The rise of Platform-Based Competition is enshrined throughout the history of TV. As cable proliferated throughout the United States and Peak TV began, network operators began to use the popularity of their frontline channels, such as MTV or ESPN, to force pay-TV providers to buy others, such as MTV 2 and MTV Classic or ESPN2 and ESPNU. This made roll-ups one of the best investments, if not the best investment, a network could make. One famous case study is NBCUniversal’s 2002 acquisition of USA Networks, after which the NBCUniversal obligated anyone who wanted USA’s networks (e.g., USA and SyFy) to also buy NBCUniversal’s 20 other channels (and the reverse).
The best example, however, comes from AMC Networks. The company’s flagship network, AMC, epitomized the bygone eras of “Access,” when airing old American movies made by third-party studios could be both sustainable and lucrative, and of “Content,” with its hits Breaking Bad (2007), Mad Men (2007), and The Walking Dead (2010) made it a highly priced and widely carried “must-have” channel for an MVPD. But AMC’s story doesn’t end there. Not only is it a poster child for the Platform era, but it was here that AMC Networks truly monetized its flagship series. In 2008, AMC Networks bought Sundance for $500MM. Within four years, it had doubled Sundance’s distribution from 28MM homes to 50MM homes, while hiking its monthly fee by more than a third. The net effect was a 130% increase in revenue at a time when the market grew only 25%. By 2014, Sundance was in nearly 65MM homes and its operating cash flow was up 200%. AMC Network’s leverage over MVPDs was simple: if you want to carry AMC, you’re going to have to buy Sundance, too. And if you don’t, our viewers will sign up with the other cable or fiber or satellite company.
Over its first several decades, the majority of TV profits went to MVPDs. Their investments in “Access”—laying cable networks across cities, digging up family yards, installing lines throughout their home—unlocked new revenues for programmers and were difficult for a later-entrant competitors to profitably replicate. In the “content era,” margins shifted toward TV networks, but price hikes meant that the total profit dollars continued to grow. But the platform efforts of TV network groups rapidly sucked profits away. By the mid-2010s, pay-tv had become an EBITDA-negative business for most cable-based MVPDs. In response, some MVPDs such as DirecTV an Charter began investing heavily in their own cable networks (The Audience Network and Spectrum, respectively) and originals, but the move proved too late. No one was going to go through the hassle of changing a pay-TV provider over a single show they might want to watch (and that most of the country couldn’t access)—especially at a point in which hundreds of new originals were becoming available each year, and thousands more could be streamed on Netflix, Amazon, and Hulu. But most MVPDs had their own platform strategy—upselling a TV customer to a margin-rich and retentive triple-play, quadruple-play, or even penta-play bundle including broadband, landline, wireless, and smartphone service.
Although Spotify’s foray into original content is largely considered a costly failure, there are important caveats. Most notably, Spotify’s contract with the Big Three music labels (Sony Music Entertainment, Universal Music Group, and Warner Music Group) precluded the streaming service from producing or even exclusively licensing original music. Accordingly, Spotify’s original content investments were limited to documentary videos and podcasts, neither of which were a core driver of a user’s choice to subscribe to an on-demand music service and all of which represented a single-digit percentage share of total engagement time. In fact, when Spotify’s podcast strategy began, global podcast revenues were less than 4% of recorded music revenues. Furthermore, Spotify’s competitors, such as Amazon and SiriusXM/Pandora, were quick to replicate, and thus dilute, Spotify’s strategy. Regardless, Spotify has responded by accelerating its expansion into platform services and new business lines. Having acquired Anchor and Parcast in 2019, Spotify now offers a suite of publishing tools and SaaS services for independent podcast producers as well as a proprietary alternative to RSS that enables interactive podcasts. The company also announced an expansion into audiobooks, where Amazon and Apple hold over 80% of the market.