Three reasons every major TV Station will launch a DTC service

CBS has done it, Disney is doing it, and Discovery is thinking about it. Launching direct-to-consumer services is the new wave of television. Here are three reasons why every major TV programmer will take the DTC plunge.

Discovery CEO David Zaslav is a man on a mission to maximize the value of the massive library of content his company controls. He has pay TV distribution and TV Everywhere delivery covered. Now he is turning his attention to online delivery with direct-to-consumer (DTC) services. He is testing the waters through Amazon Channels in Europe with the Eurosport and Discovery brands. He is also expanding the Motor Trend brand to worldwide online delivery.

Mr. Zaslav is not the only TV executive looking at DTC delivery. Here are three reasons every TV programmer will likely launch a direct-to-consumer service in the coming months and years.

Reason #1: Audience segmentation

All viewers are not created equal, yet that is how traditional television treats them. Some viewers are passionately devoted to a channel brand or show delivered by that channel. Others have only a casual relationship with a channel. Linear television delivery and pay TV treats these two types of viewers the same.

Direct-to-customer apps allow a content provider to segment viewers and, most importantly, identify the most committed customers. Les Moonves, CBS chairman, understands the principal and is beginning to monetize the opportunity. Two million of CBS’s most committed fans are paying $5.99 a month to subscribe to CBS All Access. Many are paying $8 a month because $2 of their pay TV subscription goes to CBS for almost the same set of content. CBS is also allowing these most valuable viewers an opportunity to spend more. For example, All Access subscribers can pay $4 extra to watch on-demand shows without ads.

Simply put, a DTC service allows a programmer to identify their best customers and upsell them to additional content and services.

Reason #2: Flexibility

Mr. Zaslav has two of the three main distribution outlets covered. Discovery and Scripps content is a mainstay of traditional pay TV service. vMVPDs like Sling TV and DirecTV Now already offer Scripps content, but Discovery channels are only available in the newest entrant, Philo. Mr. Zaslav is working to correct that.

Discovery also has a robust suite of TV Everywhere Go apps available. Pay TV customers can watch the live channels and a library of on-demand content but must sign in with their pay TV credentials to watch. These channels are delivering a sizable millennial audience according to Mr. Zaslav:

“They deliver a meaningful millennial audience that we get to sell to you, and the length of view is often two or three times that of traditional TV.”

Unfortunately, younger viewers are leading the cord-cutting trend. The 9% of the U.S. population that has never had pay TV (cord-nevers) has an average age of 34, according to GfK. Since many young people rely entirely on internet resources for video, the cord-nevers group is liable to grow quickly. In other words, TV programmers risk completely missing their future audience. Launching a DTC service gives Discovery a tool to reach those younger viewers as they continue to lead a pay TV-free existence.

Reason #3: Provide the experience viewers expect

To be sure, compelling content is critical to holding a viewer’s attention. According to Paywizard, however, the experience is equally important. In a recent survey, the company found that 79% of U.S. survey participants thought that experience factors were as important as content. Issues such as flexibility, attention to customer preferences, billing, sign-up, and cancellation are examples of these factors.

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