and all the others entered to enrich the market in an explosion and supply of audiovisual content, never seen in the history of mankind.
This model in itself did not represent the end of Pay TV, as it was consolidated as an additional or value-added service, that is, a second and third screen for audiovisual consumption.
The Programmers’ Position
As Video on Demand (VOD) was consolidating, the logical thing in the market was for the content programmers (International Pay Channels) to develop a much more competitive pricing model, in order to strengthen the position of cable operators in the market (they grew thanks to the Cable Operators), However, and on the contrary, programmers either kept their cost schemes or increased their price lists, suffocating their local partners, leaving them at a clear disadvantage in front of OTT platforms and their rich offer of high quality and low cost content.
The current reality is that it is no longer profitable for cable operators to operate Pay TV services in Latin America, as this service is offered in most cases with unviable operating margins.
Additionally, many programmers (Pay TV Channels) decided, as expected, to compete in the Streaming market, launching their own platforms, as it happened in the case of Disney or HBO and the Warner group, with HBO MAX, playing both sides, with the Cable Operators and against the Cable Operators.
Under this scenario, Cable Operators not only began to face unfair and parasitic competition in their networks from OTT Streaming platforms such as Netflix, which distribute their content using the fiber optic and coaxial networks of Pay TV providers without paying a fee, but their natural allies, i.e. programmers, instead of helping them, took it upon themselves to further compromise their economic, operational and financial viability.
As video streaming has consolidated, Internet content piracy has skyrocketed in almost equal proportion, from free movie downloads to platforms that broadcast live TV channels over the Internet at no cost, a whole motley selection of illegal products, putting at risk an entire industry that cannot compete with a subway market of content that does not pay a single cent in royalties, which further aggravates the complex situation of all cable operators.
Excessive Copyright Burden
It is paradoxical that while piracy increases, the burden of copyright compensation increases for legal cable operators that not only must cancel the value of the content to the owners of the programming, but with the passage of time have emerged new mandatory contributions such as collective societies of copyright management, which require the payment of considerations on behalf of composers, musicians, authors of scripts, actors and even directors, generating an economic overload that ends up undermining the viability of the business.
While national, regional and local telecommunications operators must comply with strict legal and regulatory standards, Internet streaming operators enjoy almost total impunity, most Latin American countries have not regulated the operation of online streaming services or digital video on demand, generating an inconvenient asymmetry in the markets, which in addition to being unfair, ends up favoring international players against national providers and industries, in a playing field that although it should be horizontal, it seems to be a steep summit where OTT platforms play downhill and telecommunications providers play uphill.
The icing on the cake is unfair competition from the operators themselves. On the one hand, large international players are trying to maintain monopolistic positions in the market, ranging from cross-subsidies with internet tariffs, to exclusive price agreements with programmers, to government benefits in the exclusive use of infrastructure such as cable and subway networks, threatening free competition and market balance.
On the other side are operators who under-report users or those who simply distribute signals illegally, in violation of intellectual property laws, in the face of the inaction of many governments.
Quitting the Business: The Most Efficient Way Out
Faced with the serious situation, many operators have opted to give up the provision of Pay TV services, and many will do so in the coming years, concentrating on the business of Internet provision, many of them offering plans on streaming platforms, so that they have decided to turn the enemy into an ally, while others are simply letting the user contract the provision of content on their own, while telecommunications companies focus on new services such as home automation, public safety, cloud and cloud services, among others, which are undoubtedly much more profitable.
In conclusion, the phenomenon of video streaming, the unfair position of programming providers, the growth of piracy, the excessive copyright burden, regulatory asymmetry and unfair competition are undermining the Pay TV industry to a point of no return, forcing many operators to give up the provision of Broadcast television services in private networks and limiting themselves to the provision of network services and its derivatives, This could represent in a few years the end of the era of one of the most prosperous businesses that the telecommunications industry has ever witnessed, while the provision of content over the Internet, through Broadband technology, grows like foam, in a segment that is mainly concentrated in large international players, which erodes local industries and puts at risk the cultural identity of our regions.
Disclaimer: This article corresponds to a review and analysis in the context of digital transformation in the information society, and is an opinion article by its author and therefore the information contained herein does not necessarily represent the position of Andinalink.