More Than an Idiot Box

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Services like Netflix, Amazon, Hulu, etc.
have changed the way we perceive televised content.

“Consumers are in control”. This might be the headline tomorrow if anybody decided to splash a story on television viewing across the front pages of newspapers, with the story beneath talking about how an ever-expanding array of channels, platforms, devices, experiences, and choices is positioning customers to dictate the future of television for a foreseeable amount of time.
The television industry is currently in a disarray, with multiple disruptions hitting it from all sides. For years, the model for broadcast has been simple – advertiser-driven. Advertisers paid the networks to broadcast their messages to a large group of TV households. For the cable industry, cable programmers used a subscription model, paying good money for good programming.
But now, the industry is in a turmoil, being turned upside down because of Internet connectivity in homes, Smart TVs and an ever-widening array of viewing options for people. Ultra-cheap streaming video options and television services are cutting into the market share of the long-time cable television powerhouses. Television appears to be assailed by a range of digital challenges, but how is it faring in this environment?

Proclamations of doom by commentators on the internet about the future of television are easy to find. Every major technological advance, such as the Internet and tablets has prompted a flurry of misguided obituaries for traditional television.

But regardless, traditional television’s current nemesis is subscription video-on-demand (SVOD), a service that delivers television programming via broadband networks. This is seen primarily as a challenge to traditional pay-TV providers but is also perceived as a potential threat to free-to-air broadcasters. SVOD competes for spend, as well as for on-screen talent, programme producers and writers, and viewer attention.

Faster and better broadband have made SVOD a commercially viable proposition, and user numbers and revenues both appear to be growing rapidly. The best-known SVOD provider, Netflix, has over 50 million subscribers in over 40 countries; and investors’ faith in the company is such that as at the beginning of August 2014 its market capitalization was over $25 billion. The critics have been impressed too. Netflix had 31 nominations (compared to HBO’s 99) in the 2014 Emmys for shows for which it is the distributor.

However, research by Nielsen has found that SVOD is only a small part of overall viewing: among the top 20 percent of US viewers who used streaming to get programmes, their average streamed content was 22 minutes per day, compared with an average of 242 minutes for their watching of live TV.

At the same time, most discussions about SVOD focus on new players in the TV space, most commonly Netflix, Amazon, and Hulu. However, the SVOD market globally also includes services provided by traditional pay-TV companies and free-to-air broadcasters, many of which are extending their SVOD offer, including giants such as HBO in the US and Hotstar by Star India.

The total value of global premium sports rights in 2017 stood at $47 billion as per Inside Sport. Key drivers of the increase are new domestic broadcast deals for major North American sports properties, namely the NFL, NHL, and NASCAR, all of which are delivering a substantial uplift in rights fees compared to previous deals.

Many commentators continue to ask when the sports rights value ‘bubble’ will burst, leading to stagnating or declining rights fees. Consulting giant Deloitte’s view is that rights fees for live rights to premium properties will continue to grow.

The premium live sport continues to deliver large audiences, typically with an attractive demographic profile. It drives subscriptions and can generate advertising for broadcasters, particularly in an increasingly diverse media landscape. The development of pay TV, in particular, has transformed the broadcasting of premium sports leagues. Live content is a key subscription driver and underpins pay-TV business models. As the pay-TV subscriber base rises and revenue per user grows, operators are investing increasing sums to secure this key content.

Along with substantial growth in rights fees, there continues to be further investment in the quality of broadcast production for sports. Premium rights owners face a continual challenge to ensure cutting-edge broadcast quality, for example by evaluating the viability of coverage in ultra-high definition.

It is important for broadcasters and production teams to review continually the technologies available to them, in order to enhance the value that their viewers derive from watching sport. For the television experience, this includes UHD, super-slow motion and an enhanced choice of live matches. On-demand services available to viewers include camera angles, player tracking, instant replays, statistics, and commentary. Making all of this available, not only on the television but also through any other device that fans may want to use, should increase the perceived value of the experience, even if these additional viewing options are seldom exercised.

At the same time, such on-demand innovative delivery can be made via channels such as smartphone application, similar to how ESPN has been operating over the past few years. Rather a worrying prospect is the selling of premium sports right to social media platforms, such as the case of Facebook buying rights to show La Liga games in India.

If you were to ask a hundred senior executives to name five innovative companies, you would likely end up with a list dominated by Silicon Valley’s finest but bereft of traditional media companies. If you were to compare the research and development budgets of the top ten technology companies with those of broadcasters, you might struggle to find sufficient broadcasters with R&D teams of any scale.

This does not imply, however, that the traditional television industry is not innovative. Rather it reflects popular perceptions of ‘innovation’ which tend to focus on disruptive technology-centric innovations, such as the self-driving car, delivery by drone or tablet computers.

Television’s innovations are typically smaller in scale and greater in quantity: the aggregate of all these changes over the last decade is a television service which for consumers and suppliers alike is distinct from a decade back, and which has retained audiences and grown revenues despite the recent surge of digital and digitally-enabled distractions.

The TV industry has survived this decade of change through reinventing itself technologically across multiple aspects. Production quality has improved markedly: the majority of footage from just a few years back is markedly dated. The TV has also become more agile in delivering stories by exploiting advances in connectivity. For example, news broadcasters are using multiple 3G and 4G channels simultaneously to deliver a high-quality feed from wherever there is sufficient mobile coverage, rather than having to wait for the satellite truck.

The distribution of television pictures has undergone profound change over the past decade. The majority of broadcasters in Europe have successfully migrated to digital terrestrial transmission, increased their HD offer and launched on-demand services. There has also been innovation in the financing of programming, with initial funding being raised from a variety of rights – from streaming on mobile to subscription video-on-demand in other territories – in addition to the first broadcast. Crowdfunding is also being used – it provided the money needed to revive Veronica Mars: fans raised $5.7 million to bring the title back to life.

Looking ahead, television will continue to evolve – as it has no other alternative. Change is likely to continue to be characterized by multiple increments, some taking many years to deploy fully, rather than dramatic change.

Online delivery of television programmes will become steadily more popular and more voluminous. Viewers will expect the quality of on-demand delivery to be similar to that offered by broadcast, even though the underlying technologies are very different: the Internet,after all, was not designed for real-time delivery of content. Broadcasters, SVOD providers and network operators will need to work together to architect networks so as to be able to replicate the broadcast experience.

Today’s television still largely resembles that from a decade back: channels, story arcs, peak programming timings are all constants. But at the same time, TV has become profoundly different, production quality has ratcheted up, formats are more refined, there are more channels, there is more choice over when and where to consume. The consumer’s response to this has been to largely carry on as before: the majority of viewers choose to watch in the living room, live, in the evening, with adverts, in the company of people, and with the TV tuned to the channels that dominated ten years ago; teenagers and older children living at home, choose to watch in their bedrooms, but on laptops now, and not on portable TV sets. Television has innovated and is adapting to the digital world, and for now, its consumers have largely chosen to stick with it. But things may be totally different five years down the line. Are TV channels ready for that revolution?


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