I would not disagree with Dennis that this is indeed a pivotal moment for the industry. However, the real issues facing the industry go far deeper and are far more radical than those quoted above.
For almost 80 years, TV has been structured as a vertically integrated market. Broadcast TV networks have commissioned and financed content creation, distributing the output in a linear framework, the TV channel. Those channels were broadcast on specifically formatted terrestrial transmissions to bespoke receivers.
In this world, production costs were high, and a terrestrial broadcast licence was a scarce and valuable asset that conferred significant competitive advantage on the owner.
Over the last twenty years, the costs of content production have fallen dramatically. The number of alternative content distribution methods (satellite, cable and latterly online) has increased significantly and distribution costs have fallen. As a result, content has become abundant, with multichannel TV almost ubiquitous in the developed world and internet delivered TV increasingly popular. Indeed, at 29 million, Netflix has the highest number of subscribers of any TV service in the western world (pre completion of Comcast’s Time Warner Cable acquisition).
Despite these major changes, the long predicted demise of the traditional TV industry has never quite materialized. Indeed, viewing figures for traditional linear TV have proved remarkably resilient to the attempts of on-demand internet video, mobile communications, and social media to dis-engage consumers from our TV screens.
The traditional TV industry has been shaken, but not yet stirred.
However, I do believe the time has now come where the relationship between the viewer and traditional linear TV channels is about to break down.
Three factors converge to undermine today’s broadcast TV business:
- The increasing challenge users face in finding content they actually want to watch
- The emergence of “multiscreening” – simultaneous use of mobile (smartphones and tablets) while “watching” TV
- The move of OTT players into content production
With todays electronic program guide (EPG), viewers today are faced with the task of paging through hundreds of channels that have to be searched in order to find something interesting to watch. Attempts have been made to increase the utility of program search through pictorial “cover flow” on-demand services. However, those experiences still present the viewer with limited choice and long search times. These processes, based around the use of the TV remote, are now beyond the tolerance of even the most patient of viewers.
What’s more, as the range of choices increase, the long tail of poor quality content increases disproportionately making search even more challenging. TV-based content search is no longer fit for purpose. The rise of “binge” consumption – watching whole series of programs at once – speaks in part to the challenges users face in finding content they like. Increasingly, users identify with a series - NCIS, Game of Thrones, House of Cards - rather than the channel that is showing those series.
Increasingly, the user is using tools available outside the TV to find the content they want to watch. The main tool they are turning to is the mobile device (smartphone and tablets).
The mobile is enabling the user to more easily curate their own content, a historically played by the TV channel. As users use mobiles to make choices based on series rather than channels, power is shifting away from the channels towards content producers. And as content search transfers to the mobile, traditional broadcasters lose one of the traditional broadcasters key USPs – a position at the top of the EPG.
According to Ofcom’s Communications market report, 2013, over half of TV viewers in the UK now use their smartphone and/or tablet while watching TV. NBC reports similar numbers in the US.
Most research still suggests users remain engaged with what is going on on TV while tweeting to their friends or checking out who’s saying what on Facebook. However, users clearly seek to multitask while watching TV. What is more, the accelerating adoption of tablets (UK penetration doubled to 24% in 2013) has dramatically accelerated the scope of multiscreening. Over 80% of tablet owners are likely to multitask with other media while watching TV.
Hence, there is clearly a need for the TV industry to seek to provide a mobile component to the TV viewing experience, whether that be content search, social media, or enhancements to the program they are watching.
The challenge for traditional broadcasters is that this is not natural territory for them to occupy. Device control and content search is a cross-content function more naturally handled by equipment manufacturers or platform operators. Social media is the domain of …. well, social media players (as attempts to date to aggregate social media and content control in one app will testify to). It’s only in providing franchise or content specific apps that the broadcaster has a natural opportunity to add value and engage audiences effectively.
The OTT threat
Lastly there is the ever growing threat of competition from OTT players. After many years of developing their services based on back catalogue content, Netflix, Amazon, Microsoft and Yahoo have all now started to invest in original premium content to attract consumers.
This is perhaps the most significant issue for the TV industry. Users are for the first time buying an OTT service to get access to NEW premium content experiences, not just to relive old ones. That is precisely the principle on which satellite and cable platforms have attracted paying subscribers over the last twenty years.
Taken together, these trends threaten to further accelerate control of the TV experience from the TV to the mobile device, and in so doing encourage rapid adoption of OTT services that provide original content. While this may not switch viewing away from traditional channels overnight, it will accelerate audience fragmentation and shift power towards both OTT players and content producers.
Long live the program maker.
So how should traditional broadcasters react? Clearly the TV channel will not disappear overnight. The traditional industry has time to react. However, broadcasters must start now to make serious efforts to re-shape themselves for the inevitable changes that are being brought by the internet age.
At a time of major market disruption, an organisation needs to look at itself and understand what its core mission and purpose is. What is its USP? What is its core competence? How does it add value to the consumer?
The new world of internet distributed and mobile controlled content is a world where the quantity of available content is high but quality content is scarce. In this world, quality and premium branding will out. Brand presence backed by quality programing will be essential to engage consumers.
This plays to one of the key strengths of the traditional broadcaster - content commissioning and creation. Broadcasters need to unhook themselves from the means of distribution, reshape how they finance, aggregate and curate content, and seek to deliver a service that is excellent across all distribution channels, including in particular smartphone & tablet. It also means reducing reliance on EPG positioning to secure audiences, and focusing on the development of a presence on App stores and other online market places.
Others will be seeking to occupy the same space. Over time I fully expect that the distinction between major production houses and network channels will be lost. Both will be financiers of content. Both will offer content direct to the market through the content search and discovery interfaces of tomorrow.
However, the alternative for the broadcaster is that they go the way of other traditional industries – print media, music, and increasingly the mobile network operators themselves – consumed and supplanted by Internet giants and other, more nimble, “Over The Top” players.