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1、How legacy media and telecom companies can thrive in the new era of content consumptionNavigating the decline of linear TV2Navigating the decline of linear TVRemember the days of accessing your content through one main source and one main screen?Todays content consumption landscape offers unpreceden

2、ted choice,but that choice often comes at a cost to the consumer.As platforms proliferate,so do the number of subscriptions needed to access premium content.Consumers are frustrated with high prices,content search functionality and the sheer number of streaming platforms saturating the market.This i

3、s pushing media and telecommunications companies to focus more on business model reinvention as they rethink their strategies,look for operational efficiencies and differentiate their offerings to help reduce churn and drive growth.Form strategic partnershipsImprove costs Devise new revenue strategi

4、esCharting new roles for legacy media and legacy pay-TV providersSee our recommendations for business model reinvention to help manage down the legacy business as you forge a new role in the value chain.3Navigating the decline of linear TVTraditional pay-TV providers are struggling In a recent Forbe

5、s Home survey,86%of respondents said theyre paying for two or more monthly streaming subscriptions,and many consumers have as many as eight.While streaming platforms like Netflix and Amazon attract viewers with binge-watching models that pose a threat to the economic model of linear TV,the cost of m

6、ultiple subscriptions can easily eclipse the cost of an average cable package.Traditional pay-TV providers are witnessing a decline in subscribers.For the first time,the linear(broadcast+cable)share of total TV viewing has dipped below 50%.But overall video content consumption continues to grow.Gen

7、Z in particular is changing the way consumers watch video content 85%of them use their mobile device while theyre watching TV.And when they consume video on mobile,its often on user-generated content(UGC)platforms such as YouTube,TikTok and Instagram Reels.This trend hasnt gone unnoticed by some str

8、eaming service providers that release promotional clips of their shows or movies via platforms like TikTok.Due to their low variable-cost structure,UGC platforms inherent business models have a competitive cost advantage compared to those of traditional pay-TV providers.At the highest level,UGC requ

9、ires low-to-no variable costs to create and share with an audience.Once a UGC platform becomes established,its fixed costs to service the platform are relatively flat.As a UGC platform reaches scale,they see a dramatic rise in advertising revenue without a similar rise in variable costs,which boosts

10、 profitability.Meanwhile,traditional pay-TV providers have to pay to create,license or host content,which might increase advertising revenue but it also increases their variable operating costs.And if the content doesnt perform as expected,it has the potential to decrease profitability as well.Decli

11、ning revenue for traditional TVSource:Global Entertainment,Media&Telecommunications Outlook 2023-202710015012517520272026202520242023202220212020201920184Navigating the decline of linear TVThe coming pay-TV cliffThe live pay-TV market mostly traditional multichannel video programming distributors(MV

12、PDs)like Comcast and Charter faced a new low subscription rate in the second quarter of 2023.The decline in the number of subscribers is expected to accelerate,with subscription revenue projected to fall by around$15 billion annually by 2027.We expect a revenue tipping point or cliff in the near fut

13、ure,with several potential triggers.1“How to watch Lionel Messi vs Cristiano Ronaldo:Inter Miami vs Al-Nassr stream and time.”Mirror January 31,2024.The renegotiation of key sports rights The migration of sports to over the top(OTT)platforms may help accelerate the decline in linear TV.While linear

14、players are still willing to shell out hefty fees to entities like the NFL,so are OTT platforms Netflix just made a 10-year deal to secure WWEs“Monday Night Raw”for more than$5 billion.And Peacock recently secured the first-ever exclusive streaming of an NFL playoff and they added 2.8 million subscr

15、ibers in the lead-up to the live stream of the game,which is a little over 9%of their reported total of 31 million subscribers.The race is on to pursue and secure sports rights,reduce churn and encourage platform stickiness year-round.ESPN,Warner Bros.Discovery and Fox are also getting in on the str

16、eaming game and recently announced plans for a sports-focused streaming service.While further details are still forthcoming,these types of partnerships and alignments are consistent with our US Deals 2024 Outlook.As live sports play a crucial role in retaining linear subscribers,any shift of media r

