Business Strategy

Entertainment Unbundled: Networks Reinvent the Viewer Experience

Presented by Columbia Business School

entertainment unbundled

With consumers becoming increasingly untethered from their cable providers, networks reinvent the viewer experience.

In March 1946, when the New York Times called television “a lusty infant now struggling to take its place among the arts and sciences,” it could never have imagined the ways in which people would, just decades later, consume this new medium: on laptops, tablets, and smartphones; on trains, in coffee shops — even walking down the street. Digital technology has brought sweeping changes to the when, where, and how of watching TV, which in turn has given rise to an abundance of content.

The last 10 years have seen the proliferation of media companies producing content for consumption both inside and outside the traditional cable-provider model. Viewers now have more choices to make — and can select from among higher-quality content — than ever before. But with these drastic changes come new challenges for content creators and traditional media companies alike, all of whom are grappling with how to set themselves apart in an ever-expanding sea of competition.

“This is the best time in history for TV viewers,” says CJ Fahey ’11, senior vice president of Viceland, a lifestyle-oriented documentary and reality channel that Vice Media launched in February 2016 and that is aimed at those born between the early 1980s and the early 2000s — known as millennials. “What’s out there is really unbelievable. People are not starved for content. It means that as a TV channel, you need to have something unique to say. You need a reason to exist. You have to offer something that can not only survive, but succeed in the market.”

Giving the People What They Want

For something to succeed, viewers need to be able to watch it on their own terms — not only at 8 p.m. but also at 4 in the morning. They need to be able to skip week-by-week appointment TV and binge-watch a show on their iPads. “Consumers want more for less and want it now,” says Jonathan Knee, professor of professional practice and co-director of the School’s Media and Technology Program. “The standard [cable] ‘bundle’ hasn’t changed in a very long time. Now, the flexibility that technology has provided allows entrepreneurs and creative people to construct new bundles that are more responsive to consumers. There is an opportunity — and Netflix was just the first of what are now many to demonstrate this — to test what consumers really want.”

With so much content and so many ways to watch it, the TV industry has seen a nearly 400 percent increase in original series failure rates. At the turn of the century, nine out of every 10 TV series would return the following year. Today, only five will.By offering streaming service beginning in 2007 and releasing entire seasons at once, Netflix was the first to feed viewers’ previously untapped desire to watch their favorite shows in uninterrupted, hours-long benders. Like so many new digital providers, Netflix does it all. The company not only provides access to movies and shows created by traditional studios and channels, but also increasingly produces original content. In doing so, Netflix is a prime example of the blurring lines between those that have direct relationships with consumers — cable and satellite companies that act as distributors of content in the form of bundles — and those that aggregate or actually create content.

What exactly is a bundle? Knee says there are several types, often confused. The basic package of channels that cable companies provide to subscribers is the bundle most consumers think of first. The distributors are just reselling channels that the large entertainment conglomerates, such as 21st Century Fox, sell to the cable companies in bunches; they insist that all of their channels be included in what operators offer. “That still constitutes the vast majority of the profits for old-fashioned media conglomerates,” Knee says. But while profitable for both conglomerates and cable companies, bundling forces consumers to pay for scores of channels they don’t watch when all they really want to see, for example, is Chopped on the Food Network.

Another type refers to the various entertainment content presented under the banner of one channel or brand; for instance, AMC’s or TNT’s lineup of shows is its respective bundle. These are typically a mix of original and purchased content. All forms of bundling are under stress for various reasons — and to the detriment of the old players. Pew Research Center data suggests that as of 2015, 15 percent of Americans had cut their cable service, while another 9 percent had never had a cable or satellite subscription, whether by choice or due to lack of access — meaning nearly a quarter of Americans currently have no traditional cable connection. The cord cutters overwhelmingly cited cheaper access to content via digital providers such as Netflix, Hulu, or Amazon Prime as the primary reason for forgoing a cable or satellite subscription. The preference is further defined by generation, with young adults in the 18- to 29-year-old demographic the most likely to be entertainment free agents.

