Ask Skip: If Everyone Can Launch DTC, Who Actually Should?

It feels like every network, league, studio, and rights holder can stand up a DTC product now. Once the technology is available off the shelf, what actually determines who should go direct and who should stay with distributors, bundles, or licensing partners?

— Business Development Executive

Not everyone who can launch a streaming service should. The technology has become easier to buy, but acquiring subscribers, keeping them, and running the business still costs a shitload of money.

Versant is testing two different answers to the same distribution question. MS NOW launches its direct membership today at $7.99 per month with a 24/7 network feed, original programming, community features, and direct interaction with its journalists. USA Sports has been accumulating WNBA, Pac-12, Bundesliga, golf, and other rights without launching a standalone paid streaming service. Most Bundesliga matches are instead streaming free on Fandango with no subscription or login required.

A company should launch DTC when the retail margin, customer relationship, and additional monetization it can capture exceed the cost of acquiring customers, operating the service, replacing churn, and potentially weakening the distribution business it already has.

Direct Demand Has to Pay for Direct Distribution

A network can have millions of viewers, a league can have passionate fans, and a studio can own recognizable franchises without producing enough people willing to find another app, create another account, enter another credit card, and accept another recurring charge. Watching something when it’s already in your bundle is very different from deciding it’s worth another monthly bill.

Distribution partners get paid because they remove some of that friction. They already have customers, billing relationships, devices, merchandising surfaces, recommendation systems, and habitual traffic. A content owner going direct takes responsibility for replacing those functions, which turns customer acquisition from somebody else’s problem into an operating expense.

MS NOW has a rational reason to test that expense. Its product has frequent programming, recognizable personalities, a 24/7 feed, and interactive features designed specifically for paying members. Versant also says MS NOW reaches substantial audiences outside traditional TV, giving the service a pool of consumers it can attempt to convert directly. The conversion rate will determine whether any of that audience reach has subscription value.

I understand the logic behind MS NOW. News gives you frequency, recognizable personalities give you affinity, and the membership features create something beyond a straight simulcast. None of that guarantees people want another $7.99 subscription.

MS NOW still has to prove that enough viewers see incremental value in the direct product when so much of the brand already reaches them through linear distribution, clips, social, and other digital surfaces. If membership mostly converts people who already consume MS NOW somewhere else, Versant may be shifting revenue between distribution models instead of creating much new demand.

At $7.99 per month, 100,000 members paying the monthly rate for a full year would generate roughly $9.6 million in gross subscription revenue before taxes, transaction costs, app-store economics, technology, marketing, support, programming, and churn replacement. More subscribers increase revenue, but they also create more customers who have to be serviced, retained, and eventually replaced.

Content Cadence Sets the Ceiling on Subscription Economics

ESPN can justify a direct subscription around a programming machine that includes its linear networks and tens of thousands of live events annually. News has a different advantage because the product refreshes continuously. A service built around a small number of annual events or a thin catalog faces a harder retention problem regardless of how compelling those events are.

USA Sports shows why a streaming strategy doesn’t have to end with a paid standalone subscription. Versant can put more than 270 Bundesliga matches on Fandango for free, monetize that audience through advertising and the broader Fandango ecosystem, and keep selected games on USA Network. World Team Tennis will also run across CNBC and free streaming on Fandango.

Free Fandango distribution lets Versant monetize sports viewing without requiring every Bundesliga or tennis fan to become a monthly subscriber. A standalone USA Sports service would need enough year-round value to acquire customers, hold them between major events, support an acceptable price, and generate more contribution margin than Versant can produce through linear distribution, advertising, free streaming, and partnerships.

Adding more rights can improve retention while increasing the cost base. A service that needs another $100 million of programming to make a $15 subscription retain better hasn’t necessarily improved its economics. The incremental subscription margin has to cover the additional rights and operating costs required to keep the customer paying.

Wholesale Revenue Raises the Price of Going Direct

Media companies with existing distribution businesses can also damage revenue they already collect by creating a direct substitute.

Versant’s linear distribution revenue declined 6.3% year over year in Q2 as subscriber losses outweighed contractual rate increases. That decline gives the company an incentive to build digital revenue, while the remaining linear business still produces cash worth protecting.

A cable network that puts its full premium feed and rights package into a cheap standalone service changes the value proposition it offers distributors and can give existing pay-TV customers another reason to leave the bundle. The direct business therefore has to generate enough incremental value to cover customer acquisition, product and technology costs, churn replacement, and any wholesale economics it pressures along the way.

ESPN entered full DTC from a position very few media properties can replicate. It has enormous brand awareness, continuous programming, high-value sports rights, an existing app, an established streaming subscriber base through ESPN+, and Disney’s technology, bundling, marketing, and billing infrastructure. Its launch also preserved traditional pay-TV distribution rather than requiring an immediate wholesale exit.

