Distribution versus content: Who reigns supreme in TV land

A conversation with Chris Tinkham, written by Darya Bor and Barbara Bell

To those who argue wholeheartedly that TV is dead, Devito/Verdi EVP & Media Director Chris Tinkham says to hold your horses. Although these days it might feel like the media is on the brink of a television apocalypse (read: television is dying, everyone’s watching shows on phones, advertising dollars are going to mobile, this is the end of a medium) Tinkham still wants to challenge that narrative.

Let’s be clear: we’re not denying that mobile viewership is rising or that many advertising budgets are transferring to mobile, but the reality of our TV consumption today is that most viewing is still done at home in shared living spaces.

Even if not on traditional network or cable, our consumption of TV relies on methods of distribution. What matters to traditionalists and cord-cutters alike is that what people watch urgently binds them to their shared screens. Why does this matter?

Distribution versus content companies

For the sake of oversimplification, let’s assume the video-distribution world splits into two major types of companies (that are, in reality, not mutually exclusive): distribution companies and content companies. Distribution companies transfer content from a source to a viewer. Distribution companies include providers (Comcast, DirecTV, Spectrum, Fios) and newer online platforms (Sling TV, Netflix, Hulu).

Content companies are creators. They create content to distribute to distribution companies. Content companies are the entertainers, the brainstormers, and the idea innovators. Content companies include our favorite TV networks (ABC, CBS, ESPN, the CW, HBO, and the list goes on and on). Content companies also include YouTube, Amazon Video, blogposts, the up-and-coming world of podcasts, etc.

Let’s compare… show me the money

Distribution companies are the utility providers of television. They generally have a higher profit margin because they deliver a fixed-rate service to the consumer. Distribution companies do not have to involve themselves in the nitty-gritty of producing the content that they deliver. Content companies, by contrast, assume risk. They do not have a fixed-rate service. Instead, their revenue is at mercy of viewership, overall popularity, and incredible time-sensitivity of their content.

In a business that’s all about money, distribution companies seem to be the sweet spot. So, how do content companies leverage time-sensitive, must-see content? One word: sports.

Live sports programming is the sacred cow of content and the epitome of must-see TV. Watching sports is inherently everything that a content company wants: live, timely, and the subject of tomorrow’s watercooler talk (comparable to Game of Thrones, the Academy Awards, the Grammys, and the latest tweet from Pennsylvania Avenue).

Some real world examples

We see this evolving continuum played out with Comcast’s 2009 acquisition of NBCUniversal. The acquisition gave Comcast (a distribution company) unrestricted and untethered access to NBC Sports (a content company). By getting an “in” into the viable network of sports programming, Comcast was able to leverage its hybrid distribution/content capabilities (especially regarding Disney/ESPN) and drive hard deals for negotiations regarding licensing rights and streaming for other events, championships, leagues, and playoffs, among other layers and layers of opportunities created by sound business sense. It also led to adding aforementioned content — NBC Sports, The Olympic Channel, and the newly-formed Sports Engine to cable bundles. Before, Comcast’s relationship to this very profitable outlet was tangential – and now it’s raking in the money.

This brings us to the Discovery & Scripps acquisition. Last week, Discovery Communications (content company) announced it would acquire Scripps (also a content company) in a cash-and-stock deal valued at $14.6 billion. Discovery, which owns The Discovery Channel and TLC, produces mostly non-fiction, lifestyle, sports, and kids content. Scripps produces lifestyle content in the home, food, and DIY areas.

This is a great marriage of traditional audio-visual content, but only in the short-term. Why? Because this merger doesn’t add any must-see value to these content companies. Unlike Comcast-NBCUniversal, Scripps doesn’t have long-term sacred cow programming. Yes, the merger will allow for more travel, food, science, documentaries, home decorating, reality TV, etc. but the main leverage is in content negotiation with distributors other than maybe short-term affiliate life. For a little while, the allure of a consolidated content network might satisfy consumers, but who knows how it’ll play out in the future. According to the Wall Street Journal’s July 31 article on the merger, “investors should see this deal as a sign that more pain is coming for smaller networks.”

So back to the strange question of acquisitions

Now we return to that strange question of distribution companies buying content companies: If distribution companies have fixed, steady, profit margins, why do they buy content companies? Why would distribution companies be interested in assuming the risk of making must-see TV if they could stick to a more solid money-generating distributing model?

Distribution companies see the opportunity to own and control a content company (or minimally use as leverage in relationships) as a cheaper long-term investment than repurposing someone else’s content company. Companies need to make themselves more competitive and versatile nowadays; they can’t just have one specialty. For example, YouTube doesn’t just make content, but it’s starting to distribute it (hence YouTube Red). Meanwhile, it’s not enough for Hulu to just relay content that someone else has made. They, too, need to produce its own content (hence Hulu originals Harlots, Handmaid’s Tale, and Difficult People).

Naturally, these proliferating, merging, and hybrid choices in TV options will mean that people will make more choices; variety breeds variety. But whoever continues to control or create better must-see content will reign supreme in the land of distribution.