Future of TV
Before you begin reading any further, please know that this is neither a crystal ball into the future of TV nor do I proclaim myself an industry expert trying to paint the future of an industry- which every major tech company wants a piece of it. This is just a humble TV enthusiasts attempt of connecting the dots and imaging what the future of TV might look like.
Now to better understand where that future of TV lies, picture a 10 year old. He probably has a tablet and is watching his favorite cook show on it. Later he borrow’s his mothers phone to submit his vote for MasterChef Junior. By the time he reaches to college he would be watching or inviting his friends over to see someone play CounterStrike on Twitch or record his latest food creation for his own channel.
So the TV business is made up of two parts: the physical device and the ‘content’ delivered to the device. Though they sound very different and distinctive they are actually opposite sides of the same coin i.e. without great content the devise is a dumb terminal and without great viewing experience content can be boring.
The death of the physical device has been predicted for years as the web has claimed more of peoples time (facebook, surfing, texting etc.). But as the physical device has metamorphosed from a standalone screen to multiple size screen to emergence of VR headsets, the essence of a what makes a television i.e. device+content, it is here to stay.
Not to say that the device part is without its challenges. Steve Jobs in 2011, clearly called out the biggest challenges of innovating on the physical device . But I guess the emergence of VR (which was definitely after Steve Jobs passing) will change a bit of that.
However the interesting part of the business is the content side and the focus of my article (and referred as the future of TV). It is also where we see a lot of tech companies Amazon/Google/Apple/Netflix innovate.
The structure of TV content business is made up of distinct four parts: 1) Content (itself), 2) Consumption, 3) Distribution and 4) Discovery. We will look at each of the four parts in detail as each part gets disrupted.
1. Content
It is easily the third golden age of TV. The quality of the content is at an all time high and things only look to get better with more players and money being spent. It has never been a better time for artists creating those TV shows and the viewers to enjoy watching them starting with the Sopranos, Mad Men, House of Cards, Breaking Bad. Watch this fascinating talk by Kevin Spacey on TV’s renaissance and talking about ‘content’ being the key driver behind resurgence of TV. The 2014 NYTimes article by David Carr on the golden age of TV summarizes it best, particularly when he says:
On the sidelines of the children’s soccer game, or at dinner with friends, you can set your watch on how long it takes before everyone finds a show in common. In the short span of five years, table talk has shifted, at least among the people I socialize with, from books and movies to television. The idiot box gained heft and intellectual credibility to the point where you seem dumb if you are not watching it.
Side Note: I have not even mentioned the rise of live TV the likes of Facebook Live and Twitch that are already consuming peoples attention. They too will play a significant role in the future of TV content, its just that I don’t know how.
2. Consumption ( + Experience)
Apple predicts that the future of TV will be apps — well I disagree.
The future will see an emergence of immersive rich experience built on top of great content. For ex. a nature streaming service will let you explore the globe or seamlessly dive into a Wikipedia article on whales. Or a cooking streaming service will help you build a grocery list and automatically save it to your phone or order via Amazon Echo. Or a DIY streaming service will let you order a kit of supplies. Or an NBA streaming service will let you pick the announcers you want to hear or record your own with friends. The future of TV experiences will be more diverse, exciting and customized.
We are already seeing glimpses of it in the form of Amazon’s X-Ray technology. It is a matter of time when Amazon makes the technology an open platform, allowing developers to create the above discussed immersive rich experiences or unleash a new wave of interaction experiences.
The final piece of the puzzle in the overall experience of consuming content will be ‘virtual reality’ aka. VR. As Benedict Evans stated:
Someone said recently, only slightly flippantly, that you can divide the world into people who think that VR is part of the future and people who haven’t had the demo yet.
Storytelling in VR will be more impactful, more engaging and will become truly interactive.
Side note: customers consumption/viewing patterns are changing too. They no longer want to wait for an episode per week, but rather ‘binge’ watch the shows on Netflix/Amazon/Apple or Google. And if they don’t find it legally they are downloading (via torrents) or free streaming (on fmovies.se) to binge watch. Amazon & Buzzfeed created a funny video illustrating this new behavior.
And when the show gets over, they go into a #showhole
3. Distribution
The fundamental impact of the Internet has been to make distribution itself a cheap commodity. In his July 2015 post, Ben Thompson of Stratechery introduced the term ‘Aggregation Theory’ which I believe effectively describes the phenomenon ‘Great Commoditization of Distribution’. Ben Thompson describes how a significant number of the most influential technology companies (Apple/Google/Amazon/Netflix) of the past two decades have grown by effectively commoditizing distributors in product/service/content supply chains across a number of verticals including publishing, transportation, hospitality, commerce and media.
Netflix
Previously, networks integrated broadcast availability and content purchases. Netflix modularized broadcast availability by making its entire library available at any time in any order
Netflix integrated content purchases and customer management, enabling a virtuous cycle of increased subscription demand and increased content purchase capability
The above translates to:
In the past, studios make movies and partner with content distributors for global distribution in theaters, DVD outlets, pay-TV and syndication on local networks. Distributors maintain a complex global network and charge the content creators high fee for access to said network.
Netflix aggregates long form video content from dozen of studios and surfaces them to consumers via an intuitive user interface.