The number of households that once had cable or satellite TV and decided to cut the cord is expected to jump by almost 13 percent in 2016.“The implications of this [change] are bad for the incumbent aggregators and distributors who benefited from the previous organization of the entertainment ecosystem,” Knee says. “But they are very good for consumers, who have the opportunity to consume in different ways and at different price points than they used to.” In other words, consumers are no longer beholden to the cable company’s predetermined package of products. They can spend as much or as little as they choose and only pay for exactly what they want, downloading or streaming anything from a single episode to the entire season of their favorite shows.

Upping the Quality of Content

Delivering consumers their hearts’ desires is driving innovation by creators, according to Nora Ryan ’81, executive vice president and chief of staff for Epix network and a 35-year TV-industry veteran. “We’re in a new golden age of television,” Ryan says. “Whether you’re cable, satellite, or a new digital provider, there’s no reason why you can’t be playing the game. You’ve just got to be smart, adaptable, and able to give consumers what they want: great programming that is available to them whenever, however they want it.” Ryan points to the plethora of high-quality shows that have risen from the injection of competition in the field, such as Netflix’s most-watched original series Orange Is the New Black, which in 2014 was among the first non-network series to win Emmy Awards, and Amazon’s critically acclaimed Transparent, which is credited with helping to make transgender rights a mainstream social issue.

In 2016, for the first time ever, streaming-video services were in half of all US TV households in the first quarter, matching the DVR's penetration. Netflix says it will produce 600 hours of original television and spend $5 billion on programming and acquisitions. HBO plans to match Netlflix's output by upping its original content by 50 percent.Fahey agrees that audiences are demanding higher-quality content — and also believes that millennials’ viewing habits are different from those of their Generation X and baby boomer counterparts. With Oscar-winning director Spike Jonze as co-president, Viceland offers content geared specifically toward millennials. States of Undress, for example, focuses on fashion in places typically ignored by the fashion world, such as Pakistan or Venezuela. Viceland’s Gaycation, recently nominated for an Emmy, features actress Ellen Page exploring LGBTQ cultures in locations like Brazil and Japan. Viceland is available as a cable channel and also offers its content to cable subscribers on its website and multiplatform apps.

But another content creator, Jon Steinberg ’03, is skipping the traditional cable model entirely. The former president and COO of BuzzFeed, which attracts more than 7 billion views each month, and former CEO of the Daily Mail’s North American operations, has crossed into video content with Cheddar. Launched in May, Cheddar is a live and on-demand video news network broadcast daily from the floor of the New York Stock Exchange, featuring CEO and startup-founder interviews, as well as technology, fashion, and media coverage, all targeted toward twenty- and thirtysomethings.

The content is available on Cheddar’s website for a monthly fee of $6.99 and via video sites like Facebook Live, Amazon Video, and Vimeo. The live aspect, in particular, sets Cheddar apart from a lot of other digital media.

“People are going to continue to put TVs on their walls, even if they are connected to Apple TV or Roku boxes, and they’re going to need ambient background content that acts as a window on the world,” Steinberg says. “For people in their 20s and 30s today, tech news is just news. Amazon, Netflix, Google, Facebook — it’s the most exciting stuff going on during any given day. So live news seemed like the place to start.”

Reinventing the Viewing Experience

But Steinberg believes that providing users with a seamless experience is just as important as delivering quality content. And obviously viewers are willing to pay. “Could you imagine if Apple sold you what your cable company sells you?” Steinberg says. “You can’t get the on-demand programming when you want; half the time it doesn’t work. The box continually needs to be reset. It’s difficult to navigate. But people still pay $100 a month for cable. It’s the product that’s the problem. Not the cost.”

Nearly 30 percent of TV viewing in the US is done via digital streaming.For the existing media conglomerates, though, moving from their traditional profit model—which includes traditional advertising—presents a major challenge in adapting to the digital environment. Enter Dan Riess ’01, executive vice president of content partnerships and co-head of Turner Ignite, a Spectrum company that manages a portfolio of more than 100 brands and content in 200 countries, including popular cable channels Adult Swim, CNN, NBA TV, and TNT, and multiple digital properties. Riess is responsible for creating advertisements that are anything but the traditional 30-second commercial, like product placements and other alternatives.

