Broadcasters Caught Between Pay TV and CTV

Connected TV (CTV) manufacturers like Samsung, LG and VIZIO are accelerating the pay TV cord-cutting trend by offering built-in FAST services with their products. 

FAST services offer a linear viewing experience that's similar to traditional pay TV, but with fewer ads (for now) and no monthly subscription fees. By simply connecting a CTV to their home Wi-Fi, consumers can instantly access FAST services like Samsung TV+, WatchFree+ and LG Channels to stream hundreds of channels without ever purchasing a pay TV subscription.

FAST is a relatively new business model that has primarily relied on monetizing niche and nostalgic content (e.g. old movies and game shows, travel and cooking shows, crime drama and reality TV reruns, niche sports, etc.) while live sporting events and local news have been mainstays on pay TV.

But as FAST audiences have grown and cable audiences declined in recent years, some broadcasting networks and ownership groups are making deals with CTV/OEM providers to distribute local channels on FAST services. Samsung TV Plus, for example, now distributes more than 80 local news channels for major broadcasting networks and broadcast station ownership groups.

The availability of local news content on FAST services isn't great news for MVPDs who have relied on local news content as a key differentiator during the rise of OTT streaming. But from the broadcaster's perspective, pay TV viewership is declining and licensing local news channels to growing FAST services means reaching an ever-widening audience and valuable opportunities to build trust with younger viewers.

Although many believe that FAST is poised to be the future of linear television, several broadcasters are realizing that it may be too early (and slightly controversial) to license valuable local news content to FAST services. Licensing to FAST services might provide more viewers, but broadcasters could be harming their relationships with Pay TV operators and their bottom line.

Here's why:

As pay TV subscribers have fallen at a steady pace over the past decade, broadcasters have nevertheless consistently negotiated rate increases for the retransmission of their content. These lucrative retransmission fees are paid by the cable and satellite MVPDs that distribute their programming to customers.

Broadcast retransmission fees oftentimes equate to more than half of broadcasters' annual revenues, and those fees represent substantially more than the share of ad revenue they might receive by way of a FAST-licensing agreement. At the same time, offering local news content for "free" on a FAST service undermines the value of the same content on pay TV, making it more challenging for broadcasters to negotiate retransmission fee increases.

If the MVPDs aren't getting exclusive access to that content -- if it's being offered to audiences for free on a FAST service -- how can broadcasters claim that those channels and the corresponding content are still bringing the same value to the pay TV ecosystem?

And can broadcasters afford to risk losing out on those retransmission fees when they know that ad revenue from FAST services won't make up the shortfall anytime soon?

Another challenge for broadcasters licensing to FAST services has been the complexity and volatility of OTT video licensing agreements. Network finance teams are accustomed to linear TV licensing agreements, where license fees are typically based on the number of monthly subscribers that subscribe to an MVPD's service. Although subscribers may be declining at a steady pace, it is nevertheless a much more predictive and stable revenue stream that flows from the licensee to the content owner. Licensing to OTT streaming platforms brings a new set of challenges for broadcasters, including more agreements to manage, shorter timelines, a lack of reporting standardization across distributor partners, and even complex "role reversal" deals where a broadcaster pays an MVPD for carriage on that distributor's digital platform.

Content owners committed to going digital can deal with the complexity of OTT license management by adopting new technologies to automate license management workflows and manage OTT platform data. Today's AI-powered tools can help content owners normalize OTT data, track distributor compliance with licensing terms, and accurately forecast revenue -- but these tools cannot make up for lost retransmission fees from MVPDs.

If licensing to FAST services is cannibalizing pay TV subscribers and impacting retransmission fee revenue, perhaps the best option for some broadcasters may be to stop licensing to FAST services and team up with MVPDs to keep local news on pay TV and protect their shared interests by preserving valuable pay TV subscribers for as long as possible.

This column was written by Karin Bleiler, Executive Vice President and General Manger of Revenue Solutions atSymphonyAI Media.

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