The way in which people consume video content is changing. The channel mix is shifting, with rapid declines in live TV watching and a rise in on-demand viewing. This brings dilemmas to broadcasters who need to protect their advertising revenues and telecom operators who need to explore what new possibilities emerge. In this article we discuss three ways to play the game in video.
Subscription video on demand platforms are growing rapidly in the Netherlands. Netflix has achieved good commercial traction (nearly 2 million subscribers at the end of 2016) and Amazon is trying to follow suit with its Prime offering, launched in December 2016. The amount of VOD content has increased much faster than the additional time spent watching TV content.
Not only has the amount of time watching online content increased, but viewing habits have also changed. Recently, the go-to device shifted from TV to smartphones, tablets and other mobile devices. According to the Ooyala Global Video Index, mobile video viewing has reached an all-time high, with 54% of all videos being watched on mobile devices in Q1 2017 versus 42% last year.
Video’s surge can also be seen in the tremendous popularity of vloggers. The most popular Dutch vlogger, “Kwebbelkop”, has 7.1 million subscribers on YouTube.
His most popular video has 18 million views. Compare this to the 2 million viewers of the 8 pm evening news show, NOS Journaal. But Kwebbelkop’s popularity pales in comparison with PewDiePie’s, who has over 54 million subscribers worldwide, or the music video “Despacito” (by Puerto Rican singer Luis Fonsi, featuring Daddy Yankee), which has generated an impressive 3.1 billion views so far since its launch early this year. These figures exceed previous YouTube blockbusters like “See You Again” and “Gangnam Style”.
The dilemma for broadcasters is how best to satisfy consumers’ rush for instant gratification and remain relevant when viewers are increasingly spending more time away from linear TV, thus jeopardising their advertising revenues. For telecom operators, the question is what new opportunities may emerge in this changing video landscape.
We see at least three ways to play the game in video:
1. HBO model
The first way is the HBO model. This involves building up and managing an extensive library of high-quality content and generating revenue by selling direct subscriptions to all possible viewers in a given market, regardless of the customer’s telecom subscription. While telecoms may choose to restrict distribution of content bundles to their own customer base to boost their broadband or TV market share, this inevitably means dividing the video revenue potential by a factor of 2 or 3, depending on that market share. In addition, content owners may choose to explore hybrid models in which consumers pay lower subscription fees for allowing ads. Essential is the ability to lock in subscribers with sufficient high-quality content that is constantly renewed. This means having at least a few blockbusters (e.g. Game of Thrones, House of Cards) every year. This content does not necessarily need to be proprietary, especially in a globalising media context in which it is becoming increasingly difficult to stand out.
2. Multi Carrier Network
Second, media players can explore MCN (Multi Carrier Network) opportunities. These are OTT ad-supported models that package content by online talent and professional content (for example, user-generated content in collaboration with YouTube stars or sport programmes presented by young and promising talent) and make it available through global platforms like YouTube.
MCNs have multiple channels serving to distribute diverse types of online content. Some MCNs like DiagonalView (ITV, Daily Mail, Reuters) produce their own content rather than aggregating third-party content. Fullscreen achieves 4 billion video views each month and was acquired by AT&T last year. Local examples in the Netherlands include RTL MCN, Social1influencers SBS, and OnLane. In this model, the key is to have vast amounts of content that is easily accessible and constantly renewed. This generates enough reach to maximise the amount of money that can be made with advertising.
3. Direct subscription
The final option is to offer specific content, for example an OTT sports channel, in a direct subscription model. Here the key is to maximise reach among the licensed target group. While pay-per-view has yet to catch on in the Netherlands, sports packages have become relatively popular. Smaller scale investments in niche content may be justified. Niche OTT video can address a smaller group of (international) viewers with a specific interest. Companies and institutions can do away with telecoms, broadcasters and OTT channels altogether and go direct. The Wiener Staatsoper, for instance, offers broadcasts of selected opera and ballet performances around the world using an OTT model that they manage independently. Performances can be viewed live (€ 14) or on demand (€ 5).
For these models to work, two key factors are vital. The first is that there must be sufficient scale or, more specifically, customer reach. Reach determines the content-generated revenue potential and hence profitability. The second factor is the growing risk of failure owing to the rising volume of video content and series. A portfolio approach is needed to hedge this risk, and that requires substantial investments in a broader library of content, as opposed to an opportunistic, ad-hoc investment in a single series. To avoid a vicious circle, players should keep close tabs on how much content they require to hedge the risk. This may rule out any of the cited video models for smaller players.
Smaller telecom operators can play the video game by making a wide variety of content available to the widest possible audience through an intuitive and compelling interface. Larger players can also pursue this route alongside the video models cited above. Eventually this boils down to a battle for user experience, which is about building an appealing, easy-to-use interface that clusters all relevant content available.
In addition, telecoms should develop an effective engine that is able to provide the user with content recommendations. Consumers increasingly expect to be surprised and delighted by a personalised offering of what they consider enjoyable content. Because serendipity is important, telecoms should balance recommended content with suggestions for more mainstream offerings. The recommendation engine should work across different content platforms, from broadcast TV over VOD to Netflix or Amazon. Here is where telecoms can outdo the recommendation engines of the Netflixes and YouTubes of this world. They need to pursue open partnerships with third-party content providers allowing them to incorporate the OTT video content in their recommendation engine.
Finally, adding a context-specific dimension (location, time, device) to recommendations can allow telecom operators to get the jump on smart TV providers, which are building similar capabilities.
The powerful desire for instant gratification is driving a huge viewership potential for video. In an increasingly global video world, however, the jury is still out on which models can really generate significant revenues for domestic telecom operators and media companies. Carriers can play a role in bringing together multiple sources of content and in helping consumers navigate this landscape. No-regret moves for telecom operators include innovating open, easy-to-use interfaces that help consumers navigate content and cross-platform recommendation engines that work across devices. The time to make these moves is now, before smart TV manufacturers and global OTT players start to fill this space.
Partner Strategy&, PwC Netherlands
Tel: +31 (0)88 792 29 36
Senior Associate Strategy&, PwC Netherlands
Tel: +31 887922874