The State of Digital Nonlinear Editing 4

What is driving the incessant move to IP and to virtualized infrastructures? How will those transformations affect the landscape of M&E manufacturers? What will it mean for the companies who have provided products and solutions for the broadcast and post industries? And, you may well ask, ‘Why do we care?’ and ‘How is this pertinent to the DNLE discussion?’ Okay, fair enough. But, if you’ll bear with me — the driver of technology is not because of what a manufacturer desires to make available to the customer. That power — the ‘we decide what product(s) you get and when you get them’ has moved from the manufacturer to the industry drivers. If that sounds funny or suspect, allow me this example:

Television programming for international distribution, in the old days, used to be based on a three-week schedule. Once that program was done, it would be available in Italy — or for that matter, Australia — three weeks later. Satellite transmission of the content or shipping videotapes were the methods for both aggregating as well as distributing content. Today, worldwide availability happens within 48 hours — out of an L.A. post facility on Friday and in Australia and almost everywhere else by Sunday. And, with 105 different format permutations (and sometimes many more), moving that much content in so little time and doing so in a cost-effective manner is what led to the rise of terrestrial IP aggregation and distribution solutions.

Now, it’s not as if the vendors of satellite or leased lines for video transmission were lining up in the streets to creatively destroy themselves. But if you were a major content owner and you were paying that monthly nut for OC-3 and OC-48 lines which were unbelievably overprovisioned and underutilized, you were looking for solutions. The dirty little secret is that a lot of content and service providers — when they weren’t using those lines to deliver real-time video — were using deadly (yes, I said it, deadly) FTP to send content via those expensive lines.

But that’s all over now — the bulk of the highest value-per-second primetime content is traversing inexpensive links via secure, encrypted, UDP-based aggregation and distribution solutions. A bunch of companies — you know them — Aspera, File Catalyst, Signiant to name a few — (and also some open source UDP code and talented engineers) have killed it and a lot of content providers and service providers have benefited from decreased CapEx and OpEx and have been able to fulfill the pressing industry demand — content delivered where it needs to be in the format it needs to be in because you — the consumer — are out there watching in continuing evolving ways (Yes, I know, unbelievably long run-on sentence; don’t chastise me). And the incumbents — the leased video line providers and the satellite services providers were late (if at all) to the changeover.

Creative destruction is all around us — technology, business models, and for content providers and service providers — there are amazing opportunities and challenges to go along with this terrific journey we are experiencing. And whether you creatively destroy yourself (well, not you, unless you’re a complete train wreck) — something will come along to make you either do so or you’ll be left behind.

Okay, enough bluster — time to put some meat on this one. Follow me for a second here.

Let’s look at some numbers* from 2016:

116.4M, 96M, 17M, $106B, $13.41B, $34B and, finally, -2.8%, -13.9%, -16.8%, 110.2%.

Hmm… now let’s take a closer look:

116.4M Television Households

96M Pay Television Households

17M Households who get their television over-the-air (free!)

$106B in Cable TV Revenue

$13.41B in OTT Revenue

$34B in Network Programming Expense

And, more importantly, the trend:

The Pay TV Households: 100.9M (2011), 100.8M (2012), 99.3M (2013), 98M (2014), 97.2 (2015), 96M (2016), and 94.6M (projected 2017).

The Households who get their TV Over-the-air: 11.3M (Q412), 11.3 (Q413), 12M (Q214) and 17M (Q316).

Cable TV Revenue: $85B (2012), $91B (2013), $96B (2014), $100B (2015), $106B (2016).

OTT Revenue: $2.48B (2008), $2.77B (2009), $3.18B (2010), $4.18B (2011), $5.24B (2012), $6.57B (2013), $8.27B (2014), $10.48B (2015), $13.41B (2016).

Network Programming Expense: $22B (2011), $24B (2012), $27B (2013), $29B (2014), $31B (2015), $34B (2016).

Annual Growth of Advertising Revenue:

Television: -2.8%

Newspaper: -13.9%

Radio: -16.8%

Mobile: +110.2%

While there may be no huge surprises here, it’s important to be mindful of these trend lines. Pay TV Households are down. Put aside the issues of whether the pundits are right or wrong regarding cord-cutting, cord-nevers, skinny bundles, switching, etc. The numbers are down.

Over-the-air households — growing and not an insignificant total number — that’s almost 19.8 million households who do not pay for broadcast television. And if you could get them to pay the average pay television bill of $65/month? Well, that’s $780 buckaroos a year multiplied by 19.8 million households. And that is very significant…So where are they going for their non-broadcast programming?

Cable TV Revenue — Growing. But the question here is deceivingly straightforward — can it be sustained if subs are lost?

OTT Revenue — Well…the numbers tell the story…but behind those numbers, comes a rolling ball like that big one in Raiders of the Lost Ark — what’s the associated content cost burden?

Networking Programming Expense — an echo of the flipside of the OTT revenue issue — content costs are growing faster than other operational expenses.

And, finally, look at the percentage growth of mobile advertising revenue. Sure, we all well understand that mobile ad rates and television ad rates and the CPM behind those rates are quite different. However, we’re looking at annual growth rates and nothing — nothing — is close to the growth of mobile. Better have that in your strategy whether content provider or service provider.

Next time, we’re going to look at the disruptors — the Hypergiants — and we’re going to see massive war chests of cashola, spectacular YoY growth, and we’ll see where the real power lies — With the Content Providers? With the Service Providers? Or with the Disruptors? (Hmm… And what did Facebook do on the first of February and why did they do it?)

*Sources include: Adweek, Business Intelligence, comScore, eMarketer, Experian, Facebook, Federal Reserve Economic Data (St. Louis Fed.), Forbes, Gartner, Google, IAB, KPCB, Mobclix Exchange, Morgan Stanley, NCTA, Open Mobile Media, SNL Kagan, Statista, Telefonica, USA Today, USC: ICTM, The Hollywood Reporter, Vivaki, Zenith Optimedia.