In this brief quarterly summary, I am going
to make references to our published research,
as well as to blogs and conferences we have hosted and attended during the past
6-9 months. However, the information
should still be relatively coherent regardless of your attentiveness to those
events.
a)
Market Trends. Ten (10) major trends continue to define the
2nd Screen market in terms of consumer engagement and monetization:
1)
Hype and disillusionment. First and foremost, similar
to my letter to 2nd Screen Society members in our annual
journal, the second screen market is in the life cycle stage somewhere
between the Hype and Trough of Disillusionment (a graphical metaphor developed
by Gartner). The natural consolidation
of such a nascent space (both by failure and M&A) and the hangover from
journalists and investors from the previous market hype is going to generate a
fair amount of negative press. But as
sure as the web did not die after the 2001 dot com crash, neither will 2nd
screen go away because of failed investments, poor user experiences or negative
press. Keep in mind that what is driving
this market isn’t prescient investors or clever experiences, but the sheer
proliferation of tablets and smartphones and consumers’ natural tendency to
reach for them while watching “TV”.
Evidence of consumer engagement and monetization is what all of us
should be focused on—not salacious headlines in the press.
2)
An ecosystem, not an app. Chromecast continues to make
their push into the marketplace. While
so many players in the market place focused on an app, Google was able to catch
Apple and Samsung sleeping by launching an ecosystem that enables any app to
leverage its own UX for Discovery
and leverage the Chromecast receiver (and the DIAL protocol) for Control. Expect to see “Cast enabled” apps to start
showing Enhanced
Viewing experiences to take advantage of the 2-way DIAL
protocol (demos already exist) that by definition enables synchronized 2nd
screen delivery. I am still surprised
that neither Apple nor Netflix have responded yet. Apple is starting to show evidence (some
AirPlay implementations free up the phone) and we have seen the Netflix
experiments in the marketplace for sometime.
Samsung seems to have changed direction, letting go most of the internal
staff that was driving their second screen investment in San Jose in favour of
outsourcing the work to third parties.
3)
Convergence of companion and
viewing experiences. The majority of mainstream apps are now
figuring this out either by necessity (implementing Chromecast)
or by competitive forces (CBS, Fox, Turner’s sports apps, etc) or out of the
need to better monetize their investments (dynamic video ad insertion). With the continued proliferation of smartphone
sizes (phablets) and the march of the full-sized tablet, expect this to become
the norm in 2014, developing for 2 primary consumer use cases: the consumer in
the living room with mostly companion experience functionality and the consumer
on the go (or the millennial) who requires primarily streamed video with less
visual real estate given to the companion experiences (mostly discovery and
social except for sports which are focusing on social and scores).
4)
Ad supported video on mobile
and connected living devices. Our Q3 summary touted Comscore’s tracking of
22.9B video ads and December’s report contained 35.2B video ads—a 54% increase
in only 3 months. Further evidence
continues to reveal itself that the 2nd screen is becoming (or
already has become) the dominant digital video viewing device in the
marketplace, with 64% of the BBC’s iPlayer traffic taking place on smartphones
and tablets the day after Christmas.
With Aereo pushing their services into more markets and more platforms
(now on Roku), expect the major networks to respond by pushing their direct to
consumer ad supported services to the same “Connected Living Room” platforms to
attempt to capture that consumer directly.
5)
Monetization. We spent significant research
effort in Q4 to help identify where the successful monetization is taking place
and to try to quantify the size of potential prize for app publishers. Viggle, a publicly-traded leading brand in
this space, is attracting $7.27 per active user per quarter. They are once pace to do more than $40 million
in the next 12 months—not bad for an app that launched in early 2012. This market is marching forward on pace to
grow more than 300% over the next 4 years, buoyed primarily by advertising and
eCommerce. Taken another way, Tivo
announced a definitive agreement to acquire Digitalsmiths, the leading
Discovery capability provider for TV services in the second screen market for
$135 million in cash—certainly a successful exit for their investors.
6)
The rise of the mobile web. While PC sales continue to
decline at alarming rates, they are being supplanted by the 2nd
Screen. The combination of the explosive
growth of social media and general app fatigue has conspired to make the
“mobile web” the preferred method for consuming short form media and
entertainment. The positive impact of
this trend is that well known brands can more easily overcome the consumers’
inertia to install new apps; something that requires an investment in
responsive HTML 5 both within app and as a mobile web experience.
7)
The rise of ad blockers. Per our previous
identification of this trend in our Q3 summary, the challenge presented by
video and display ad blockers to the second screen ecosystem is both a threat
and an opportunity. The percentages of
affected revenue appears to be rising in certain demographics (gamers,
millenials), while the reduction in consumer engagement from PCs verse the 2nd
screen seem to be positively affecting the bottom line. App publishers need to keep a close eye on
the technology and demographic trends lest they find their most opportune
monetization strategy hijacked by ad blocking services.
8)
Social TV. There has as of late been negative
press about the prospects of Social TV while at the same time near fervor
around Twitter Cards and Facebooks autoplay videos (with potential
advertisements). If Vine and Instagram
Video are any indication of how powerful short form videos can be in social
media, you shouldn’t be surprised to find NextGuide’s Reminder service and
Twitter/Comcast’s “SeeiT” feature being combined with in-line video
advertisement directly in your second screen app (whether dedicated to social
media or as a companion or even viewing experience). Video has always been more engaging for
advertising to consumers than display or text and now that the technology is
catching up with the medium people use to communicate with real measurability,
the dollars will quickly follow.
