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Successful value creation requires successful value delivery. The distribution channels
dont just serve markets, they also make markets by converting potential buyers to profitable
customers. The companys cost structures and pricing decisions are directly linked to the
distribution medium of the product or service. It explains why prices are different for the same
product between online channels and physical stores.
Formally, marketing channels are sets of interdependent organizations participating in
the process of making a product or service available to the consumer for consumption. Since
the final price of the product is inclusive of the margins earned by channel intermediaries,
companies continuously strive to reduce channel costs. Digitization of the economy has not
only resulted in better control over the marketing channel but also has created multiple channels
through which products and services can be delivered to consumers. This digital disruption
of marketing channel has revolutionised the Media & Entertainment industry and continues to
do so with the penetration of low cost internet.
Traditionally, TV broadcasting was a niche segment with only a few players. There
were only a handful of networks which could reach a massive audience. In India, television
was launched in 1959 with British Broadcasting Channel (BBC) as the only broadcaster.
National telecasts were introduced only by 1982 with the creation of Doordarshan. The arrival
of the cable TV, couple of decades ago was major revolution of the 90s. The traditional value
chain is described in Figure 2. Offering better signal reception and expanded viewing choices,
it not only fragmented audiences but also introduced an intermediary in the channel namely the
cable operator. The cable operators controlled distribution by deciding which channels they
would carry and where those channels would be placed. This shift, ironically, benefited the
traditional broadcasting companies. Apart from the revenue from advertising, TV companies
now had an alternative source of revenue in the form of fees from the operators. This fees could
be substantial because the broadcasting companies have a near monopoly over pricing.

Fig 2: Traditional Broadcasting Value Chain

 With the evolution of the digital customer the need for rich content and personalized
experience has emerged. The growing mobile internet and smartphone penetration has given
rise to an alternative channel for media consumption. Urban consumers, in the age group 15-
34, which constitutes ~75% of total internet base, have been early adopters of OTT (Over the
Top) VoD (Video on Demand) services.
Streaming video is changing every existing relationship in the TV value chain. The very
neat and structured relationships studios and rights holders relying on broadcast and cable
networks to air their content, and networks relying on pay TV distributors to deliver their
content into peoples homesare no longer intact. The industry is now able to bypass cable
operators altogether and sell direct to the consumer through OTT platforms. Digital players
like Google, Amazon, Netflix, and Facebook have emerged with entirely new business models
combined with diverse content to engage users. Three forces responsible for this revolution
are:
1. Advances in technology
2. Increasing availability of high-quality content
3. Low-cost content production models.
A typical OTT video chain comprises of 4 layers of stakeholders. (1) Content Creators
(2) Aggregators (3) Digital Video Platforms (4) Infrastructure providers which deliver the
content to the users.

The disruption of the TV industry, as in other media industries, will be attributed to the
changing role of distribution as the driver of value. As the industry shifts from an incentive
based model, aligned across the value chain, to a one without intermediaries, companies need
to strategically reinvent their offerings to get ahead. In response to the growth of online and
mobile services coupled by changes in consumers preferences industry incumbents are
gradually developing new offerings to compete. Some companies formerly bound to a specific
industry functioncontent creation, aggregation, or distributionare now filling all three
roles at once. Netflix, which started out as a distributor in the value chain (offering movie
DVDs on rent) has evolved into an aggregator (streaming movies online) and content creator
(House of Cards, Narcos, Orange is the New Black).
Content creators, networks, and distributors have collaborated to deliver their
traditional, facilities-based services over the Internet through TV everywhere. Cable and
satellite operators are creating on-demand services, building navigation layers, and enabling
consumers to view content on multiple devices. Networks are spending more for premium
sports and entertainment content. The three video-on-demand business modelsadvertising
supported, TVOD, and SVODcontinue to earn healthy returns.
In other words, while online-content networks and aggregators have assumed an
increasingly important role in the value chain, many traditional content providers have made
investments to stay in the game. However, to stay competitive in the digital era, it is important
to understand how the online ecosystem has created multiple prospects to gain sustainable
competitive advantage in the coming era. Four scenarios appear in the foreseeable future.
1. A global remote to solve the discovery problem: As viewers embrace new ways to access
video, they are challenged to find the specific content they want to watch. A plethora of
content is available across FTA programming, pay TV, and internet based offerings, but
consumers cant access and stream all video content across devices using a single point of
navigation. A business that can integrate these ecosystems and become the go-to, anytime-
anywhere access point for TV, smartphone, and tablet viewing will create a huge
competitive advantage. Cable service providers with broadband infrastructure are
especially well positioned to develop such a business.

2. Exclusive entertainment as a strategic asset: Certain types of content, such as serialized

dramas and top-tier sports events, are becoming increasingly popular with viewers, and
distributors and aggregators can capitalize on this trend by locking up exclusive
entertainment content. Large online aggregators such as Amazon and Netflix are already
making big bets on exclusivesnot just buying rights but also creating and distributing
their own original series. Netflixs spending on original programming will skyrocket from
$5 million in 2012 to $550 million in 2017. In February 2015, Star India bid Rs302.2 crore
to win the global Internet and mobile rights for the Indian Premier League (IPL) for a three-
year period. The 2017 IPL season alone saw Hotstar, the digital streaming platform of Star
India earn in excess of Rs200 crore as advertising revenues and consolidate its position as
the leading platform in India for digital consumption.

3. Distribution Disintermediation: For networks with strong brands and ownership rights, the
ability to reach consumers over the internet has led to new monetization opportunities.
Networks can deliver content directly to consumers and dont have to share revenues with
cable and satellite partners. However, they must attract enough subscribers to make it
profitable, without the benefit of the cable or satellite providers customer base. As such
the pricing should be lucrative enough to attract customers and should also compensate for
 likely losses in traditional subscriptions. TV broadcasting networks with a good brand and
top-rated sports and entertainment content will be the most likely to gain the requisite
subscriber numbers and plan price points to succeed.

4. Live online TV: The reason for traditional TV to still exist is that they still offer live content
across all categories (news, entertainment, sports). Online aggregators that can integrate
live content with their own on-demand offerings and price the bundle appropriately, will
transform their value proposition for consumers, in effect offering the advantages of
traditional TV bundles combined with the advantages of an online provider (without
intermediaries). To achieve this, online companies will require many networks and content
owners to license them the rights to live broadcasting which will not come easy or cheap.