Hollywood studios “could go OTT” in UK

Hollywood studios could benefit from going over-the-top direct to consumers in the UK, cutting out existing distributors, according to research group IHS.

According to IHS Electronics & Media, studios could earn more money than they currently receive from distribution agreements with OTT services with as few as 1.35 million subscribers, while premium service HBO could make more money than it currently generates from UK rights agreements with as few as 500,000 direct customers, charging about £5 (€5.90) a month per subscriber.

The figures come with a significant caveat. According to IHS, the studios currently earn about £1.4 billion from rights and carriage agreements for movie and entertainment content in the UK market. The figure of 1.35 million subscribers assumes the studios could earn a monthly income equal to the average ARPU generated by Sky today in the UK. However, IHS admits that studios would be unlikely to earn the same subscription revenue with direct-to-consumer offerings that lacked Sky’s sports content, meaning that a more realistic target to earn the money lost from rights deals would be between 2.7 million and 4.3 million customers.

The picture is more complex still for studios with channel portfolios of their own such as Discovery, Disney and Viacom, which generate carriage fees as well as rights sales. Taking into account the value of carriage fees, the studios and other large content owners would need to win over between 2.8 million and 8.9 million customers to maintain current income, depending on the price charged, according to IHS.

IHS admits that the infrastructure that could enable a viable direct-to-consumer model does not currently exist, as there is no platform that could feasibly generate sufficient subscriber uptake to compensate the loss of revenue from existing agreements. However, it believes that HBO, a strong brand without existing channels in the UK, could potentially act as a catalyst for change.

“Studios are now in a position to go direct-to-consumer with Over-the-Top services. HBO is well placed to seed the UK market,” said Guy Bisson, director of TV at IHS Electronics & Media.