Flying Over-the-Top in a Niche Behind Netflix

29 Feb, 2016 By: Erik Gruenwedel

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Over the top is the mantra for many content distributors these days, but smaller “build-it-and-they-will come” subscription streaming businesses may have a hard time flying in the wake of dominant player Netflix, observers say.

Like Netflix, Amazon Prime Video and Hulu, too, have a big lead and are offering a smorgasbord of original — and pricey — content, making them formidable competitors for consumer eyeballs.

Yet, despite the David vs. Goliath comparison, five video streaming services successfully launched in 2015 looking to separate themselves through niche content and rejiggering an existing business model. Dish Network-owned Sling TV last year became the first online “skinny bundle” TV service offering marquee pay-TV channels for $20 a month. It has generated 600,000 subscribers since bowing a year ago — but not without its share of growing pains. While Sling TV’s lure is brands such as ESPN, Disney and Fox, indie streaming services Shout TV, Dove Channel, Docurama and CONtv rely upon narrowcast appeal to generate traffic and paying subscribers.

"The big thing about [SVOD services] is that unless they're specific and niche, they need large amounts of [costly] content to be appealing,” Fernando Elizalde, analyst with Gartner Research, told TheVerge.com.

Eyeing SVOD

Shout! Factory cut its teeth distributing offbeat content via stylish boxed sets. Shout TV is merely an ad-supported digital extension of the brand. But not for long. The company is now developing an SVOD business model it hopes to launch soon, according to Gene Pao, VP of digital media.

Earlier this month Shout inked an alliance with Zag, a multimedia kidvid and family film entertainment company. The deal affords select digital and physical rights to 26 episodes of new CG-animated action-adventure comedy series “Zag Heroez’ Miraculous Tales of Ladybug & Cat Noir.” Last year, the distributor acquired proprietary rights to the cult-classic comedy series “Mystery Science Theater 3000,” and is working with creator Joel Hodgson to create new episodes. It also announced a deal to bring “The Dick Cavett Show” back to TV.

“The value proposition has to be compelling enough to convince a viewer to open up their wallet and give us their credit card info,” Pao said. “Fortunately, we have a number of levers we can pull to create a compelling offering such as exclusive content, unique viewer experiences, and tie-ins with our e-commerce business.”

The executive said a streaming start-up without street credibility (i.e. Shout! Factory) has a much more difficult time getting traction with audiences and content providers. 

“Because we have developed strong relationships with studios, independent producers, and other content rights holders over the years, we have access to content that new entrants will have difficulty obtaining,” Pao said.

To ensure its investment in OTT will pay off, Shout is in discussions to join the Amazon Streaming Partners Program, a new platform that links third-party SVOD services with Amazon’s Prime members. It also handles streaming infrastructure, customer service and billing issues.

“[Amazon is] part of the overall digital streaming ecosystem,” Pao said. “They help and hurt indie OTT video, but overall, they help because they raise the tide [of consumer awareness] and a rising tide lifts all boats."

Brand Symbiosis

In 2014, Cinedigm launched Docurama, offering 800 hours of programming in genres such as sports; the environment; war, history and current events; pop culture; arts and music; human interest; and travel and leisure. Last fall, it bowed Dove Channel, a $4.99 monthly subscription partnership with The Dove Foundation, advocate for movies, TV shows and books with family appeal. Cinedigm also launched CONtv, a pact with comic book convention organizer Wizard World.

“Our approach has always been to launch a channel with strong brand partners that bring an audience,” said Erick Opeka, EVP, digital networks. “In the case of Dove and CONtv, we partnered with brands that bring access to a large database of consumers in a targeted niche. On top of that, we leverage partnerships with platforms, affiliate programs, and targeted advertising to find our customers,”

To get the word out, Wizard World distributes the CONtv app to attendees who get free trial access after downloading the app. To date, more than 100,000 people have downloaded the app.

“This is enabling us to build a very large base of consumers to target for up-sell,” Opeka said. “We have seen that last strategy work very well with other niche services at scale, and we think it will be a major contributor to growth in the future.”

Already a distributor of DVDs at Target and Walmart, Cinedigm is pursuing digital partnerships with big box retailers, publishers, and content creators. Opeka says big services such as Netflix are positive to Dove Channel and CONtv by making consumers more comfortable with the concept of streaming video. Like Shout TV, the three SVOD services joined the Amazon Streaming Partners Program.

“We think it is a great opportunity to reach their tens of millions of Prime subscribers, while at the same time reducing our overall marketing spend and technology costs,” Opeka said, adding that alternative digital distribution opportunities are being evaluated, including online TV.

“Our channels would be a great fit into many of the skinny bundles that have been announced to date.”

Skinny Pioneer

As the first OTT service to offer 20 of the top pay-TV channels, Sling TV has been a litmus test of sorts to multichannel video program distributors (MVPDs) and media brands seeking to get their toes wet in OTT waters. It was the first online platform offering access to ESPN, AMC, TNT, TBS, CNN, Disney Channel, ABC, History, HGTV, Food Network, Freeform (formerly ABC Family) outside of the TV Everywhere ecosystem.

“We’ve been very pleased with the response we’ve seen … and believe that response will only grow as awareness in the general market about OTT options becomes more prevalent,” said CEO Roger Lynch.

Lynch said Sling TV targets three customer segments: “Cord nevers,” which tend to be consumers (25-30 years old) who have never subscribed to pay-TV. The second group is “cord cutters,” who have cut the pay-TV cord over the last four or five years. The third group is “supplementers,” consumers who currently have pay-TV and also buy Sling TV.

“It’s the smallest of those three, but it’s still a meaningful market segment for us,” Lynch said.

Dish — specifically founder/CEO Charlie Ergen — has been extremely helpful in the launch of Sling TV. With a relatively stagnant satellite TV subscriber base, Ergen eyes SVOD as a way to enhancing the pay-TV base, in addition to signing up high-speed Internet subs. The satellite operator now includes Sling TV with overall pay-TV subs.

“When we started to have conversations about Sling TV years ago, some content programmers were hesitant,” Lynch said. “They were concerned that a new service like Sling TV might cannibalize existing pay-TV subscribers. They were, however, interested in helping services develop that could ultimately grow the overall pay TV subscriber base by reaching new consumers.”

Parlaying existing relationships with Dish programming partners helped facilitate conversations about Sling TV, and the fact that it was designed not to take away existing pay-TV subs, but instead grow the market overall.

With its live TV content platform (not pausing or rewind options), Sling TV is different than most OTT video services featuring on-demand content. As a result, Lynch considers Netflix, Amazon Prime and Hulu as complementary to Sling TV.

“Many of our customers already subscribe to Sling TV and at least one other on-demand OTT service,” he said.

Lynch said Sling TV recently partnered with HBO to offer HBO Now as a premium upgrade. Last week it expanded that partnership to include Cinemax — the first OTT offer for the premium movie channel.

“I think there is value in certain partnerships like this, but we don’t have anything else to announce now,” Lynch said.

As a first mover in OTT video among MVPDs, Sling TV has experienced its share of technical glitches (buffering, dropped service, etc.), especially during peak-usage times such as college basketball’s March Madness and last fall’s premiere of “Fear of the Walking Dead.” It’s a subject Dish management has not shied away from addressing.

“We now regularly stream live events like the college football championships at dramatically greater scale than we had when we experienced some of the technical glitches we saw earlier in our launch,” Lynch said. “Streaming live TV at scale presents significantly more challenges than streaming on-demand content. No streaming service can be perfect all of the time, but we have made great strides in improving our service and this is something we will continue to be focused on for years to come.”

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