Revenue, Data and Ad Sales are at Stake in the OTT Carriage Standoffs

It’s a given that anyone launching an OTT app today will have to compete with the wide range of rival services jostling for position. However, many also find themselves having to grapple with distribution partners, the gatekeepers of over-the-top (OTT) audiences.

The two newest major entrants in the US OTT market, Comcast’s Peacock and AT&T’s HBO Max, were both released without having secured distribution on either Roku or Amazon Fire TV. These two platforms collectively account for 70 percent of the US streaming media player market, according to Parks Associates, a market research firm which specialises in consumer technology.

These standoffs aren’t unique to the US. BritBox, a British subscription service owned by the BBC and ITV which launched last year, has struggled to reach distribution agreements with major partners including Sky and Virgin.

Revenue shares, ad sales, and data at stake

Disagreements between content providers and distribution partners aren’t entirely new. Carriage disputes have been common in the TV world for years and arise when broadcasters and pay TV operators can’t agree on terms.

Disagreements over revenue splits, which are often the cause of TV carriage disputes are perhaps the most common reason for the OTT standoffs too.

“In terms of revenue, streaming services typically create distribution agreements with each platform that the streaming service is carried on,” said Sarah Henschel, senior research analyst at Omdia, a technology research company. “The players will determine a revenue share agreement either where a certain percentage of subscription revenue is offered back to the hosting platform, or incremental revenues are shared such as ad revenue.”

Part of the strategy behind broadcasters’ subscription video on-demand (SVOD) services is to go direct-to-consumer, cutting out the middlemen. As such, they’re reluctant to let the likes of Roku and Amazon take a significant cut of revenue, or own the user experience in any way.

For ad-supported apps like Peacock, distribution platforms ask for a cut of the ad inventory to sell themselves, which some streaming services take issue with.

A Roku spokesperson said disagreements over ad sales led to the breakdown in negotiations between Roku and Peacock. “Unfortunately, Comcast is trying to launch a primarily ad-supported business while refusing to share in the ad model with platform partners,” they said. “This shows a basic misunderstanding of what drives success in today’s modern streaming world where successful publishers collaborate on advertising and achieve strong results by leaning into the unique tools we offer.”

This could be a point of contention for HBO Max too, which plans to launch an ad-supported subscription tier next year.

And these ad sales negotiations can be complicated further still by the fact that distribution platforms often have their own ad-supported apps too.  Roku for example has ‘The Roku Channel’, while Amazon has IMDb TV. AVOD providers may fear that letting the likes of Roku and Amazon Fire into their inventory will boost their rival advertising offerings.

The ownership of user data collected by the app or platform is also important. “If a Peacock subscriber uses the service through Roku, Roku is the one that knows the most about that customer and their usage habits,” said Omdia’s Henschel. “It is up to Roku and data agreements to share platform and user information back to NBCUniversal.”

“However, if a consumer uses Peacock through Peacock’s owned site, NBCUniversal has full insight into how their consumers are operating and scrolling through their content,” said Henschel. “Today, data and usage habits are key to finding a competitive edge and building a successful streaming platform. Without knowing what your customer likes, how they scroll, and their motivations, it is incredibly challenging to develop a better user-friendly platform.”

Who will blink first?

Those VAN spoke with were confident that these deals will eventually get done. “I’m sure this is going to get resolved soon because everyone’s losing by not having these collaborations, and everyone is smart enough to see that,” said Ben Antier, COO and co-founder of Publica, a CTV ad tech company.

Both the apps and the platforms seem to believe they have the stronger hand.

Distribution partners know that they can be a crucial source of subscription revenue for the apps and streaming services they support. A report from Oliver & Ohlbaum, a media strategy advisory firm, said that wrapping up new distribution agreements with partners like Sky and Virgin will be key to BritBox’s success.

Steve Nason, research director at Parks Associates, said that both Roku and Amazon have been key drivers of subscriptions to HBO NOW, which is effectively the predecessor to HBO Max.

But the owners of the streaming apps believe they have the potential to be ‘must-have’ services for consumers. “If a few years down the line these services find strong popularity, Roku and Amazon may begin to lose share to Apple living room devices or to other smart TV manufacturers,” said Omdia’s Henschel.

Rich Greenfield, partner at LightShed, a technology research firm, suggested in a note to investors that AT&T and Comcast could leverage their vast content portfolios to strengthen their position. He suggested that AT&T-owned film studio Warner Bros could release the upcoming and highly anticipated new Christopher Nolan film Tenet directly on HBO Max, making it more of a must-have service (though AT&T has since said this won’t happen).

Park Associates’ Steve Nason said there are no hard and fast rules about whether distributors or streaming services will come out on top. Negotiations will differ based on each service’s unique bargaining position.

For example telco-owned services like HBO Max and Peacock can offer more direct access points themselves (via their own pay TV services, or by bundling subscriptions with internet packages) than a service like BritBox can.

And whether a streaming service has strong existing partnerships or not will be important too. Nason said that HBO Max still doesn’t have distribution agreements with big pay TV operators like DishTV and Frontier. This leaves AT&T in a weaker bargaining position, since distributors know they’re likely to be keen to wrap up deals quickly and expand their reach.

More to come for AVOD?

So far, these standoffs have largely involved the big broadcaster or telco-owned subscription video on-demand (SVOD) services, with Comcast’s Peacock an exception.

The smaller ad-supported services have been in too weak a position to fight back against the likes of Roku and Amazon, according to Omdia’s Henschel. And they’ve needed carriage from as many platforms as they can get in order to be visible.

But this could change. Several ad-supported services like Pluto TV, Xumo and Tubi have been bought by big media companies in the past few years (ViacomCBS, Comcast and Fox respectively). And as adoption of AVOD picks up, Henschel says they may well start to fight back against their distribution partners.

“Once the landscape settles and we see more usage of these platforms, it would not be out of line to see a recycled version of the carriage standoffs of the past, like we’ve seen with pay TV and we’re now seeing with SVOD,” said Henschel.

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