17、ights to streaming platforms could contribute to loss of linear viewership.TV networks also face escalating costs and fierce rights competition from big tech companies.Fixed costs for rights are overwhelming a shrinking subscriber base broadcast retransmission costs are ten times what they were ten

18、years ago(S&P Capital IQ,2024).Large tech platforms like Apple,Amazon and YouTube are feeding demand,and theyre better equipped to play the long game.Amazon enjoyed a second season of Thursday Night Football on Prime Video as part of its 11-year$1 billion per season deal,and it has plans to stream N

19、ational Womens Soccer in the spring of 2024 and Nascar in 2025.Additionally,Apple capitalized on the Messi effect with a documentary and its MLS Season Pass.1 5Navigating the decline of linear TVFailed retransmission negotiations If MVPDs and stations cant reach retransmission agreements at sustaina

20、ble terms,linear TV packages may not be able to access enough content to make their subscription prices worth it for customers even after discounts are offered to reduce churn.The potential friction these disputes could cause may be the last straw for remaining customers,and legacy cable companies a

21、rent motivated to seek a remedy given increased costs to serve.Cost to serveThe expenses associated with serving linear TV customers are escalating due to several key factors.First,programming costs are on the rise,but MVPDs are finding it challenging to transfer these costs entirely to their custom

22、ers due to constraints on how much they can increase rates and difficulties in reaching minimum subscriber thresholds.Additionally,video takes up a large part of their overhead expenses.However,as the video customer base continues to shrink rapidly,these cost allocations are becoming increasingly di

23、sproportionate.If the costs of serving linear TV customers cant be managed to align with revenue decline,then the business will not only be harder to sunset gradually it will no longer be profitable and they may elect to stem the bleeding especially as this continues to become an increased distracti

24、on to management teams.6Navigating the decline of linear TVOTT bundlingThe first“mega”OTT bundle that combines enough platforms at an attractive price point could spark an accelerated subscriber exodus from linear plans.This trend is already on the rise,with telecom providers like Verizon offering b

25、undles that combine Disney+with ad-supported tiers of Max,Netflix,Hulu and ESPN+.Some internet providers offer YouTubeTV bundles and YouTube TV itself offers over 100 live channels and NFL exclusives.Even more deals are in the works,and this trend is also taking off abroad.In India,for example,OTT p

26、lay has partnered with telecom and TV companies to offer direct to consumer(DTC)bundles with mix and match subscriptions at a price far below the cost of purchasing each individual subscription from the same services.Charting new roles for your companyWith the end of linear TV on the horizon,legacy

27、media and telecom companies should devise multiyear strategies to anticipate declines in linear revenue,identify areas of growth to offset the decline and establish long-term viability,add services for customers to increase stickiness and stem customer loss,and consider an intricate business model r

28、einvention to help manage down the legacy business while charting a new role in the value chain.Here are some possible ways to chart that new role:7Navigating the decline of linear TVTake cues from other successful players,including getting more creative with pricing.Consider expanding ad revenue po

29、ssibilities from promotions tucked within the most binge-worthy content available in advertising-based video on demand(AVOD)tiers,or even dynamic ad insertion capabilities.These moves could prove lucrative given that the AVOD market is forecast to have a value of$59 billion by 2027.Or take the colla

30、borative approach and build a flywheel that evolves into a home platform from which customers can access content and services across a broader ecosystem that can include video,music and even gaming and e-commerce.This can strengthen engagement and keep churn at bay.New revenue strategiesRecommendati

31、ons for legacy media companies.Diversify revenue sources by exploring additional revenue streams beyond direct monetization of content,such as merchandising,theme parks and even services.Parks or attractions in particular can add new dimensions of engagement and merchandising and cement the legacy o

32、f IP.Adding additional services could reduce attrition and make bundles even stickier with customers.Focus on untapped sports markets and consider featuring youth and womens sports as tier 1 pro and college sports become increasingly expensive.Prioritize the licensing of additional content.As ad-sup

