Disney's Strategy to Limit Cord-Cutting
A growing number of television viewers don't want to pay a lofty monthly price for content they have no interest in. Many have decided to forego paying for TV altogether and instead use a digital platform to consume only the content that appeals to them.
One strategy being used by content providers like The Walt Disney Company to retain customers over the long haul is to offer a new series on a digital platform. When the series is later introduced on regular television, the customer must verify that they have a subscription to a satellite or cable company before being able to continue watching it.
Disney is attempting to do this with its release of "Sheriff Callie's Wild West," which was introduced on Nov. 24. The release was different than past shows as it was released as an app, and included a website that was connected to the new animated series.
The catch is that Disney will wait until 2014 to release the series on broadcast television. At that time, viewers will have to verify a satellite or cable subscription in order to continue following the series.
What Disney is hoping for is for is that the series will resonate with young viewers. If this happens, the viewers will then pressure parents to buy cable or satellite TV if they don't already have it in order to to continue watching the series. The other part of the strategy is ensuring that parents who already have satellite or cable services will keep them in order to placate their children.
The idea is that the show will slow down the growing number of people who are cutting the cord, or have future plans to.
Viacom and Nickelodeon
Another entertainment company employing a similar strategy is Viacom with its popular Nickelodeon channel. In its case, Viacom has plans to release a Nick Jr. app in the spring of 2014. Those who want to get the most out of the app will have to also verify a cable or satellite subscription.
The company is focusing on the long-term retention of customers as it tries to socialize younger consumers into relying on broadcast television to take advantage of mobile content. It's an attempt to make a connection between mobile and broadcast in order to get the fullest experience available.
Viacom has regained its overall No. 1 position in children's programming this quarter, with Nickelodeon drawing 918,000 viewers a day in the children age group of 2 to 11 years old. Disney has fallen to No. 2 in 2013, with an average of 874,000 viewers a day in the 4th quarter through Dec. 15, according to Viacom, citing data from Nielsen.
For the year Nickelodeon is projected to grow 12% in cable subscriber and advertising growth, according SNL Kagan, with revenue climbing to $1.77 billion. Over the last two quarters Viacom's ad sales are up 10%. Meanwhile Disney Channel subscriber revenue is expected to come in at about $1.36 billion, up 5.4% for the year.
Time Warner's HBO GO
Time Warner has a similar strategy with its HBO Go service, where users must also authenticate subscriptions to get the most out of the content.
As with the other companies, the point of Time Warner requiring the confirmation of subscriptions is to lock in customers to all of the ways content can be viewed, not only on digital devices.
The success of HBO Go confirms that it is worth taking the steps needed to secure customer loyalty. HBO Go is a unique property for Time Warner, but it shows the promise deals like this have for the industry.
Why the push?
The majority of younger people assume that they can watch content across all platforms. What the industry is attempting to do is bring that demand into the pay-TV business distribution model.
We've touched a little on the reasons behind these types of initiatives. The primary reason is to battle the growing propensity for consumers to cut their cable or satellite services and go with digital distribution as the primary means of content consumption.
Beyond slowing the process, the other major reason on the advertising revenue side of the equation is that broadcast revenue still commands the highest ad prices. The longer that media companies keep people within the pay-TV environment, the more time they have to boost alternative revenue sources.
Digital video is the emerging ad revenue source with the most value, as marketers have stated they are willing to pay more for video than they do for display advertising. They're only waiting for the metrics to be put in place so the number of viewers seeing the ads can independently be confirmed.
The success of these efforts will be tied into the quality of the content. If the content justifies retaining cable or satellite services, I see it being a positive for the industry. There will need to be a lot more series' to make it effective enough to be a positive effect on the bottom lines of companies, though.
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Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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