9)
Consolidation. Ironically, this trend
should not be surprising to anyone in the technology venture space. It is well understood that the vast majority
of new technology ventures fail in the first few years (90%+) and the vast
majority of the successful ventures are then acquired by larger incumbents
(called a “successful exit” by the investors), yet somehow the press takes this
as an indication that the market is doomed.
How many Pets.com’s failed in the late 90’s? Yet Amazon is surely proof that eCommerce is
a successful business strategy (and market segment) and just because they
acquired MyHabit and Zappos does not mean those companies failed but rather
they succeeded. While disappointing that
Yahoo shuttered IntoNow (acquired 3 years earlier), the successful exits of
Digitalsmiths, Dijit and Unicorn Media are positive indications that investment
is continuing to pour into successful business models as larger companies begin
placing their bets in this marketplace.
Remember that a company needs both a successful consumer engagement
strategy and a successful monetization strategy to survive through to
positive cashflow.
10) Discovery. TiVo is certainly betting that Discovery is
one of the hardest and potentially lucrative facets of the second screen user
experience. Their purchase of
Digitalsmiths puts them into the white label discovery service for a huge
portion of the U.S. pay TV market. There
is something incredibly powerful about being able to use an interface you are
familiar with to search for content across multiple services. NextGuide, Fan and BuddyTV have all been
chasing this powerful consumer use case.
Chromecast is betting that the best Discovery UI is the app you already
know well (Hulu, Netflix, etc), combined with the ability to push that content
to your larger first screen. Iris.tv is
taking a different approach, providing a service to video publishers that
quickly assesses the consumer’s viewing habits based on what they are watching
to concatenate other desirable clips into a TV-like experience, increasing
viewing time by as much as 30% (their claim)—which increases revenue by the
same in ad supported models.
b)
Market sizing. We took a bold stance in our research report
(page 55)
on revenue in the 2nd Screen space,
claiming that 2012 had already seen $490m of attributable revenue from this
market segment and the we expected the market to reach $5.9B by 2017. When I stood on stage at CES 2013 to discuss
this, there was a lot of disbelief in the crowd. We walked the room through the breakdown of
mobile and online video advertising ($6B
growing to $17B) and m-commerce ($76B growing to $158B) and out logic for the
incredibly small sliver of those markets that will be captured by 2nd
Screen experiences in the living room. Right
out of the gate, Super Bowl 47 had press for CBS Interactive claiming to have
sold $10-12m in advertising for the 2nd Screen along. While m-commerce has not yet taken off, the “Show
me the money” panels we have moderated over the past few months continue to
demonstrate a few strong trends in the space around interactive advertising
(CPT or Cost per Touch via @JesseRedniss),
Tune-in revenue (classic affiliate model), display advertising, and the
lucrative in-stream video advertising powered by new technologies that combined
the video stream and ads for converged sporting apps and mobile experiences on
the fly with CPMs that are already challenging classic broadcast TV in value. Mentioned several times above, Viggle with a
mere 3M active accounts is attracting revenues of $4.6M per quarter currently,
but growing at a rate of 289% year on year.
The market is revealing itself rather quickly and our latest forecast has
this market growing to nearly $9 billion by 2018.
c)
Consumer app experience. To round out the Q4 view, we
should look at what applications have significantly improved their feature
set. This is important because no matter
what the revenue or business model is for a particular app experience or
ecosystem, if the consumer isn’t engaged and using the app on a regular basis,
there is no opportunity to attract revenue.
1)
Sports. The Super Bowl made strides across multiple
sets of apps, but especially in the NFL’s official app. However, HuluPLUS surprised everyone by
building a companion experience for the ads of the Super Bowl, allowing you to
vote on which ads were your favorite, driving their ranking higher in the app
itself.
2)
3rd Party Apps. Xbox Smartglass for Xbox One has been even
stronger than its predecessor. Rosa
Thomas did an amazing job demonstrating a number of the newest gaming apps
with 2nd Screen experiences at CES.
Machinima’s Wingman app and the NBA’s Gametime app will only further
cement that dominance.
3)
Network apps. Showtime Sync continues to develop is
companion feature set while a wide panel of show producers confirmed how
important companion experiences are in NATPE’s published research.
4)
Converged experiences continue
to gain momentum. HBO, CBS and Fox
continue to further develop their converged consumer experiences. However, in the next few weeks both the
Masters and March Madness will come out with their 2014 app
experiences—something worth waiting for is past experience is any guide for us.
The conversation at CES 2014 was fantastic,
with more than 350 people joining us for our Monday afternoon event in Las
Vegas. We are looking forward to
continuing the next conversation over dinner at MWC in
Barcelona on February 26th in Barcelona and at 2nd Screen
Sunday @ NAB in Las Vegas on April 6th (www.2ndScreenSummit.com), and of course through our blog
and Twitter activity (@ChuckParkerTech,
@S32Day).
Look out for the next quarterly update on our
research in general and a deep-dive report on sports on April 6th at our NAB event.
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