Pacific Crest On The Future Of TV: 'The Internet Is Here And It Only Knocks Once'

In a report published Thursday, Pacific Crest analyst Andy Hargreaves discussed the future of TV and what role the Internet will play. According to Hargreaves, the Internet has finally become a "legitimate distribution alternative" for professional content as Internet services are reaching a global scale that can compete with traditional media companies. The question investors and TV enthusiasts want to know is who will emerge on top and who will be left behind. Netflix, Google Will Be ‘King' Hargreaves answered this question, noting that "content is king, but only if it can be found." Economics for distribution should be good, but there is only room for the largest and most differentiated players which consists of Netflix, Inc. NFLX and Google Inc GOOG GOOGL. Netflix is the largest, fastest and most efficient buyer of non-sports premium content with a proven ability to "learn and adapt" at a rapid pace. As the company achieves a global scale by the end of 2016, efficiency should increase, which feeds back into content buying. Google's YouTube platform also stands out as "king" with its on demand content where everyone can find content they enjoy. As the analyst pointed out, "everyone on the Internet" has watched Psy's Gagnam Style video more than twice. Linear Bundle Will Shrink On the opposite side, the analyst argued that the linear bundle will "shrink" and be delivered online. As such, distributors will need unique content and rapid development cycles to maintain meaningful profitability. This is a negative trend for Comcast Corporation CMCSA, Time Warner Cable Inc TWC, DISH Network Corp DISH and DIRECTV DTV. Hargreaves argued that the bundle will "evolve," but likely won't go away. This can be partially attributed to the fact that sporting events are not going to leave the linear bundle any time soon. As such, sports fans will have no choice but to continue purchasing the bundle as sports rights are locked up by major broadcast networks beyond 2020 with NBC's coverage of the Summer Olympics extending all the way to 2032. Interestingly, Hargreaves stated that Apple Inc. AAPL stands to benefit at the expense of distributors with an Apple-branded virtual MVPD (multichannel video programming distributor). The company could be the first to offer an alternative online linear service compared to what is available through a traditional MVPD. The Middle Is A ‘Bad Place To Be' With the potential winners and losers identified, Hargreaves pointed out that the content providers stuck in the middle will have a difficult time competing. Serialized dramas that allows consumers to "get deep into characters" in a way that was impossible before will benefit. One such example is AMC Networks Inc AMCX's Breaking Bid sitcom. In addition, sports that have a dedicated fan base (but not large enough to support live ratings) are likely to find success in attracting an online audience. On the opposite side, "broadcast style sitcoms," or "family" style shows will likely have less appeal when all members of the family have online access to specific shows they want. In addition to AMC Networks, the analyst singled out Time Warner Inc TWX, Walt Disney Co DIS, CBS Corporation CBS and Twenty-First Century Fox Inc FOXA as being well positioned to compete.