Reflection MIPCOM2016 ; “SMELLS LIKE TEEN SPIRIT”
During the MIPCOM,YouTube’s Susan Daniels gave a keynote about how serious YouTube is about investing in content, like Netflix is. This was in relation to the launch of the YouTube Red subscription service. The brand is working with online stars like, as well as multi-channel networks and producers.
“YouTube is a place where individualism thrives, diversity flourishes, and where new content formats are launched every single day,” Daniels had said. “Our thesis is simple: Identify YouTube’s most engaging stars and top genres, and invest in the content that their fans tell us they want.”
I don’t know the strategy is right or not, however, I can say “The distribution of value across the supply chain is relatively stable but slowly shifting to content creators and rights holders.” For some industry players, the changing value of content is also coming at a cost. In the UK, for example, FTA channels have seen their sports content costs nearly double between 2008 and 2013. In the U.S., cable operators and other distributors have seen their content spending increase at a compound annual growth rate of nearly 10 percent between 2006 and 2012. Indeed, for many distributors, content investments will grow faster than sales revenue over the next several years, putting pressure on their margins.
It is perhaps not surprising, then, that the distribution of industry value – while still split roughly equally between the different player types – is showing signs of a shift. While the overall pie continues to get larger, content creators and rights holders are seeing their relative share grow, from 33 percent of the total in 2010 to 36 percent in 2014. These changes might not be dramatic, but they do signal a potential rebalancing of power – one that will enhance the bargaining position of content creators.
As Nichlas Negroponte mentioned last year in Tokyo, the connectivity would become the basic human rights and resources in the 21st century. The power also impacted to the media industry. Joachim Stephan, senior partner and MD of The Boston Consulting Group noted that free-to-air and pay-TV relied on the same structure: content production, content aggregation and content distribution, with around a third of the value generated in creation and another third in aggregation. In the new online/mobile value chain, there are some disruptive changes afoot.
I personally think that the BCG’s Industrial evolution scenarios on MIPCOM 2016 was the best take away from the event. Therefore, I try to wrap up its key scenarios. For me, it reminds me something basics about our industry. Yes, it is “smells like teen sprit”.
Scenario 1: disruption driven by the rise of multiplatform navigation.
Historically, the key mechanism for content discovery has been the electronic program guide. These guides, however, have been and remain platform-dependent. A Subscription TV guide, for example, generally does not direct users to online content. More recently, social recommendations and referrals have also played a role in the discovery of content, but this is an incremental evolution rather than a wholesale change in the way consumers nd content.
The opportunity is clear — consumers watch content from far more sources than ever before, but there hasn‘t been a single platform to offer full navigation and curation of that content. As some traditional infrastructure-based distributors invest in extending their navigation into the online ecosystem — covering content they provide through the traditional set-top box as well as content they don’t — they are attempting to deliver a single interface through which to access all of the programming that interests them (and access all of their subscriptions as well). The traditional distributors would remain consumers’ “front door” to video content.
Distributors who can make this transition will be well positioned to preserve their standing as the primary gateway to content. They will likely gain a strong position, too, in their negotiations with networks on carriage fees. Content creators and rights holders also stand to benefit, since their content will now be easier to access. But online content aggregators may see their power diminish. Traditional distributors will now have the primary relationships with viewers as well as visibility into their cross-platform viewing behavior. This could give them a significant competitive advantage over online-only rivals.
Scenario 2: disruption driven by exclusive entertainment content.
In this scenario, both traditional distributors and online aggregators invest in exclusive sports and entertainment content. Under this strategy, they utilize high-profile content available only via their service to differentiate themselves and drive customer acquisition. Already, infrastructure-based distributors, such as British Telecom and DirecTV, have made high-profile deals with sports leagues to carry exclusive content. And online aggregators, such as Amazon and Netflix, are increasingly creating their own original programming.