This means today TV is undergoing a new transformation. Powered by broadband Internet, the industry is now able to bypass cable operators altogether and sell direct to the consumer through OTT (over the top) packages. The impact on the business is already becoming clear, especially in the case of ESPN, as fees from cable operators start to dwindle.
This leads to the debate surrounding the cost of TV in the future. From an article in Punchcard Investing:
A third feature of the pay-TV industry is the big bundle…Aggregators with requisite leverage are able to force distributors to acquire both their most popular channels and their least popular channels in one big bundle…The result of the big bundle is that every subscriber is cross-subsidizing someone else’s viewing preference.
[Over time], The big bundle got more and more bloated. Most consumers watch only a small fraction of the channels they receive. They average USTV home now receives 189 TV channels and watches 17. This leads to frustration and a search for cheaper alternatives.
Combine this frustration with the well-publicized increase of cord-cutting and you get ‘The Great Unbundling: the doorway to a world where consumers pick and choose a handful of streaming services to subscribe to a la carte’. Everything on-demand. Only the content you want, none of the channels you don’t need. Hence, the fat, pricey cable bundle of 200 channels is fast becoming antiquated as slimmer streaming options emerge.
The pace of cord-cutting has not been as fast as many expected, but it has begun to quicken. The number of people leaving cable each year outnumbers those joining, and has done so since 2013. For a while the losses were modest, at just over half a million households in total in 2013 and 2014, out of 101m subscribers. Last year, however, traditional pay TV suddenly lost 1.1m subscribers.
The problem with an unbundled world is that it is expensive for the end-user. Again, from Punchcard:
If you tried to assemble your own bundle from available services on an a la carte basis, adding a $7 subscription here and a $15 service there quickly gets expensive. A 17-channel bundle selected a la carte could cost as much as a 200 channel bundle today.
So add me to the list of folks predicting that The Great Unbundling will be followed by (or perhaps replaced by) a Great Re-Bundling, where consumers are able to purchase packages of VOD services/channels from a distribution platform at a price lower than purchasing each of those services individually.
You can see early indications of this with Amazon’s Streaming Partners Program. Hulu also announced a free trial bundled with Showtime Anytime. YouTube announced YouTube TV. These distributors are the gatekeepers (the same way as Time Warner Cable, Virgin Media, etc. are the gatekeepers of cable bundling) and hold the keys to scalable distribution to viewers.
Amazon. YouTube. Hulu. Pay-TV providers. Smart TV manufacturers. Snapchat? It will be very interesting to see who else emerges as a gatekeeper in The Great Re-Bundling.
4. Discovery
The final piece of the puzzle is the discovery of the content or rather what to watch before your dinner gets over? But first we have to answer the most important question and perhaps a slightly subversive one: how do people actually want to watch ‘TV’ (or whatever we call it)? Hundreds of millions of normal people really do just come home, turn on the TV and watch whatever’s on — if you offered something less passive, do we really know how many would do it? That is, the idea that no-one would watch linear broadcast TV if on-demand worked ‘properly’ (whatever that might mean) is really just an assumption.
One way to solve this problem is by ‘curation’ or one could say, a list. Pluto.tv, a three-year-old American startup, offers free television over the internet on the assumption that many viewers are still couch potatoes at heart: they want to sit back and watch whatever happens to be on the telly. But the data is stacked against the above approach. Not only do viewers increasingly want to consume shows on demand, they also want to skip the ads. The Boston Consulting Group (BCG) projects that such “non-linear” television-watching in America will double to 40% of all viewing by 2018.
The other way to solve it is via deep tech. Content providers will have to engage in “content discovery optimization,” similar to today’s search engine optimization practices where content is continuously tuned so that it can be discovered by the broadest possible audience at the right time.This will need to go far beyond the descriptive show metadata and into parameters, such as sentiment of show, optimum watching circumstances (screen size, etc.) and shared creative heritage. And then build AI or ML models based of this data on what customers will want to watch. Netflix is the clear leader out here.
However I suspect the real winner will be someone following the mix of both or the middle path. Allowing customers to curate list which they can share or follow other curated lists. Then building machine learning models on interests and data to see what customers want to watch that evening for dinner? As Ben Evans rightly asks:
The really big question here is how TV viewing would change if you did move from the current model of TV as a largely undirected, passive experience, to one that required (/’allowed’) you to make choices. If you come home and turn on a random piece of generic light entertainment you’ll watch it, but you might never choose to watch it, much less search for it. So is that a bundling problem or a recommendation problem? Should we think of TV viewing hours as propped up by filler shows in the same way that CD albums were full of filler tracks, and that if we go to a fluid on-demand environment people might just stop watching that filler? Or would the right passive programming system — ‘Pandora for TV’ replace one passive experience with another, more tailored and targeted one, with the greater accessibility of long-tail content taking up the slack? Of course, a lot of TV channel branding and programming is about just this — in effect a lot of TV is ‘Pandora for TV’. Either way, this is really about unbundling shows from TV channels, not unbundling channels (or on-demand channel brands) from cable TV subscriptions. And (looking back to Netflix) how would that cascade back though the TV production system? How many fewer shows might be made? How would they be funded? And what would happen to the ‘golden age of TV’?
Reference Materials:
