What is the Future of TV?
We came across an article written by Jason Hirschhorn posted at LinkedIn titled 7 Deadly Sins: Where Hollywood is Wrong about the Future of TV. It is a very well written, thought provoking article with a great deal of supporting data. And charts. Lots of charts. This is our re-tweet/re-linkedin of Jason’s post, with a bit of our own reaction to and discussion of his points.
“Over the past few years, the television landscape has been as dramatic and character-filled as the best of Game of Thrones episodes. To that end, it should come as no surprise that there have been threats that have gone unseen or under-addressed by the major and minor television networks. After a few lively conversations … we came up with “7 Deadly Sins: Where Hollywood is Wrong about the Future of TV”… Not every threat applies to every network – nor are they equally menacing – but as a whole, we believe they’re critical to both understanding and planning for the future of television.” – Jason Hirschhorn
1. By the Time You’re Ready for OTT, You’ve Already Been Supplanted
The article surmises that the traditional TV networks are still playing a wait and see game with respect to Over-The-Top content delivery. Not eager to disrupt the existing revenue model, they will hold onto their cash cow for as long as possible before making any drastic shifts in delivery. But this is a risky strategy. While they wait, the OTT providers are growing, expanding, generating more content and gaining viewers. It might even be too late already for some of the traditional providers.
“In the first quarter of 2015, Netflix’s 41M US accounts averaged nearly 2 hours of video on the service each day – making the “network” bigger than two of the four major US broadcasters and twice as large as the largest cable network. At its current pace, the OTT giant will become the most popular video provider in the US by the end of 2015. Not to be forgotten, Amazon Instant Video and Hulu are roughly 75th and 100th largest respectively, and continue to grow quarter over quarter.”
We agree, this is certainly a risky move, but we do see the networks starting to embrace OTT. In fact, CBS’s Video Streaming Service Now Offers Live TV In Over 60% Of The U.S. Live TV is something the big OTT providers still aren’t doing. Nothing live on Netflix, Amazon, Hulu, etc. With the advent of time-shifting, live may not be all that important anymore, except for events and some contest shows. As long as traditional TV is the only place to get the content live, at the time it is occurring, they still hold a very strong hand. It’ll all go OTT eventually. But if traditional TV can hang onto the live content, or if Netflix and Amazon ignore that segment, traditional TV will still be in high demand, either via OTT or the good old living room set.
2. The Future of Millennials and Pay TV
Here the article discusses how the younger generations may not reach the point where they want to buy into traditional TV. The theory is that they all will eventually, when they make enough money, have a family, buy a house, etc. But what if that isn’t true? What if they decide the right way to consume content is the same way they’ve gotten used to since adolescence? What impact would that have on traditional TVs revenue model?
“However, Millennials and Gen-Z’s are first generations to have these non-traditional substitutes available – and they show levels of engagement with this content that far exceeds that of traditional TV. As a result, we truly cannot know what the future holds. What we do know is that young audiences love these substitutes today.”
This is a genuine risk. Our children love the big TVs and projectors we have, and they demand watching movies and sports in the traditional way, however they watch a ton of content on their phones and tablets. Braden’s two year old is just as content with an iPad as he is with a 100” screen. And when they grown and have kids of their own, their kids will probably be fine with tablets too, so why go traditional TV?
There will always be the enthusiast, the one who wants a big screen and traditional TV for movies, sports, etc. But could this become the exception, not the norm? During the 2000s, pay TV service penetrated nearly 90% of US households. Imagine if even half the households in America didn’t have a traditional TV set. This would be a huge cultural shift, but would also be a gigantic blow to traditional TV. There’s no reason the big networks couldn’t go OTT and thrive in that model, but they’re behind.
3. Outdated Organization Model and Priorities
The argument here is that the model of thousands of channels to try to appeal to anyone and everyone at any time of the day is broken. Pay TV providers continue to add more channels in an attempt to gain more eyeballs. Love golf? We have a channel for that. Love game shows? Yep, we have that too. But with these extra channels comes a substantial increase in price. Something that is driving millions to cut the cord and drop traditional pay TV.
“In a digital environment, “TV networks” face none of the limits of the linear television model. There’s no limit to the amount of programming a network can offer, no cap to the number of genres and demographics it can serve, “no one size fits all” lead in show and no single performance metric. Netflix, for example, is targeting TV and film viewers of all kinds – even kids – under a single brand. This not only creates a simpler consumer offering, but provides Netflix with numerous strategic benefits, such as the ability to program for the individual, rather than a specific channel or genre. Though this approach defies years of industry beliefs around building audiences and launching series, the results speak for themselves. In the first quarter of 2015, Netflix delivered more minutes of video in the United States than two of the four broadcast networks, twice as many as the industry’s largest cable network (The Disney Channel) and more than the bottom 117 (of some 200) cable networks combined. What’s more, this figure is up an estimated 45% (or 38 billion minutes) year over year.”
Netflix represents both the broadcaster responsible for generating content and the pay TV provider, like a cable or satellite company, responsible for aggregating it and getting it into your home. This advantage cannot be overstated. CBS generates enough content for their network. A standalone CBS app can’t compete with Netflix or Amazon. Same with NBC, ABC, FOX, and others. Either the broadcasters will need to work together to provide a single interface to aggregate all the content in once place, or they will continue to be outpaced by the large digital providers.