Clearly, this scenario will have a positive impact on the owners of sports and entertainment content. With distributors and online aggregators battling for exclusive content — and competing, too, with other players who want it — the prices for top content will rise. For smaller distributors and aggregators, this doesn’t bode well: if they can’t afford enough exclusive content, they risk losing market share. But for larger players, the benefits — if they invest in content wisely — can greatly out- weigh the costs, increasing their subscribers, and with them, their importance in the value chain and their bargaining power with networks.
Scenario 3: disruption driven by direct-to- consumer strategies of content creators and broadcast networks.
One of the key characteristics of the online ecosystem is that traditional delivery pathways — terrestrial, cable, and satellite — are no longer necessary to get content to viewers. In this scenario, content creators and broadcast networks take advantage of that fact and deliver their programming directly to consumers via the Internet, bypassing infrastructure-based distributors. Doing so, however, isn’t without risks. Among other things,these players will no longer have certainty about revenues, and viewer acquisition efforts will add to their costs. Then there is the matter of investing in Internet connectivity for reliably delivering video content — critical since that content will no longer be delivered by traditional distributors. Yet for those who do take this route, there may be an opportunity to capture more value from their viewers, as content-related revenues will not need to be shared with distributors.
If this scenario succeeds and enough content creators and broadcast networks can deliver their own content, the impact could be severe for traditional distributors. They would likely see cord cutting accelerate and their importance in the value chain diminish. Online aggregators will likely lose subscribers, as well, since users may be able to cherry-pick enough direct-to-consumer offerings to make their services unnecessary. Yet even for content creators and networks, the impact of this scenario will vary. Those that have enough strong content and a strong brand — the HBOs — will have the best chance for success. Those that don’t will struggle with this model, having to invest too much to attract viewers or having insuf cient content with which to woo and retain them.
Scenario 4: disruption driven by online content aggregators moving into linear streaming of broadcast networks.
Even as online viewing has gained traction, traditional distributors have enjoyed one key advantage: live television. Many viewers who would otherwise cut the cord don’t, because despite all of the original series and past TV seasons they can stream online, consumers’ desire to watch live programming (whether the premiere of a new TV episode, a newscast, or a sporting event) remains robust. In this scenario, leading online aggregator ship that advantage by licensing network content from key FTA and Subscription TV channels and combining it with their own nonlinear offerings to offer the best of both worlds.
If online aggregators succeed in this endeavor, they could potentially replace traditional distributors in the content value chain (hence, this is the worst case scenario for infrastructure-based players, especially those without strong broadband or non video businesses). Smaller online aggregators, however, will be less likely to play this game, and they run the risk of disintermediation, too.
Market-specific factors will play a key role in the likelihood of these scenarios. The more mature video markets, such as Germany and the UK, where broadband is readily available and non-linear viewing already has become popular, are much more likely to see direct-to-consumer offerings and disruption from online aggregators. Yet markets where online video capabilities are less developed and consumers are still largely watching linear TV are a quite different story. They provide traditional players with an opportunity to proactively shape the market, and solidify their own standing, by pursuing a navigation or exclusive content advantage.
In almost every case, the role of content — who creates and owns it, how it is packaged, and who delivers it — is at the center of determining how the industry will change. This will shift value to content creators and rights holders in all scenarios and in all markets. In some instances, it will also give these players the ability to shift the direction of a market’s evolution toward a specific scenario.Moreover, the execution of the strategy requires a significant change in mind-set and culture — both among a management team and across a large organization that has long been focused on building and protecting core business structure.
With the three major American SVOD platforms competing for users in Japan, the country is a excellent case study for the future. Hulu and Amazon Video have both stated interest in expanding to other international markets where Netflix is already present. While those two platforms may experience a boost in demand from their release, from Japan’s example we conclude that Netflix may not have had such an increase upon its release, as its originals are already known worldwide. Important partnerships, such as Hulu’s acquisition of HBO’s content, can significantly increase the average popularity of a platform’s catalogue and therefore its appeal to consumers. Dramas are the most popular genre for the digital original series imports; perhaps the humor in comedies does not translate well into other languages, whereas dramatic storylines tend to be more universal. As more SVOD platforms expand into more markets, Japan will become an important example for their future strategies.