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APOS 2014,SVOD

Chernin Outlines SVOD Gameplan

At this year’s Asia Pacific Pay-TV Operators Summit (APOS), Peter Chernin outlined plans to launch dozens of paid online video channels in the US – a bet on a TV future characterized by big hits, niche content and almost nothing in-between.

“It’s always a good time to be a big hit player,” Chernin said. “Right now, it’s a better time than ever to be a marginal player. There’s such a voracious appetite for content.”

Two key pieces are already in place: backing from US telco AT&T, which recently entered a US$500 million co-investment deal with The Chernin Group, the media production and investment firm Chernin founded five years ago; and a distribution platform in the form of Crunchyroll, an anime streaming site The Chernin Group took over in December.

Crunchyroll, which already has ~300,000 subscribers paying for its Japanese anime, recently launched a freemium channel focused on both first-window and library Korean drama from KBS, MBC, SBS and CJ E&M.

'A Huge Opportunity'

Chernin feels there’s room for more focused services. “With SVOD, there’s a huge opportunity for targeted verticals,” he said. “That’s certainly the area we are focusing on with Crunchyroll.”

Data from AT&T on people and their preferences should accelerate the opportunity, he added. “Our goal is to launch as many as 10, 20, 30 targeted vertical channels, which hopefully will have interest to subscribers.”

Crunchyroll was a home-run investment, Chernin contended, as its anime business alone should double or triple in size over the next two years. Nonetheless, the nascent market for online video promises larger returns.

“OTT or the migration of television to digital delivery will arguably be the fastest growing sector of the media business in the United States, and I think it’s in the first inning,” remarked Chernin, who used to run News Corp’s film and broadcast arm as the company’s president and COO.

“It’s sort of equivalent to investing in the cable business in the mid-80s,” he added. “I like to say if my dog had invested in a cable channel in the mid-80s, he’d be a billionaire today.”

Crunchyroll, with 70% of subs in the US, is the fourth-largest SVOD player there, he noted, albeit some way behind the other three: Netflix, Hulu and Amazon.

Nonetheless, as broadband distribution reshapes the TV industry, Chernin feels AT&T’s network infrastructure and The Chernin Group’s content experience can combine well to adapt to the changing landscape.

“You’re seeing the economics of the middle get squeezed,” he said. “The middle used to be a place where there were vast, and I would say probably inappropriate profits being made, because there was just an appetite and not enough really high quality stuff. That’s going to get squeezed significantly in the years ahead,” he predicted.

“If you’re a content creator, you’d better be doing stuff that’s quite extraordinary and really stands out, or you should be doing stuff that’s really cheap and has a lot of volume.”

Options In Asia

The focus in Asia meanwhile, where Chernin Group investment subsidiary CA Media is run by Paul Aiello, has been directed more towards traditional media.

These include financing and strategic advice for NET, a young free-to-air network in Indonesia backed by the Indika Group, as well as a 49% stake in Endemol India, one of the country’s largest production houses.

CA Media has also incubated and backed digital content companies in India, but has steered clear of backing the country’s distribution platforms, which are in need of capital as the government instigates a massive phased switchover to digital TV.

“We have looked at various things, and have chosen not to do it,” Chernin explained. “These big distribution businesses right now are very capital-intense.

“On the other hand, the growth of digital distribution in India is going to create lots of value across the spectrum for other players, and we are participating there.” 

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