Cord cutters unite! Alphabet Inc.’s (NASDAQ:GOOGC) Google Inc. has reached an agreement with CBS Corp. (NYSE:CBSC) to carry the network on its soon-to-be-launched Web TV service, according to sources who spoke with The Wall Street Journal.
If true, this deal would make CBS the first major television network to sign on to the new TV service to be housed on Google’s YouTube platform and set to premiere in early 2017.
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Unplugged It Is
The new service, somewhat brazenly called, Unplugged, is designed to be an inexpensive option for consumers who haven’t subscribed to traditional pay-tv or cut the cord due to subscription costs.
The same sources told the WSJ that Google was also in talks with 21st Century Fox Inc. (NASDAQ:FOXC) and in advanced negotiations with Comcast Corp.’s (NASDAQ:CMCSAC) NBCUniversal and The Walt Disney Co. (NYSE:DISC).
Google’s goal is to be able to offer a “skinny” bundle of live TV channels priced at between $25 and $40 per month.
If Unplugged comes to fruition, Google will join others in Over The Top (OTT) Web video services such as Hulu, owned by Disney, Fox, Comcast and Time Warner Inc. (NYSE:TWXC). Hulu said it also planned to launch its online service in Q1 2017 and charge about $40.
Others include DISH Network Corp.’s (NASDAQ:DISHC) Sling TV and Sony Corp.’s (NYSE:SNEC) PlayStation Vue, both of which debuted last year. Apple Inc. Stock not found APPL talked about an OTT offering but so far has not done so.
Attractive To Networks
One reason OTT is attractive to major networks is the money. Michael Morris, analyst for Guggenheim Partners, predicted CBS would get $3 per subscriber per month from Google. Currently the network gets $1.50 to $2.50 per subscriber from satellite and cable providers.
Not only is this deal expected to give CBS more leverage in future negotiations with other distributors, it could attract many additional interested parties.
The Monetization Game
Key to investor buy-in for any company offering OTT, how the company plans to monetize. Paying a premium for content and selling it on the cheap is not a formula for success.
According to Brett Sappington, senior director of research, Parks Associates, there were 34 OTT services in 2011. By 2015 the number had risen to 65. Now there are more than 120 OTT services in the U.S. and another 30 to 40 in Canada. All that competition has resulted in a number of different business models.
For example, DISH Network opted for a skinny bundle service tier via Sling TV, while BT Group plc (NYSE:BTC), Cablevision Systems Corp. (:CVCN/A) and Virgin Media went after OTT partnering. Another idea, dubbed the “Netflix Killer” approach involves launching services similar to Netflix and includes Canada’s Shaw Communications Inc. (NYSE:SJRD) and Bell Canada.