It's a question the industry's biggest players have been wondering about for years. In recent weeks, the country's largest television networks have been moving quickly, even frenetically, to position themselves for a time when most people will turn to a mobile device rather than the living room television for all their entertainment and communication.
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The reason is clear: Viewers, especially younger viewers, are cobbling together their own individually tailored collection of digital video platforms rather than ceding those decisions to their payTV provider. The simple fact is that the country's largest media companies, old-style conglomerates that have dominated video entertainment for decades, are actively preparing for LATB: Life After The Bundle.
The multi-channel pay-TV bundle, replete with dozens of niche channels that most subscribers don't watch, has been the bedrock of the cable-TV industry since its inception in the 1970s. It's the way Comcast (CMCSA) , Time Warner Cable (TWC) , the DISH Network (DISH) and others make money: in order to receive popular channels such as CBS (CBS) and Disney's (DIS) ESPN, subscribers must pay fees large enough to cover the cost of carrying those most-watched networks in addition to the smaller ones, even though they may never watch them.
But with media industry going digital and mobile, consumers have come to expec that they can curate their own personalized viewing, and the largest media companies are scrambling to meet that demand.
Take the latest news from Comcast's NBC/Universal.
Starting Tuesday, according to a report from The Wall Street Journal, NBC will live stream programming online, with mobile to follow soon after. ABC already does it, and CBS started its own digital network last month, so the "Big Three" fully - and finally! -- acknowledge that the model is changing.
For investors, it's time to analyze which companies can best manage the shift - and profit from it.
Speaking of ABC, Disney's attention appears to be properly focused on getting this transition right at ESPN, the sports juggernaut that may be the best annuity in the history of the world. ESPN generates more than $6 billion a year in fees, courtesy of cable and satellite-TV providers.
Most households pay more than $6 a month just for ESPN. The next most expensive pay-TV channel is Time Warner's TNT at about $1.44 per subscriber, according to Kagan Research. That's a distant second-place. No wonder that Disney CEO Robert Iger told investors last month that he's not looking to create standalone digital service similar to what Time Warner says it plans to do with HBO.
Disney is spending billions to retain the rights to cover the largest U.S. sports, football and basketball, both college and professional. But public sentiment against subscriber fees is growing and, in response, media companies like Disney are doing more than hedging -- they are investing heavily in the hedge.Must Read: Jim Cramer’s 5 Best Stock Picks for the Biotech Sector
Disney is devoting more money, time and talent to its digital businesses. Social media, Apple TV, ESPN3 are all alternatives to sitting on the couch and sparking up the "cable box". Rather than trying to drive eyeballs toward televisions, the goal here is to get the eyeballs that stopped watching traditional TV to engage with the brand through other avenues.
People still want their sports, but they simply don't want to always be sitting in front of a TV to see it. Nor do they want to pay for stuff they don't want to watch.
To take it a step further, they only want to watch what they want to watch. So, ESPN will reportedly stream the Cricket World Cup in 2015. Cricket? Who cares, right?
Well, cricket is a game with global appeal but almost no appeal in the U.S. This makes it a perfectly safe test case, because there's no major demand for it to be broadcast on a traditional TV channel. It's a low cost way to learn whether the concept itself is appealing. ESPN can't try it with Monday Night Football because the NFL contract - and the advertisers - won't allow for it.
Yes, it's cricket, but it's no joke.
ESPN's most recent NBA deal reportedly has some flexibility for streaming games in the future. So, if TV programming bundles dwindle, and streaming gets more widely accepted, Disney might be positioned to make sure the revenue doesn't dwindle with it.Must Read: Jim Cramer’s 4 Best Stock Picks for the Defense Sector
TV viewing consumption habits might change, but the pressure to justify huge programming rights fees won't change. Of course, ESPN doesn't want to do anything too quickly that would cannibalize $6 billion a year in retransmission fees. But if the market does move quicker to digital, Disney needs to move faster and then deal with potential revenue growth gaps later.
But Disney isn't the only Big Media player testing the new distribution models. CBS (CBS) News has launched its own digital news network, CBSN, spending millions to go directly to the next generation of viewers. If it catches fire, and becomes a serious revenue stream, the digital platform could make CBS News more competitive. Right now, it competes with the likes of NBC News, which can share resources, costs and content with MSNBC and CNBC.
How serious is CBS about straying from the TV bundle? CEO Les Moonves recently floated the concept of streaming NFL games. That's not imminent, but Moonves is on the record as having discussed such a move with his NFL counterparts.
Over at MSNBC, the cable-TV network owned by Comcast (CMCSA) , viewership is on the decline. To prepare for the end of the bundle, the company is merging its digital and television content management -- much the way it did when Microsoft was initially involved -- and it's even programming digital-specific shows.
MSNBC, Variety reported, will begin experimenting with daily digital shows. The content and talent will also play roles on the cable channel but the hope is that they can attract unique followings outside of traditional television viewing, i.e. the payTV bundle. The real test for MSNBC will be whether the brand can become as popular online as it has been on linear television.
Whether it be sports, politics or news, the hypothetical is here, and the media heavyweights are trying to adapt. That's why Time Warner bought Bleacher Report, and Disney hired Nate Silver, and why Jimmy Fallon's Youtube dominance is just as important as his Nielsen dominance.Must Read: 7 Stocks Warren Buffett Is Selling in 2014