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5G, Revenue Repatriation, And Sports Could Alter Evolution Of TV

The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

A panel of Wall Street analysts and industry executives gathered at the Digital Hollywood conference in Los Angeles on October 11 to discuss the future of TV, and the discussion naturally led to the topic of cellular networks.

Gene Munster, managing partner at venture capital firm Loup Ventures, said that 5G "will open up new computing paradigms" by means of improved data speeds. Advancements will vastly expand the types and quality of experiences available, especially in terms of augmented reality and virtual reality applications, Munster said. He predicts that in the U.S., 5G will start to roll out in 2019, and most people will have it by 2021.

Justin Liu, a lead engagement manager at cloud delivery company Akamai Technologies Inc., said 5G is important because it provides expanded capacity. He said the network will be built to service a growing ecosystem of smart phones, wearables, and internet of things devices without a degradation of quality.

A large factor in that ecosystem will be over-the-top video content. Michael Pachter, managing director at Wedbush Securities, said that content owners are making massive mistakes in licensing their content to stand-alone aggregators such as Netflix Inc. because it has allowed them to become substitutes for corded content instead of supplements. He noted that content owners are starting to wake up, most notably Walt Disney Co. with its decision to launch its own OTT service, but overall revenues are still being sacrificed among the studios.

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Darren Cross, formerly of Maker Studios, acknowledged that it makes sense that content owners such as Disney and 21st Century Fox Inc. would want to recapture more of the online revenue by launching OTT services, but he felt it did not make sense for them to do it alone. The current course the industry is on will force consumers to search for and buy content on 10 to 12 separate platforms. Cross said that studios' individual subscription video-on-demand services will need to aggregate, similar to how the recently launched Movies Anywhere has aggregated transactional video-on-demand. Cross declared such an aggregation for subscription video-on-demand platforms would put considerable pressure on Netflix.

The panel also noted an escalation in the original-content market as Apple Inc. becomes more aggressive. Apple recently reached an agreement with Steven Spielberg's Amblin Television and NBCUniversal Media LLC's TV production arm to produce 10 episodes of "Amazing Stories." Munster said the series is rumored to have a budget of $5 million per episode, similar to moderately budgeted Netflix and HBO originals. Apple will reportedly spend around $1 billion over the next year on original content, but Munster predicts their originals budget will be on par with Netflix in five years.

Munster also cited a high probability within the next few years of a tech firm making a large commitment to secure sports rights out from under a major network carrier. Companies such as Amazon.com Inc., Facebook Inc., Google Inc. and Apple have shown that they "are serious about content and they know the importance of live sports and they're going to make a play," he said.

Pachter added that if current revenue repatriation proposals come to fruition, Apple in particular could have tens of billions of dollars at its disposal to spend in the U.S. Pachter sees Apple as being the major sports rights bidder if proposals fall into place, with their main target being the NFL. Cross offered a self-described "grassy knoll" theory that Apple will buy Disney with the repatriated funds, thereby bidding on the sports right through ESPN.

Oct 31, 2017
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