November 19, 2020

Go Big or Go Home

On ViacomCBS’s Decision to Shutter Smaller DTC Services in Support of Paramount +

During ViacomCBS’s third-quarter earnings call, executives spent a significant amount of time highlighting strong streaming results and confirming everything is on track to debut its Paramount+ service in early 2021.

ViacomCBS CEO, Bob Bakish disclosed plans to shutter several yet-unnamed niche streaming services. Consensus says MTV Hits, NickHits, Comedy Central Now, and Noggin will be shut down, their content shifting to Paramount+.

What does this mean for the future of niche SVOD within ViacomCBS? Moreover, what does this portend for the future of smaller DTC properties, in general?

Overview
Paramount+ will be a differentiated streaming service built on the foundations of CBS All Access, and will include live sports, breaking news, and, as CEO Bob Bakish said, “a Mountain of Entertainment” (the Paramount logo is a Mountain). Content will include a broad slate of exclusive, original series from brands including BET, CBS, Comedy Central, MTV, Nickelodeon, and Paramount Pictures. Key Paramount+ franchise brands include Star Trek, Criminal Minds, and Sponge Bob.

Not all ViacomCBS content will appear on Paramount+. Some content (e.g., Showtime, Noggin) will continue with unique DTC streaming services; some will be licensed out to its competitors (South Park will air on HBO Max); and some will be co-licensed (non-exclusive).

Paramount+ Sports will include NFL, PGA, NCAA March Madness basketball, and UEFA soccer, and the Breaking News stream will contain live CBS News, live local news from CBS stations, and 60 Minutes.

Gestalt
The announcement of ViacomCBS folding some of its smaller DTC channels into its flagship Paramount+ service is by no means unique. For example, WarnerMedia recently rebranded HBO Now as HBO Max and folded in many of its Turner brands. Also shut down were smaller streaming services (e.g., DC Universe, DramaFever, Super Deluxe, and Film Struck), with their content ported over to HBO Max. Disney followed much the same course when launching Disney+, building a super-service that houses multiple brands which arguably could have supported their own niche DTC services.

Pros

  • By folding in niche brands to a broader DTC site, an organization like ViacomCBS or WarnerMedia will be able to take advantage of operating efficiencies.
  • A broad DTC service will attract a more diverse audience and has a higher probability of getting noticed. With the average U.S. household paying for 3-4 streaming services per month, it is advantageous to be in the top 3-4 most popular services.
  • Viewing spikes during the pandemic and the lack of new production caused niche DTC brands to run low on new content, with library shows largely shouldering the burden. Combining most all of its inventory into a single service ensures Paramount+ will have the quantity, quality, and diversity of content to not only withstand pressures of the moment but build a strong, loyal audience for the long term.

Cons

  • Having so much content from so many brands baked into a single app can create a cumbersome user experience. Streaming platforms are far from perfecting in-app navigation, and mega-apps like Paramount+ run a significant risk of overwhelming the user.
  • Offering intra-brand DTC bundles (e.g., Disney+ combined with Hulu and ESPN+ for a single discounted price) not only increase revenue but enhance the stickiness of the service. Having a single mega-app envelope most all of one’s brands results in limited opportunities to create smart bundles. (No doubt a Showtime/Paramount+ bundle is in the cards, but that’s the extent of opportunity.)
  • DTC services appealing to a wide audience tend to make safer content choices when compared to more narrowly-focused offerings. Think back to the 1950s and 60s, when a handful of major broadcasters spewed non-controversial pablum; content neutered to avoid alienating mainstream viewers. Playing it safe in these times is anathema, and Paramount+ must be attentive to this risk.

Analysis of Moving to Paramount+ and Closing Niche Brands
ViacomCBS (whether merged or separate) has always had a culture of analytical, fiscally prudent, and strategic decision making. The move to Paramount+ appears to be an acknowledgment that the only way to succeed in DTC is to get big fast. The other pressing issue is time. The NFL broadcast/streaming rights contract is up for renewal in 2022, and winning or losing that contract is paramount (pun intended) to the value of the entire ViacomCBS organization. Unlike Comcast/NBC/Peacock and Disney/Hulu/ESPN, ViacomCBS is much smaller and thus more vulnerable to being outbid by aggressive competitors willing to pay just about anything to land this NFL contract.
The early success (or disappointment) of Paramount+ will go a long way towards determining the future of this storied brand. With the continued erosion of pay-TV audiences, the high cost of content, and the hyper-competitive streaming space, there are three likely paths for Paramount+.

Outcome 1 – Streaming Success
A strong and positive trajectory for Paramount+ will likely mean that ViacomCBS will be able to keep its NFL broadcast and streaming rights and enter the M&A market as a buyer. Consolidation in the streaming field is inevitable.

Outcome 2 – Streaming Mediocrity or Failure
Money is tight and funding content creation & licensing becomes difficult. With mediocre or poor early performance, ViacomCBS will find it difficult to retain its NFL contract. In this case, ViacomCBS remains a medium-sized player and eventually gets acquired, or it becomes a niche streaming player and, much like WWE, becomes a content provider/licensor to many of its former competitors.

Conclusion
The DTC-SVOD space has blossomed rapidly, and it appears that the biggest players are already in place. ViacomCBS has thus far been unable to make a huge splash, and every day that goes by without a hit solidifies this feeling. Without any major wins in 2021, it is likely that ViacomCBS will spin off its streaming business, license its tremendous volume of diverse content, and likely get acquired by a competitive organization.

   

A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.

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