33、ported tiers and free ad-supported TV(FAST)platforms gain popularity,having a vast library of content becomes more valuable.Additionally,consider expansion into non-English programming.Experiment with pricing solutions given low switching costs,consumer churn can be rampant as viewers flock to the n

34、ext big show.Possible pricing changes may be compelling to keep users on the system(e.g.,quarterly pricing declines based on tenure).8Navigating the decline of linear TVRecommendations for legacy pay-TV providers .Diversify revenue streams that embrace alternative methods of driving video revenue su

35、ch as joint ventures for set-top-box development and renegotiating distribution agreements for OTT offerings.Consider leveraging existing brand power and collaborate with a cable company in order to serve as a mobile virtual network operator(MVNO).Become an as-a-service provider and offer service au

36、gmentation to OTT providers for existing capabilities,such as ad sales and network infrastructure delivery.This could act as a value-add and create new revenue streams from ad inventory sales(e.g.,from FAST channels).Develop new end customer software or hardware devices or partner with vendors that

37、integrate pay-TV and streaming experiences or serve as an add-on for broadband customers(think Xumo)can help create stickier broadband offerings,offer control over usage data while also staying in familiar business model territory.With the ongoing trend of cord cutting and the increasing availabilit

38、y of alternative options and pricing choices,streaming providers may start to actively pursue strategic partnerships.These partnerships would ideally involve subscriber bases that complement each other,valuable intellectual property,and a shared vision and strategy for attracting new subscribers.Tra

39、ditional providers may also unlock inorganic growth through partnerships and deal-making,including niche tech areas like extended reality,Internet of Things and machine learning.Bundling should also be on the table.Consumers look for simplicity.Remember that one service and one screen we all used to

40、 have?Working directly with content owners to bundle streaming services and sell to customers at a single fee could leverage existing content owner relationships and renormalize annual contract negotiations.Strategic partnerships 9Navigating the decline of linear TVRecommendations for legacy media c

41、ompanies.Collaborate and/or consolidate with other players to compete on content:Partnering with other players expands your content offerings and potential audiences.Consumers want convenience,and that includes access to multiple services through one entry point.People are frustrated with fragmentat

42、ion and endless searching for their favorite shows.Look to become an aggregator that develops symbiotic relationships with former competitors.With UGC content engagement on the rise,consider investing in the creator economy.Recommendations for legacy pay-TV providers .Forge strategic partnerships ar

43、ound video:Leverage unique access to customer insights and explore partnerships and innovative business models with tech giants like Apple,Google and Amazon potentially unlocking significant revenue opportunities and access to new markets and technologies.Position your organization as an independent

44、 conduit that delivers consolidated streaming services to existing customers and helps reduce churn.As the future of TV unfolds,traditional models are being disrupted.Legacy media companies should focus on quality over quantity.Telecommunication companies should carefully examine forecasted revenues

45、 and look to continue to take significant cost out of their operating models.Its time to get proactive about managing down costs to keep pace with revenues to avoid negative margins,margin compression and adverse allocations to the broadband business.Improve costs10Navigating the decline of linear T

46、VRecommendations for legacy media companies.Focus on trimming content spend to focus on higher ROI projects,rein in production budgets and put more governance around who gets greenlighting power.Look for innovative ways to offset increasing content costs include vertical integration and/or strategic

47、 partnerships,enhancing post-production vendor portfolios and capitalizing on low-cost providers in developing hubs.Leverage technology to help reduce costs,enable faster decision-making and time-to-market for content.Consider tech-enabled solutions like cloud-based collaboration tools and cloud cap

48、abilities that can help reduce overspend.Stay abreast of emerging technology advancements that may help with workflow simplification,distribution analytics that can help streamline bandwidth usage and enhance content delivery,and predictive analytics that can help vet projects in pre-production that

49、 show higher ROI promise.11Navigating the decline of linear TVRecommendations for legacy pay-TV providers.Improve cost structures to free up resources for investment in new technologies and services.Negotiate with the highest value network partners to offer“skinny”a la carte bundles at lower price p

