Thursday, July 25, 2013

Ad Supported Video's Potential Impact on Pay TV Providers

15 months ago, I wrote a blog in about the resilience of the Pay TV providers (Cable, Telco, Satellite) in response to the enthusiastic self-espoused "cable killers" I met at Greg Fawson's OTTCon in the Bay Area during March, 2012.  The blog (linked here) essentially described the forces as work in  both the TV and movie distribution worlds, where the money flowed, how people access content, etc.

Friday, industry stalwart Jeremy Toeman published a great blog (in his "rant" style) about people in the market place enthusiastically promising to "disrupt" the TV industry.  In a similar fashion he described where the ad money is placed, how it flows to TV productions and distribution, how much major shows like House of Cards cost to make, etc.  Fully agree with his points.

I do wonder though what happens when the forces of an ad supported TV economy on personal (digital, IP-driven) devices runs into the access provision economy built around gating access to TV and movie content.  As we discussed a week ago (link to blog), TVOD or transactional VOD came of age in the early- to mid-2000s, culminating with iTunes being the dominant player.  But the Pay TV provider industry countered with their own PPV and VOD services, assaulting the consumer on the UI where they are still spending the majority of their 37 hours each week--the plain old TV mostly served by a cable box of some sort (and yes, an ugly grid guide).  The IP-enabled OTT internet launched SVOD or subscription VOD services in the late-2000s, with Netflix taking the crown rather early and with Hulu and Amazon Prime now moving quickly to take their share of that market.  Cable's answer?  StreamPix (Comcast) and Redbox powered by Verizon.

Having moved on 4 or 5 years, we are now seeing Aereo assault the Pay TV providers by offering access to broadcast TV that used to be "free-to-air" for nearly all consumers, but became part of the cable package for them decades ago and became the "re-transmission drug" that all content creators got hooked on.  The obvious question here is what will Pay TV providers do to respond to the rise of AVOD or Ad Supported Video on Demand?  We have seen the TV content creators and primary distributors (the Networks like ABC, NBC, CBS and Fox) respond already.  They created Hulu after all in an effort to get closer to their consumer and to help AVOD get through the ad supported digital video market birth canal.  We've see them develop "free to air" TV windows in the US and in the UK, but essentially offering "catch-up" TV in these and other services, making the episode available 24 hours after the broadcast airing and then available for only 3-4 weeks before being "vaulted" again under a TVOD or SVOD window.  But what if the rest of the networks follow CW's lead and start putting their shows out on the iPad, Apple TV, Roku, and Xbox in an ad supported model without the requirement of a subscription?  What if they do the unthinkable and start simulcasting their content, attempting to improve their CPM mix with their advertisers by adding in the naturally higher CPMs a tablet can offer the distributor over classic broadcast because of the personal knowledge about that consumer.  What if Samsung or Amazon go all in with an ad supported video strategy, aggregating the content from the 4 major TV networks in an Apple-esque model where the content rights holder keeps 70% of the advertising revenue instead of the 50% often seen in channels today?  While the industry loves to write about a la carte programming, unbundling of content, and the impact of cord cutters and "cord nevers" on Pay TV providers, having simulcast access to ad supported TV may actually be the catalyst that changes the landscape cataclismically. As a consumer, you might one day be able to subscribe to MLB TV, the NBA Seasons Pass, or even the NFL (DirecTV's Sunday Ticket rights are up the end of next year) for your sports fix, subscribe to HBO Go and Netflix for your movie fix, and leverage Hulu Plus or a yet to be announced aggregated AVOD service from a major CE player like Samsung, Xbox or even Apple for all of your "broadcast" TV needs.  While I agree 100% with Jeremy Toeman's point that at the end of the day, the total money flowing back to content creators has to be the same or we will not have shows like House of Cards being created for $100m, it is very conceivable that the consumer's "$85 Cable Bill" is a mixture of SVOD services, sports subscriptions, and access to ad supported TV.  Looking at Amazon's assets (strong and growing TVOD and SVOD services already being offered), it would almost be obvious for them to make a run at this exploding market place by adding AVOD to their repertoire, allowing consumers get their content when and how they choose.  

Regardless of who brings it to market, it seems to be inevtiable that strong content discovery UX tools like NextGuide, BuddyTV or Vidora combined with "micro SVOD" services like HBO Go, sports league subscriptions, and an aggregation of transactional, subscription and ad supported content are going to change the way consumers access their 37 hours of content each week in ways we don't yet understand--and this is going to happen much faster than we think with mobile video forecasted to grow more than 25% per year thanks to the continued proliferation of smartphones and tablets in nearly every western market.

Conclusion?  I would expect the current Time Warner Cable - CBS battle over re-transmission fees to become the norm until the confidence in simulcast IP-delivered ad supported digital video rises to the point of revenue parity for the broadcast networks...and then the world will change (or at least the living room will).

Tuesday, July 16, 2013

An Explosion of Ad Supported Video on the Horizon

I am sure most of you remember the excitement in the industry when digital video downloads were just getting started.  While Curt Marvis had taken CinemaNow to market in he early 2000s, it was in 2005-2006 when iTunes hit the scene that serious investment started pouring into the space.  And then in early 2007, iTunes launched its TV episodic product and later that year Hulu launched.  While real transaction numbers started to build, I had a curious conversation with an Xbox executive who, while on one hand was excited at how well the Xbox Live Video Marketplace was doing, he was on the other hand dismal about the prospects for growth.  "If consumers are really watching 37 hours of TV a week, no one can afford $1.99 per episode to do it--that would be larger by far than even the biggest cable bills."

Tuesday, July 9, 2013

Renewed Investment in the 2nd Screen Industry

In the last few weeks there has been notable activity in the 2nd Screen space.  Watchwith raised $5 million and ConnecTV raised $1.4 million.  In the Discovery space, Matcha closed its operations while Squrl and Vidora launched consumer-oriented services.  Yahoo bought Qwiki (for creating user generated 2nd Screen content) and Samsung acquired Boxee (presumably to attack the digital video end of the living room).  And then over the weekend, billionaire Carlos Slim announced he was investing $40 million into Shazam to accelerate their pivot from a music service to a second screen TV advertising service.  So while we have predicting that the space would consolidate (with some evidence that consolidation is taking place), there is enough market interest in the growth potential of the space to attract new investment and new services.