4. “Winner Takes Most” Competition
This point builds on number 3 and expands it somewhat. The thinking is that all networks benefit in the current model by being in the same distribution package. You can’t get just Viacom shows or just Time Warner shows. You get them all, whether you like it or not, and everyone gets paid, whether they deserve it or not. However, online the networks are currently running as separate apps, almost like a la carte programming. Users are free to pick what channels they pay for. This could really hurt traditional TV and make it very difficult to pick up new viewers.
“The average Pay TV household today watches roughly 210 unique hours of television each month, spread across only 17.5 of the roughly 200 channels it receives. Given the surplus of content available and the breadth of content offered by each of the major network groups (which count 13 to 25 24-hour channels apiece), many households will likely find they need only 2-3 consolidated offerings to meet their video needs. What’s more, the friction involved in paying for and managing multiple apps will give subscribers an incentive to watch more of the content they’ve already paid for instead of adding a third or fourth network for another $10 or $20 each.”
This is a very interesting point that actually applies to any a la carte programming scheme. If you have to pay more to add a channel, will you really do it for just one or two shows, or will you instead find other shows you can enjoy on the networks you’re already paying for? This could have a dramatic impact on traditional TV’s move to OTT. Competing with the total volume of content available at the digital providers isn’t going to be easy. You may be able to pick up a few viewers who really love your shows, but probably not nearly as many as who would have watched something simply because they stumbled onto it while channel surfing.
5. The New TV Bundle
“Historically, the TV business has been an end in and of itself, but as Disney’s Marvel Cinematic Universe has demonstrated, video can also play a far more lucrative role: establishing or supporting a broader storytelling platform. In fact, many digital-first content companies already depend on brand extensions (e.g. events and apparel) to make video ends meet. As the TV bundle is reconstituted and diversified, what role will pureplay TV networks (as opposed to production companies) play? How much value will they be able to capture? How many can survive?”
This one feels like a non-factor. We may have edited the list down to the 6 deadly sins. There’s nothing preventing the traditional TV providers from doing the same bundling available on the digital-first options. Sure, they need to figure out that model, but the only risk here is that they refuse to do so and try to just move the same pureplay content delivery style to OTT. Doing that would be foolish.
6. Loss of the “Middle”
This sin points to the fundamental difference between traditional TV viewership and on-demand viewership. In the traditional model, total viewers is king. Ratings are all that matter. Sure ratings in key demographics are important, but you really just want to attract as many viewers as possible. In the on-demand paradigm, user devotion or dedication is what matters. How passionate your viewers are, not how many there are.
“This shift has profound consequences for content monetization – and not just because it challenges decades of network television performance metrics (i.e. ratings). First, true hits will be more valuable than ever before (and thanks to OTT distribution, they’ll be bigger, too). Second, content that connects with a passionate but niche audience becomes an asset – not a missed opportunity or failure that needs to “broaden its base” to be renewed. However, the remaining content (shows people watch “if it’s on”, but never specifically look for or plan around; broadly targeted but “well-rated” series) will be severely squeezed. Not only does this “middle” content represent the majority of programming today, it dominates the industry’s most lucrative revenue stream: syndication. Similarly, the shift to on-demand consumption means that middling content can no longer rely on a strong lead-in program to boost or incubate its ratings. Finally, this tightening will also make select genres particularly hard to program. Much has been said about the death of the sitcom, but comedy tends to be the most particular of tastes. In the on-demand era, comedy lovers no longer need to settle for “I guess that’s funny” – making sitcom audiences inevitably small in size.”
This is a very interesting point. The article quotes Amazon Studios head Roy Price and his claim that a lesser watched show with a more devoted audience is more important to him. He isn’t charging for advertising, his viewer has already paid for their subscription. He needs to ensure that user will continue to renew their subscription, which only happens if they have something on the service that they really want. If they’re somewhat lackluster about the content, they won’t be as likely to return. This is true in our own lives. We watch a bunch of decent shows because they’re there. But if we had to pay for them, we might reconsider.
7. The Original Series Crash
“In 2014, there were roughly 400 original scripted series on television, up from only 125 at the turn of the century. Though this growth is often attributed to the proliferation of television networks, the majority has stemmed from what might be called the “AMC Effect”. For nearly 25 years, AMC existed as a stable, if unambitious Tier 2 cable network. Ratings were reliable, but unexciting; content was strong, but also old; profits reliable, but far from lucrative. With the start of its original series (Mad Men in July 2007, Breaking Bad in January 2008), the network began a rapid turnaround that transformed it into one of the strongest, most prestigious brands in cable. With this newfound fame came increased ratings and added MVPD negotiating power that helped the network grow ad revenue by nearly 200% and affiliate fees by more than 75% over the next seven years.”
“Solving the original series crunch will therefore require a profound change to the television business model, as well as its key performance metrics (not that this isn’t already overdue #3). Consider the programming model today. For most of the major networks, programming efforts and spend focus on the “primetime” window, during which the US television audience typically peaks. Though the duration and type (scripted v. unscripted) of content varies, it’s the timeslot that defines the number of original series. For digital video providers such as Netflix or Amazon, however, there is no “right” or “required” amount of programming. Are 12 series enough? 13? 20? 40?”
Obviously original content isn’t going away. But if the traditional providers can no longer rely on the primetime window to artificially boost the popularity of a show. And they can’t count on strong lead-ins, they’re going to have a glut of unsuccessful shows on their hands. This, for us the viewers, could be awesome. Shows will survive based on how good they are, how many dedicated fans they can draw. Shows we’ve loved, like Alcatraz and Backstrom, would have a high chance of survival, while other shows that have clearly outlived their prime, would be eliminated. We don’t want to see shows eliminated, but if that’s what it takes to keep the good ones, we’re all for it.
Download Episode #689