One of Riess’s latest projects is the TBS slapstick cop show Angie Tribeca, starring Rashida Jones, a show best described as a TV version of the late-’80s Naked Gun movies. To attract attention — and in a nod to Netflix and the audience appetite for binge-watching — Turner presented the entire first season in a 25-hour, commercial-free marathon, integrating advertisers through short, branded-content interludes — like mini-scenes that might appear in the show — that aired between episodes and featured the show’s cast members. “The zany way that we did the marathon combined with the funny, zany content attracted a lot of buzz and got the show noticed by advertisers and viewers in a way a traditional launch wouldn’t have,” Riess says. “The show got so much attention that we green-lit season two the day that season one aired.”

Riess also points to Turner’s multiplatform approach to college basketball’s March Madness as a prime example of the personalized options now available to viewers. Live sports have long been an anchor keeping fans locked into cable. Prior to 2010, the CBS network owned the rights to the NCAA tournament and handpicked which games would air, leaving many fans unable to watch their favorite teams. Today, every game can be found online, streaming through a Turner subscription service called March Madness Live, while social media provides up-to-the-minute updates. “It’s a great example of personalization and convergence,” Riess says. “But the important thing is that for consumers now, it’s all the same. They don’t care what platform it’s on. They care that they can get the content that matters to them.”

Digital Killed the Analog Star

For Epix’s Nora Ryan, the volatile nature of today’s TV landscape is déjà vu. Ryan effectively grew up with the cable industry, nabbing her first job out of business school at the CBS network as it launched CBS Cable, an arts channel in the then-new cable ecosystem. “In those early days, new channels were coming and disappearing constantly,” Ryan says. “You had to be comfortable with the turbulence of an emerging industry. That’s a fabulous opportunity, because as things change, you can evolve.”

Streaming video is more popular than live TV among 19- to 32-year-olds.And evolve she did. Ryan quickly moved up the ranks in marketing and landed at the premium channel Showtime, where she spent more than a decade in charge of marketing and business development and helped create Showtime On Demand, a foreign concept when she began researching the idea in the early 1990s. (The service launched in 2002.) She then headed a joint venture with Robert Redford and his Sundance Institute to launch the Sundance Channel, which offered viewers critically acclaimed films and series first on satellite, then on cable. Next, Ryan served as general manager of Fuse/MuchMusic USA and VOOM HD, developing a suite of 21 high-definition channels across a broad spectrum of genres and audiences. She joined the new premium channel Epix as it launched in 2009.

Ryan sees many of today’s digital options as simply the next phase in TV evolution, and recognizes in the current upheaval many parallels with cable’s early years.

“Originally, TV was all about broadcast networks. Then cable came along, introducing new channels serving a wide spectrum of audiences. Then satellite appeared and made the picture better, and everybody had to compete. Then the telephone companies got into the game, and now we have Verizon and AT&T, and they’ve done a better job with on-demand offerings,” Ryan says. “Now, we’re watching shows on our big TV sets, our iPads, our phones. We use a Roku or a game console to access a broader mix of offerings. But it’s just an evolution of the same industry.”

And fresh entrants to the business may find that, despite the current upheaval, what consumers want most is as old as television itself. “At the end of the day, people want to be entertained,” Ryan says. “It’s the same thing viewers wanted when every household was watching I Love Lucy. They want to watch something that engages them and captures their imagination. Now more than ever, we’re in a position to give them that.”

1. “The Digital Future of TV Networks & the Original Series Crunch.” REDEF, Feb. 5, 2015.
2. “TV Share of Clock.” GFK MRI, Aug. 7, 2015.
3. “Digital Democracy Survey.” Deloitte Development, 2016.
4. “Americans Cutting the Cable TV Cord at Increasing Pace.” eMarketer, Dec. 10, 2015.
5. “Total Audience Report.” The Nielsen Company, June 2016.
6. “HBO plans to match Netflix’s 600 hours of original programming.” MarketWatch, March 8, 2016.

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