The Content Wars — Episode 3: New Beginnings?

Quo vadimus?

What really decides consumers to buy or not to buy, is the content of your advertising, not its form
— David Ogilvy

It is interesting to think about how this industry will evolve. The two criteria I use to think through this are the two I mentioned in my earlier post:

  • Directness of the conduit and
  • Individual preference data

Here’s a quick graphic illustrating that with the caveat that it is not comprehensive and I’m using a few key players to illustrate the strategy.

Industry players — incumbents and challengers

Netflix, Amazon and Google are obviously in the top right hand quadrant as they have the conduit as well as the detailed data on users.

Cable companies

Cable companies are in the top left quadrant and they obviously would like to move to the right. The challenge facing the cable companies (Comcast, Verizon and AT&T) is that they have the conduit but limited access to user preferences. Which means they’re starting from scratch. However, given that they have a direct conduit in place to consumer homes, they can catch up quickly if they so choose. They realized this and began making moves in that direction a few years ago but are taking different approaches.

Verizon, for example, has been making moves into the acquisition of consumer preference data with its acquisitions of AOL for its adtech platform, supercookies and its proposed acquisition of Yahoo! They had been blocked by regulations introduced in the Obama era but that roadblock is removed now that that privacy rule has been repealed.

Comcast on the other hand seems to have taken a content focused strategy with its acquisitions of NBC Universal, Dreamworks Animation (which includes Illumination Entertainment — the creators of Despicable Me and other huge hits).

Cable companies are however, are still limited by the fact that the conduit advantage they have here in the US does not extend to the rest of the world. Even in the US, thanks to Google’s push for encryption on all webpages, they can only know which site you’ve visited and not what you did in that site. That data is still only available to the site owner and the trackers they use i.e. Google (interesting, no?). The opposing strategies taken by the two key players are interesting to note and we can take bets on which one will win. My bet is on Comcast as they seem to understand that content is ultimately the key.

So what they likely to do?

  • Buy more content organizations: More purchases like Comcast’s purchase of Universal but a more focused effort on content integration and gathering consumer preference data.
  • Start their own content arms: This is possible but unlikely as they are just not setup for it. M&A would be the preferred approach with those organizations allowed to operate independently.
  • Focus on distribution globally: Continue to be the direct conduit but do so globally. So expect them to buy locally focused distribution in other parts of the world. It is very likely that the initial approach they would take would be one of providing software platforms for cable providers — leveraging the content agreements they already have in place in other parts of the world who are also worried about the impact of Netflix on their businesses.
  • Offer specific channels with content sourced from Netflix, Amazon and others: Why not? If you can’t beat them, join them or at least partner with them. Both could benefit from it — Netflix by opening up an additional revenue stream and a source of potential subscribers and the cable companies double dipping into the conduits they have in place. Comcast seems to have already started down this part with the integration of Netflix into its X1 service.

Broadcast channels

CBS and NBC (as a proxy for traditional TV channels) have a bit more of an uphill battle here. They do not have the direct conduit and by the nature of their business model i.e. linear TV, the brand associated with content belongs to the shows or in other words, more people prefer the show over the channel that it ran on. They realized this of course which is what led to partnerships with the likes of Hulu and more recently, taking the lead from HBO, the launch of their own channels available through Roku, Amazon Prime and direct at an additional subscription price. This seems to be an attempt to copy the paywall approach taken somewhat successfully by news organizations but it seems doomed because of the reasons I mentioned earlier — the content they broadcast has its own brand, they have no conduit to the consumers nor do they have any data about their users.

So what they likely to do?

  • Use Netflix, Amazon and others as content channels in addition to traditional TV: A CBS branded show on Netflix? Again, why not up-end the traditional model and see how it works. Not to mention the ability for CBS and others to reset consumer expectations around paying for content generated/paid for by traditionally “free” channels.
  • Begin branding their own content — This has to happen for all the reasons explained earlier

Facebook and Google (and maybe Snapchat)

Excepting Google, the one other company which has the conduit as well as detailed preference data is Facebook and its sheer scale dwarfs the others. Snapchat is a smaller player snapping at their heels but it seems to have a better handle on future consumer trends.

So what they likely to do?

I would posit that we should expect to see Facebook Video (or some better branded version thereof) soon. Similarly from Snapchat. Essentially, expect these two things from these players:

  • Facebook Video (and a similar variant from Snapchat)
  • A new form of content tailored to their consumer profiles.

This tailored form of content is likely to be:

  • Short (5–15 min) bursts
  • Well produced
  • Mobile focused
  • Strong but personalized story lines
  • Binge-able i.e. 10 episodes of 10–15 mins each all released in one go similar to Netflix.

Given that Google has both the conduit and preference data, its move into paid programming aka YouTube Red, was to be expected. What is unclear is how that translates to traditional TV. Cord cutting is a thing for sure but we all need to understand that cord-cutters are not the majority. That has to be factor for organizations such as Google where the US is just one market.

If Facebook and Google take the long view, then this is an opportunity for them to redefine what TV is. I would argue they should focus on that especially in non-US markets.

So in summary, we live in interesting times. The challenges faced by news organizations are now increasingly pertinent to other media companies. The same companies that disrupted newspaper companies are now in a position to disrupt TV and movies as well. I’ve laid out some possibilities but who know what the future will bring but I’m very excited to find out. Now excuse me while I binge on Netflix for a while.

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