50、oints.Reengineer cost structures to align with new revenue models and explore innovative ways to generate income,considering the interconnected nature of various cost factors,including:General and administrative expenses and infrastructure allocations.Block costs,such as field and customer service,r

51、esearch and development,and manufacturing and warehousing.Fixed overhead costs related to video-specific network infrastructure and retransmission.These“ways to play”come with risks and may require substantial capability expansion and/or reengineering to reinvent a new business model.They also conte

52、mplate maintaining the customer relationship,increasing stickiness and services to add value to the customer and incorporating strategies for skating to where the puck is headed.But the payoff could be winning in the future virtual MVPD market.12Navigating the decline of linear TVThe path forward:Tr

53、ansforming business modelsThe decline of traditional,linear TV should serve as a cautionary tale for streaming services.Beware the churn trap of consumers who refuse to carry too many subscriptions and hop from one service to the next.The answer cant simply be price hikes to recoup revenue or cracki

54、ng down on password sharing in hopes of gaining more subscribers.Youll need other optimization avenues that allow for flexibility in pricing packages,minimum commitment periods for streaming services or incentivized annual rates relative to monthly ones.Many services have already taken this route,wi

55、th discounts on quarterly and annual plans.And perhaps the solution needs to be more creative,albeit more difficult.It may necessitate business model reinvention altogether one that involves collaboration and consolidation and a focus on defining new capabilities.Our bold predictions?Disputes and bl

56、ackoutsLegacy distributors such as cable and satellite companies will face challenges as renewals of major distribution agreements turn into disputes.This is happening already,as evidenced by the recent FCC notice of proposed rulemaking that proposes pay-TV providers give rebates to customers for th

57、e programming blackouts these disputes cause.Blackouts will become more common and last longer,with some becoming permanent.For sports fans specifically,these blackouts may prompt consumers to jump over to a virtual MVPD that streams their favorite teams games.13Navigating the decline of linear TVSp

58、orts media rightsThe sports media rights negotiation cycle will also help precipitate the linear cliff,as dwindling traditional linear TV subscribers are anticipating access to their favorite professional sports teams,but more technology-driven competitors are bidding higher amounts for sports media

59、 rights.Big tech streamers have bigger budgets,better capabilities and a broader demographic reach.Linear TV is facing a lose-lose situation as providers will be forced to either increase subscription prices or not bid on sports media rights at all,which might cost them a significant portion of thei

60、r current subscriber base.Business modelsOperations to support the linear business will be significantly downsized,with no new investments made.Linear plans will still be available to subscribers,but will not be actively promoted.Cable will focus on becoming an integrated connectivity provider,while

61、 satellite TV may likely continue to decline.As linear TV becomes a legacy product,major media companies may consider divesting their linear business,and cable companies will put more restrictions on network-affiliated DTC services.Premium content will leave linear,and streamers and legacy media com

62、panies will fully converge in their business model.14Navigating the decline of linear TVDisruption for streamingSimilar to linear TV,streaming is also likely to consolidate,reformulate in bundles and eventually be“the disrupted”instead of“the disruptor.”As media entities and studios continue to cons

63、olidate,there is a possibility that we may reach a point similar to the old Big Five studio system of classical Hollywood,where a small group of large studios controlled most of the content and distribution until they were required to separate from their theater businesses.If consolidation continues

64、,its possible that similar antitrust rulings could be imposed,leading to the separation of OTT platforms and content studios once again.To get ahead of the curve,providers should trim their costs,experiment with and enhance their content portfolios and explore new business models.These are all daunt

65、ing tasks,but finding low-hanging fruit and acting decisively now can help gain a competitive advantage.Ultimately,the video ecosystem will reach a new equilibrium.The winners will likely be those that act decisively to identify their role in the value chain and shift their strategies,resources and

66、capabilities in order to deliver value to their customers.2024 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is a separate legal entity.Please see ICCReady to help your business identify opportunities,improve costs and strategize your next moves?Reach out to our team to start a conversationTeam contactsBrian Kaplan Bart Spiegel Kim David G