A regional sports property, cable network, league, or specialty programmer shouldn’t use ESPN’s ability to go direct as evidence that its own economics will pencil.

Buying the Streaming Stack Doesn’t Eliminate the Streaming Cost

Technology vendors have made DTC dramatically more accessible. A company doesn’t need to invent its own encoder, CDN, billing engine, DRM system, app framework, ad server, analytics environment, or customer-service software. It still has to pay for all of it.

Operating a DTC streaming service requires video delivery, device apps, billing, entitlements, rights management, DRM, customer support, data infrastructure, advertising systems, and the teams needed to keep those pieces working together.

Outsourcing converts engineering problems into vendor contracts, but the service remains economically responsible for the output. More devices create more QA and support work. More subscribers create more payment failures, password resets, refunds, cancellations, and customer-service contacts. More viewing generates delivery expense. An ad-supported tier creates additional monetization while adding another operating stack.

The DTC P&L has to support years of releases, device updates, platform certifications, payments, data operations, marketing, retention, customer support, and content management. 

Customer Data Has to Produce More Than a Dashboard

Owning the customer relationship has genuine value. Direct billing can give a media company more control over pricing, packaging, account data, promotions, churn interventions, cross-sell, and renewal.

I’d rather own the customer than rent them from a distributor. But ownership isn’t free. If I can’t turn the billing relationship, customer data, and renewal control into more margin, I’m paying a premium for control I don’t know how to monetize.

A company that collects first-party customer data without having the product, marketing operation, content depth, or analytical capability to act on it has paid to own a database.

Direct relationships become more valuable when they change decisions. The service can identify which programming acquires customers, which content retains them, which cohorts tolerate a price increase, which subscribers respond to an annual plan, which users can be moved into another product, and which former customers can be reacquired cheaply.

MS NOW’s membership has more potential value to Versant than the $7.99 subscription alone if the relationship eventually supports events, premium experiences, other memberships, commerce, advertising, or cross-promotion across the company’s portfolio. I’d want to see that incremental value before declaring the strategy a success. A database of paying members is useful when Versant can monetize the relationship beyond the initial subscription and recover the cost of acquiring and serving those members.

A Distributor’s Cut Can Be Cheaper Than Doing the Job Yourself

Media companies understandably hate paying a third party a percentage of subscription revenue. The distributor’s fee sits visibly on the P&L, while the cost of replacing the distributor gets scattered across marketing, product, engineering, payments, customer service, analytics, and retention.

That accounting can make direct economics look better in a strategy deck than they perform in practice.

A marketplace taking a meaningful share of revenue can still produce superior unit economics if it acquires customers at a lower cost, reduces checkout abandonment, handles billing, improves discovery, recovers failed payments, and makes reactivation easier. The appropriate comparison is contribution margin by channel, including the cost of performing the functions that disappear when a distributor is removed.

The same logic applies to bundles. Giving up some pricing control can be rational when the package substantially lowers acquisition cost or improves retention. Licensing can outperform DTC when another service is willing to pay more for the content than the owner can generate from operating its own consumer product. Free streaming can make more sense when the audience is large enough to monetize with advertising but unwilling to support another recurring subscription.

Giving a distribution partner too much control over billing, customer data, merchandising, and renewal can weaken the content owner’s leverage. A partner that delivers profitable reach at a lower cost than the company can create itself is still doing valuable work.

Direct ownership becomes more attractive when the distributor’s economics exceed the cost of internalizing those functions or when controlling the relationship creates enough additional monetization to justify bringing them inside.

Owning Distribution Has to Pay for Itself

The companies that should launch DTC have enough direct demand to acquire customers efficiently, enough programming cadence to support repeat payments, enough margin to operate the product through churn and renewal, and enough strategic use for the customer relationship to justify owning it.

They also need to compare that upside with the economics already available through wholesale distribution, advertising, licensing, bundles, marketplaces, and free streaming.

Versant can rationally test MS NOW membership while keeping USA Sports on a different path. News personalities, continuous programming, community features, and direct interaction give MS NOW ingredients that can support a membership proposition. Whether those ingredients produce enough incremental paying demand to cover the full cost of going direct is still an open question.

If the membership creates a meaningful base of consumers who weren’t already generating equivalent economics elsewhere, gives Versant new ways to monetize those relationships, and retains them at an acceptable cost, going direct can pay. If it mostly moves existing viewers into a new billing relationship while adding product, marketing, and retention costs, the strategic control may look better than the P&L.

USA Sports can generate value through USA Network, CNBC, Fandango, advertising, and existing distribution without immediately requiring another monthly subscription. A paid service makes sense when it can produce more incremental margin and strategic value than those alternatives.

DTC should internalize distribution when owning the customer creates more value than the distributor was creating and costs less than the distributor was charging. If it can’t clear that bar, paying somebody else to run the checkout can be the more profitable decision.

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