Hollywood studios could reach UK consumers direct

Hollywood studios could go direct to UK consumers with over-the-top services, effectively cutting out existing distributors, new research predicts.

IHS Electronics & Media says that studios could generate more revenue from distribution agreements with OTT services with as few as 1.35m subscribers, with premium service HBO in particular well-placed to earn more from UK rights agreements with as few as 500,000 direct customers, charging subscribers £5 a month. This would cut out the middlemen pay-TV providers as well as existing OTT services like Netflix.

IHS says Hollywood studios currently earn about £1.4 billion from rights and carriage agreements for movie content in the UK market.

The figure of 1.35m subscribers assumes the studios could earn the same monthly average revenue per user generated by UK market leader Sky today. But IHS admits the studios would be unlikely to earn the same subscription revenues with any direct-to-consumer offerings that lacked Sky’s sports content. It says that more realistic subscriber target to recoup the money lost from rights deals would be between 2.7m and 4.3m.

IHS says the picture is more complex for studios with channel portfolios of their own, such as Discovery, Disney and Viacom, which generate carriage fees per customer as well as rights deals. Taking into account the value of carriage fees, IHS says studios and other content owners would need to gain between 2.8m and 8.9m customers to maintain current income, depending on the price charged.

IHS also admits that the infrastructure to enable a viable direct-to-consumer model does not yet exist, because no platform exists that could feasibly generate sufficient subscriber take-up to compensate for the loss of revenue from existing agreements.

But it believes that HBO – a strong brand without its own existing channels in the UK – could act as a catalyst for change.

IHS Electronics & Media director of TV Guy Bisson said: “We believe HBO, which has already explored direct-to-consumer OTT propositions in international markets like Sweden, could develop a direct-to-consumer proposition in the UK that would sustain its current revenues with as few as half a million customers if it was able to charge £5 a month. Taking such a leap of faith would lay the ground work for others to follow.”

He added that newer OTT services like Netflix did not represent a potential sea change in the TV value chain because they replicated existing aggregation models between producers and existing pay-TV providers. Under any direct-to-consumer model, players like Netflix would also be at risk.

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